Preface
Congratulations! You have taken the first step towards achieving the financial literacy most people fail to contemplate. This credit management manual will be your financial survival guide, regardless of your credit situation. It is important to follow the instructions provided within this manual in the manner prescribed, in order to achieve optimum results. This manual is designed to educate every reader on the topic of credit, and convey step by step instructions to obtain the highest credit score possible, thus restoring financial security to your situation.
Equifax, Experian, and Trans Union, etc, or credit reporting agencies (CRA’s) were created for the purpose of assigning risk to each and every consumer to ease the application and approval process for obtaining credit. Unfortunately, due to many factors, a large proportion of credit reports contain errors. These errors are very costly and will increase your interest rates on your home, car, other lines of credit, increase the amount you pay for insurance, decrease your chances of gaining employment, or prevent you from obtaining credit altogether. It is nearly impossible to avoid the need for utilizing credit, and absolutely critical to maintain a healthy credit score to pay as little as possible for your privilege to borrow.
Let’s face it, the bank’s profit increases for every point your credit score decreases. Even if you are only able to achieve a little success in restoring your credit, it will go a long way in the years to come. The goal is to keep as much of your hard earned money in your control and not hand it over to the banks.
The process of repairing your credit is not a mystery or a magical formula, rather it is a finite science, much like accounting; there are rules and laws, and when applied properly can benefit you immensely. Our focus will be to face head on the forces that work against us, using the laws and rights we have been afforded, to verify the accuracy of what is being reported. It is important to understand that I do not advocate the shirking of legitimate financial responsibilities in any way, and fully support the notion of living within one’s means by using a realistic budget. Let’s get started !
TABLE OF CONTENTS
Understanding The Bureaus……………………………………………………….1
Your Credit Score….………………………………………………………………..3
The Dispute Process………………………………………………………………..8
Templates…………………………………………………………………………….19
Statute of Limitations………………………………………………………………..44
Website Reference Toolkit………………………………………………………….46
Understanding The Bureaus
Credit Bureaus were created in the late 19th century to assist businesses in assessing risk when advancing products and services to other businesses and individuals. Although they have evolved and adapted as the years have passed, their purpose and focus remains unchanged.
There are several credit bureaus, however we are generally concerned with the three largest, which are relied upon most frequently when a consideration of extending credit is evaluated. Experian, Equifax, and Trans Union are the major players in the credit information arena. Each of these companies compiles its own distinct information on consumers and tabulates the results into a credit score. Results from each bureau are generally similar, yet detailed credit reporting and scores frequently vary widely. This typically occurs when a creditor reports to only one or two of the bureaus and not the third.
Creditors are under no obligation to report to any particular bureau. Creditors pay a fee to each bureau when they submit their files. Although it is in their best interest to report in order to enhance collection efforts, for some it may be cost prohibitive to submit to all three. Thus, it is possible for your score to vary from bureau to bureau by several points. This is the reason most auto and mortgage lenders rely on a FICO score, which averages the results from all three bureaus for a single score to make a determination on whether to extend you credit.
Communication with the bureaus should be brief and to the point. As you will discover in the dispute section and attached forms, lengthy explanations are not required and quite honestly are discarded. Bureaus receive thousands of letters a day and do not have time address specific concerns you may have. Equifax and Trans Union actually forward most of their mail to other countries for processing. When your dispute letter is received, it is first processed by computer.
Depending upon your level of communication with that bureau, your dispute letter may be automatically rejected as frivolous; the bureaus have designed filters to disregard template and form letters. Should your letter make it through that process, the individual reviewing your letter is assigned with one task – assign a two digit code to your complaint. This two digit code determines the handling of your request. In order to ensure your dispute letter makes it through the initial computer filter, we will make some grammatical errors in the body of the letter. Do not alter address and/or account information, as it may affect the ability to receive a response or address the items disputed. It is not necessary to include grammatical errors when dealing directly with each creditor.
Your Credit Score
It is imperative that you obtain a copy of your credit report on an annual basis at the very least; every six months or more would be preferable. You are entitled to a free copy of your credit report each year and you are NOT required to sign up for any service or provide your credit card; you are required to verify personal information about yourself in order to receive your reports from each of the three bureaus; your credit score is not included and I do not recommend buying your score from each individual bureau. This free annual report is available at www.annualcreditreport.com. Before you pull your report from this site, finish reading the chapter on The Dispute Process.
