It’s far from easy trying to live in our brave new world with a low credit score. Not only are you paying unnecessarily through the nose for virtually everything, these days your credit score affects practically every aspect of your day to day life.
The toughest part of having a less-than-perfect credit score is the stigma. Lenders, creditors, and even society views you as less than. One of “those people.” As if you’re somehow less deserving, of the daily comforts everyone else takes for granted.
To make matters worse, trying to figure out how to get a better credit score, and decipher fact from fiction is a lot like a third grader trying to land a man on the moon. There’s all sorts of contradictory information.
Our purpose in this article is to debunk the most common myths of credit restoration, and share precisely how your credit score is calculated. And provide some real, specific ways to help get your credit score up including how to deal with debt in collections, and how to clean up credit report dings, blemishes, and remove negative marks.
Listen, when it comes to getting the truth about how to fix credit there’s an unprecedented amount of bogus information that’s touted as gospel. This is for many reasons, and regardless of your personal political affiliations, it’s a lot like trying to figure out the truth of what’s happening daily in our political sphere.
One guy claims it’s the worst of times, and the other fella says it’s the best of times. And while we may personally feel inclined to share our political feelings, our objective here is more noble, and truthfully our political climate has reached a toxic level for all Americans, on both sides.
What do Trump and the late, great, hip-hopper Tupac Shakur have in common? They both said the media is fake, untrustworthy, and full of it. And while many folks are surprised the news outlets aren’t criticizing Trump for breaking wind in the wrong direction.
We’re not going to use any political examples. Nor any of the seemingly endless sexual misconduct scandals. Do you recall in 2015 when lying Brian Williams on NBC’s evening news claimed to have been shot down in a helicopter in Iraq?
Or how in 2017, when “Morning Joe” Scum-bucket Scarborough and his cohorts claimed to be doing a live show the day after Thanksgiving? Those chuckleheads really seemed to get a kick out of their elaborate lies. And when caught red-handed and an executive confirmed that the program wasn’t live, the same executive went on to say “there was no intention to trick viewers.”
What! Are you smoking crack? It sure isn’t a mystery why American’s don’t believe the media. My all time favorite, was the lady reporter while sitting in a canoe on the evening news was doing a story about how terrible the flooding was in someplace, USA, and was busted when two people walked through the background of her shot.
Come on, man! Unfortunately, the world of credit repair ain’t much different. And arguably a lot worse! Because one of many conflicts of interest is all three of the credit bureaus invest millions of dollars annually advertising with dancing babies on TV networks.
There’s much more, if you hang with us here, more extreme examples of the lies and elaborate propaganda. The takeaway is you can pretty much guarantee what you’ve heard, and even want to believe about your credit score, the big three credit bureaus, and your finances is far from true.
Keep in mind, it wasn’t all that long ago, doctor’s were prostituting themselves to tout the health benefits of smoking cigarettes. That’s true, and ain’t debatable.
The Seven-Year Minimum Bad Credit Prison Sentence
No doubt, you’ve heard you have to just live with bad credit for seven, long, expensive, and embarrassing years. Often times, this so-called financial expert will say this is because of the Fair Credit Reporting Act (FCRA). Along, with adding there’s nothing you can do.
Just wait and the negative item will naturally just fall off and be removed by the credit bureaus. That’s funny, seriously! First of all, seven years is the maximum amount of time most negative marks can stay on your credit reports.
There are a few exceptions such as a chapter 7 bankruptcy which is a maximum of 10 years. Or a charge off which takes six months before the account is actually charged off by a credit card company.
So you’d have six months of late payments or delinquency and then it’d be seven years for the charge off mark. For a grand total of credit damage of seven years and six months.
The point is there is no minimum amount of time you must just live with bad credit. And all due respect, we have better odds of seeing PETA open a butcher shop, than negative marks only staying on your credit report for seven years.
Many folks are buried with bad credit, for way longer than the maximum amount of time. The reasons for this are numerous and will share more details coming up.
In short, you’re counting on debt collectors to follow the rules, if you think seven years will be the maximum. And trust me, the debt collection industry is a lot like the Wild Wild West. In other words, it’s more likely Morning Joe will tell the truth about what day of the week it is.
Look, if O.J. can get out of real prison early. Chances are you’ll be able to get out of bad credit score prison early. There’s no guarantees, but the odds, and the many alphabet soup laws are in your favor. Coming up, we’ll share the exact process of how to remove dings, blemishes, and negative items from your credit reports.