The credit score that is most accurate can be obtained for a fee at www.myfico.com. Remember, this is the score that nearly all mortgage and auto lenders rely upon, thus is of the most significance to you. Myfico.com has extensive information and several useful tools that are provided absolutely free, we will the most important ones here.
Credit scores are determined by a very complex system of rating several factors. There are some credit management services that offer to show the effect on your score for each item on your report; these services are not necessary to evaluate what is most helpful and what is most damaging to your credit score. A complete understanding of what goes into generating your credit score will reveal what aspects you need to focus on in order to increase your score.
Payment History
Payment history comprises 35% of your credit score. The major contributing factors to payment history include the number of accounts you pay on time, the number of accounts you have paid late (including public records and collections), the severity of the lateness, the amount past due, and the recency of adverse information.
Amounts Owed
Amounts owed comprises 30% of your credit score. The major contributing factors to amounts owed include amounts owed on accounts, amounts owed on specific types of accounts, number of accounts with balances, the ratio of utilized credit to available credit, and the proportion of installment balances to the original loan amount.
Length of Credit History
Length of credit history comprises 15% of your credit score. The major contributing factors are times since account opened, time since accounts opened by specific account type, and time since account activity.
New Credit
New credit comprises 10% of your score and is comprised of factors such as number of recently opened accounts, proportion of recently opened accounts by type of account, number of credit inquiries, time since recent account openings, time since credit inquiries, and re-establishment of positive credit history following past payment problems.
Types of Credit Used
Types of credit used comprises 10% of your score and is comprised of the number of various types of accounts. A mixture of different types of credit is most beneficial to your score.
Obviously, from the score makeup, your ability to make payments in a timely manner and keeping your balances low on revolving debt have the most dramatic effect on your credit score. Public records and collections can also have a hugely negative impact on your score. We will focus on removing any erroneous and unverifiable items reported on your credit reports.
In general your payment history carries the most weight. Most people are aware that if they make payments late, it will negatively impact their creditworthiness. Keep in mind that a creditor cannot report you 30 days late, until you are actually 30 days late; meaning a payment received 30 days AFTER the due date on that account. They may charge you a late fee or increase your interest rate, but they cannot report you to the bureaus until 30 days after your due date.
The amount of debt you carry is typically just as important to a lender as your ability to make timely payments. They like to see that you manage your debt properly and are not owing more than you can repay; both in monthly payments and overall. The ratio of utilized credit to available credit should be kept under 35% to achieve a positive effect on your credit score; greater benefit is achieved the lower your ratio. Once you go over 50% credit utilization, your score begins to decrease as a result of your dependency on credit. This applies to each account on your credit report, not in total.
For example, if you have a card with a $10,000 limit and $6,000 balance (60%) and a card with a $5,000 limit and a $100 balance (1%). It would be to your benefit to actually get a cash advance on the latter card of $2,000 and make a payment on the former.
Consumers with timely payments, low debt ratios, and lengthy credit histories are where you will usually find consumers with scores greater than 720. It is not uncommon for consumers to have little or no credit at all. Unless, they inherit a home, or enough cash to purchase one outright, they may have a difficult time financing one. Getting started with credit and acting responsibly with credit is an important step for all consumers. The earlier we teach our children about financial responsibility, the more opportunities we make available to them. This holds true not just in relation to their credit score, but in all of their financial dealings.
Applying for multiple lines of credit in a short period of time can affect your score negatively as well. Hard inquiries remain on your credit report for two years; however, the impact after one year is substantially minimized. Exclusions to multiple credit pulls apply when shopping for a car or home. The bureaus generally treat these two shopping experiences as one inquiry each, provided you extend the ability to review your credit to lenders within a 30 to 45 day span.
It is a general rule of thumb to have two to three revolving accounts (credit cards) for every mortgage and auto loan. Lenders want to see that you can manage different types of debt effectively. Try to stay away from department store cards and promotional types of accounts. Interest rates are typically much higher on these types of cards and usually the interest far outweighs any immediate gratification for obtaining the card. The issuer knows you will pay many times over in interest for the enticement you receive today.
Dispute
Addresses for the Three Major Credit Reporting Agencies
Equifax
P.O.
Box 7404256
Atlanta, GA 30374-0256
Experian
Dispute
Department
P.O. Box 9701
Allen, TX 75013
TransUnion
Consumer
Solutions
P.O. Box 2000
Chester, PA 19022-2000
Reading Your Report
Once you have obtained your report from all three bureaus, it is time to evaluate each and every piece of information contained within each report. Begin with the names, addresses, employment, and social security numbers in the header of your report. Eliminating erroneous information in the header can be beneficial because account information being reported could be tied to that data. Document these errors, and all negative information, in the Credit Repair Tracking worksheet contained in the forms section of this manual. The status for each item should be “New”, for each report the item appears in.
Each erroneous header item, public record, collection, late payment, and all inquiries should be considered negative items, and notated as such in the worksheet with a status of “New”. DO NOT dispute items that do not appear on a specific CRA credit report.
The accounts section will be our primary focus. We want to isolate and document any account that shows a late payment either in the 24 month payment history, or in the status section of the description of the account. We want to isolate and document any account that reports “charge-off” or “included in bankruptcy”. Charge-offs are debts that have been written off by a creditor as uncollectible; they may or may not have been sold or transferred to another creditor/lender, such as a collection agency.
Once you have completed documentation of every item, it is time to begin phase one of the credit repair process.
Credit Repair – Phase One
Completing the Credit Repair Tracking Worksheet allows you to track your progress from the beginning of the credit repair process to the end. This worksheet will act as your barometer of progress as you begin to eliminate each erroneous item on your report.
Incorrect header information should be indicated in your initial dispute letter as “does not belong to me – please remove”, “not my name – please delete from report”, “not my address – delete this record from report”, or “not my social security number – remove immediately from report”. The more the language sounds personalized, the better; the idea is to bypass the computer screening process by avoiding the appearance of a form letter or request. Remember to use misspelling in the body of the letter, but not in the address or items disputed area of your letter.
Public records such as bankruptcies, tax liens, child support, and judgments should be disputed as “Not my account – please remove from report”.
Account information requires proper assessment to dispute. When reviewing your account information, the following distinction needs to be made. If an account reports late payments, whether currently open or closed satisfactorily at some point in time, it would probably benefit your score if you were able to remove those late payments. In this case, you will state in the dispute letter “Never (30,60, 90, etc days) Late – please remove late payments”.
If the account is in “charge-off” or “included in bankruptcy” status, or it is a collection account, it is more beneficial to have the account removed altogether and the request should be worded “No knowledge of account – please remove from report”. All inquiries should be disputed in your first dispute letter as “Inquiry not authorized”.
You will need to sign your letter and include a copy of your driver’s license, social security card, and a utility bill (the name on the utility bill does NOT matter – the address MUST match your credit report). You should always try to use your electric, water, cable, or home phone bill when providing this document. DO NOT use a cell phone bill, credit card, or department store bill; the bureaus may reject these documents. IMPORTANT - Send your dispute “certified mail return receipt”. This will formally document the date on which the credit bureau receives your dispute letter. The 30 (45, if you utilize a free credit report) day clock begins the day they sign for the letter.
IMPORTANT – Do NOT respond to ANY letter from any bureau, other than the investigation results letter. A CRA may send a letter stating that what was provided was not sufficient to dispute, or that it appears someone other than you is attempting to contact them about your credit. These letters are nothing more than stall tactics, designed to give them more time to investigate your dispute. Responding to these letters in ANY way will re-start the clock for their investigation, and increase the chances of negative inaccurate and/or unverifiable information to remain on your report. Update your Credit Repair Tracking Worksheet with a status of “1st Dispute CRA” for each item completed.
Credit Repair – Phase 2
After the 30 day period (45, again if you use a credit report provided free of charge to you), one of two things will have happened. Either you will have received an investigation results letter with detailed information on the items you have disputed and their new status, or they will have failed to respond.
Most of the time the former will apply, but in the rare case they do not respond within 30 days (the letter they send must be postmarked by them no later than the 30th day from which they received your dispute letter), you will write a letter informing them that they have failed to respond in the timeframe provided for by law, and to make the adjustments requested in your original dispute letter. Make sure to include a copy of the original dispute letter, along with a COPY of the signed return receipt postcard from the post office, and a COPY of the envelope with which they responded (if they responded AFTER the 30-day period, and only if the envelope shows cancelled postage past the 30 day timeframe).
If they have responded within the timeframe, open your spreadsheet and update all the items you requested they investigate. The possibilities include DELETED, UPDATED, or REMAINS. It is time to focus on any items that have a status other than DELETED.
Credit Repair – Phase 2 Cont’d
For each late payment reported, that has been verified as accurate by the CRA, use the appropriate form to respond directly to the creditor reporting that line item (Form 3 for validation of late payment if the account is closed, Form 4 for validation of late payment if the account is still open). Make sure to use accurate account information within your letter. As always, use certified mail return receipt requested.
For every account, collection, or inquiry negatively reported, that has been verified as accurate by the CRA, use the appropriate form to respond directly to the creditor. (Form 5 for validation of an account, Form 6 for validation of a collection, Form 7 for a validation of an inquiry). Make sure to use accurate account or date information within your letter. As always use certified mail return receipt requested.
For public records that have been verified as accurate by the CRA, use Form 8. Make sure that you clearly identify your name and the case number within the letter. As always use certified mail return receipt requested.
Update your Credit Repair Tracking Worksheet with “2nd Validation” for each item you complete in this process.
Credit Repair – Phase 3
After approximately 45 days, you should have received a response from each entity that you contacted, asking them to validate the negative information that is being reported to the respective CRA(s).
A failure to respond within the allotted timeframe allowable by law is sufficient to demand that an item be removed from your credit report. At this time you will then forward the appropriate letter to each agency, demanding they remove the item in question (Form 9 for removal of an account, Form 10 for removal of a collection, Form 11 for removal of an inquiry, or Form 12 for removal of a public record). Make sure to include a copy of the original letter requesting validation, and a copy of the return receipt card showing the date your letter was received by the entity. Update the Credit Repair Tracking Worksheet with status “3rd Removal Acct” for each letter sent.
You will also need to forward a letter to each CRA also demanding that the item be removed (Form 13 for account/collection removal, Form 14 for inquiry removal, and Form 15 for public record removal). Make sure to also include a copy of the removal letter sent to the entity, a copy of the original validation request sent to each entity, and a copy of the return receipt card showing the date each entity received your validation request. Update the Credit Repair Tracking Worksheet with status “4 Removal CRA” for each letter sent.
Credit Repair – Phase 3 Cont’d
Should verification be properly sent and documentation is included that substantiates the item being accurately reported, DO NOT send a letter requesting the item be removed to the reporting entity or CRA. Update your Credit Repair Tracking Worksheet with a status of REMAINS for these items. We will examine possible ways of dealing with these remaining items in the Settlement section of this manual.
Credit Repair – Phase 4
Within 45 days, you should have received responses from the removal letters sent to either the entity reporting, the CRA, or both. Obviously, removal of the item will be updated on your Credit Repair Tracking Worksheet as DELETED.
Failure to remove items that have not been properly validated will require a second request for removal to the CRA (Form 16). Be sure to include all prior documentation stating your prior request – copy of the letters requesting removal to the entity and the CRA, copy of request to validate sent to the entity, and a copy of the return receipt card from the certified mail for all three letters. Update the Credit Repair Tracking Worksheet as “4th Removal CRA”
Within 45 days, you should receive a response from the CRA. Again removal of the item will be updated on your Credit Repair Tracking Worksheet as DELETED. Failure to remove or responds will require a strongly worded and final warning to the CRA to comply with the FCRA and remove the erroneous record (Form 17). Make sure to include copies of all documentation included in your prior request, adding the prior request and certified mail return receipt from that letter. Update the Credit Repair Tracking Worksheet as “5th Removal 2 CRA”
Within 45 days if you still haven’t received a response or the CRA has failed to remove the item disputed, a final letter will be sent to the CRA indicating that you have filed suit against them (Form 18). Make sure you actually file suit against the CRA in a court of law prior to mailing this final letter.
Credit Repair – Phase 4 Cont’d
Hiring an attorney to represent you in this matter is advisable. Update the Credit Repair Tracking Worksheet as “6th Lawsuit CRA”
Within 45 days if you still haven’t received a response or the CRA has failed to remove the item disputed, a final letter will be sent to the CRA indicating that you have filed suit against them (Form 18). Make sure you actually file suit against the CRA in a court of law prior to mailing this final letter. Hiring an attorney to represent you in this matter is advisable. Update the Credit Repair Tracking Worksheet as “6th Lawsuit CRA”
Hiring an attorney to represent you in this matter is advisable. Update the Credit Repair Tracking Worksheet as “6th Lawsuit CRA”
Settlement – Phase 5
The items remaining after the prior phases of attempted repair could consist of any number of all the items that existed when you began the process. Those items which remain that are in a collection status, with an amount owing will be discussed below.
Once the CRA has verified the collection and the collection agency has validated it, settlement of the account remains a valid option for removing the record from your report. You must first do your homework before attempting to contact a collection agency to settle a debt. You will need to check the Statute of Limitations section of this manual, for your state, to determine whether the account is even collectible under your state law. DO NOT confuse the Statute of Limitations (which varies from state to state) with the 7 years the account may remain on your credit bureau; they are not related and are totally separate issues. Generally the more recent a collection account is, the more you can expect to settle for; this is not a rule but generally speaking. Once a collection has surpassed the Statue of Limitations, the collection agency knows that it cannot legally enforce collection of the debt and is willing to settle for much less than what was originally owed. Before attempting to settle a debt, make sure you are prepared to make an offer you can afford to comply with, and a deal that you are comfortable with making.
Settlement – Phase 5 Cont’d.
Calling the collection agency directly to negotiate payment of the debt is often difficult for many people due to the nature itself of a collection agency. Remember that they are doing a job, and that job is to collect the money that is owed or collect as much information about you as possible to effect a collection. It is important to remain in control of the conversation when dealing with a collection agency. Do not allow them to steer the conversation toward information gathering or pressuring tactics that they hope will get you to pay the debt on their terms. Most collection agencies train their staff adequately to do just this; do not be intimidated.
Our objective is to settle the debt for as little as possible and receive a “letter of deletion” from the collection agency. Never state that you acknowledge the debt to be valid; instead we will state that we want to settle the disputed account. If the representative is unwilling to negotiate on your terms ask for a manager. If you are still unsuccessful, terminate the call and call back again later. Keep attempting to negotiate on your terms until they are accepted. The collection agency will often tell you that they cannot delete your account; this is a lie. They alone have the power to stop reporting your account to the bureaus. There is a possibility that they will never accept your terms; if you are closing on a home and it needs to be paid, you can pay the account and submit a new dispute on that item at a later time. Remember that once this is paid, it can remain on your credit report for 7 additional years.
Do’s and Don’ts
Here is a list of do’s and don’ts that should be strictly adhered to:
DO use the Cease and Desist (Form 21) letter if a creditor is harassing you.
DO check your credit annually or more for errors.
DO once you have completed all steps, wait a few months and start the process again.
DON’T ever close or cancel a credit card; closing an account can actually have a negative impact on your credit score. Take the card out of your wallet or purse and store it in a safe place, if you decide not to use it.
DON’T ever pay or settle a collection or other account, without properly negotiating the terms of settlement beforehand.
<DATE>
<YOUR NAME>
<ADDRESS>
<CITY, ST ZIP>
<NAME OF CRA>
<ADDRESS>
<CITY, ST ZIP>
To Whom It May Concern:
I would like a copy of my free annual credit report. My Social Security Number is <SS#>. Please mali a copy to the address above.
Sincerely,
<YOUR NAME>
<DATE>
<YOUR NAME>
<ADDRESS>
<CITY, ST ZIP>
<NAME OF CRA>
<ADDRESS>
<CITY, ST ZIP>
To Whom It May Concern:
There are mistaks showing on my credit report that need to be corrected. Please correct these mistakes and send me an updated credit report. My Social Security Number is <SS#>.
<LIST ACCOUNT NAME, ACCT NUMBER, AND REASON FOR DISPUTE>
Sincerely,
<YOUR NAME>
<DATE>
<YOUR NAME>