The Big Three Credit Bureaus and Your Credit Score
We all heard about the Equifax data breach scandal in 2017. Where hackers stole 143 million American people’s names, Social Security numbers, birth dates, addresses, and for some even driver’s license numbers, according to the Federal Trade Commission (FTC).
We know these three companies are juggernauts in the financial world, and they keep a report card on every American citizen, i.e. our credit report. But, who are these guys? Are they part of the government? And what about your credit score?
Look, the big three credit bureaus or credit reporting agencies are Equifax, Experian, and TransUnion. They each keep a separate, and often unique credit report on you. FICO (Fair Issac Corporation) is the credit scoring company. FICO takes the information on your credit report, and determines your FICO credit score.
Let’s take this one at a time, the big three credit bureaus, are not the government. The have no affiliation, association, or direct ties to the government. They are regulated by the government. And have paid countless fines to our government for violating consumer rights.
The big three credit bureaus are private for-profit companies. They’re no different than Walmart, Best Buy, or Facebook. They have however positioned themselves like Gods in our world, and earn an estimated $4 billion per year annual revenue. Big business!
This means, they pump millions annually into lobbyists in Washington to influence our law-makers and drive their agendas, and have for decades. The credit bureaus, do nothing more than collect information about you, and put it into a central template or what we call a credit report.
They’ve made their fortune selling this information, back to the businesses that supplied it to them in the first place. Only in recent years, have the credit bureaus even offered consumers products.
In other words, not long ago you and I couldn’t actually go to the credit bureaus and buy something directly. The credit bureaus have intentionally blurred their quasi-government status, and very effectively.
Most people believe the credit bureaus are a government agency, or have some special deity lake place in the financial world. They sure don’t think they’re just another business like Starbucks. They’ve invested millions in public relations campaigns to achieve this end.
Your FICO Credit Score
FICO is yet another third-party company that determines your credit score. They take the information contained on each of your three credit reports, pop it into their fancy schmancy algorithm and out shoots your FICO score. Which is used in roughly 90% of all lending decisions.
You have more than one FICO credit score. You’ll have one for your TransUnion credit report, and then two more FICO scores for each of your Equifax, and Experian credit reports. In addition, there are industry specific FICO scores.
For example, if you’re in the process of buying a home, that industry likely has a unique FICO algorithm, to determine your FICO score for a home mortgage. And so on and so forth.
FICO is the only credit score you need to worry about, however VantageScore is a small competitor. This company was created by all three credit bureaus in a joint venture in 2006 to compete with FICO.
There’s much ado about credit scoring updates, with companies like Credit Karma, Wells Fargo, and other’s offering free access to your FICO credit score. In fact, FICO is on their ninth official FICO scoring algorithm, and this leads to some misunderstanding.
The newest FICO 9 credit scoring algorithm is a lot more consumer and debt friendly. The problem is and to use an example with Wells Fargo, where they let customer’s see their credit score for free. No joke, in the fine print, it says the credit score you see, is not the FICO credit score that’s used in lending decisions, for any of their products.
Of course, begging the question, then why are you showing it to me? There’s a multitude of factors and influences here. And it’s not worth getting bogged down, part of the issue is FICO is at war with the big three credit bureaus and their competing score, the VantageScore.
There are five factors that go into your FICO credit scores, and we’ve also shared the approximate value that will be associated with each. The first is your payment history worth about 35% of your overall FICO score. This looks at all the accounts on your credit reports, both good and bad.
The second item is your amounts owed category. This is looking at all your debt, and comparing that to your available and unused credit. This is worth about 30% of your FICO score, and in credit geek jargon, it’s your utilization ratio.
Having debt isn’t a killer, the takeaway is to have available and unused credit. For instance, with a credit card with a limit of $1,000 if your balance is $989, you’ll have $11 of available credit. Thus, you wouldn’t be viewed as a great credit risk, compared to the guy with a $250 monthly balance, and as such $750 of available unused credit.
Makes sense. Generally, it’s wise to keep monthly balances around 25% of your credit limit. And this does focus on revolving lines of credit, like credit cards. To clarify, your FICO credit score will not be handicapped if you have substantial mortgage debt or student loans, or such. That’s okay.
Third, is your length of credit history worth 15% of your FICO score. This is looking at the age of each specific account, and how long you as a whole have been using credit. The last two components are credit mix, and new credit both respectively worth 10% of your score.
Credit mix is looking at what types of credit do you have? Credit card? Mortgage? Student loans? So on and so forth. And new credit is how often are you applying for financing. With normal use, the last three components will be just fine.
How To Better Your Credit In a Brave New World
The big picture for how to better your credit is to remove any credit report dings, blemishes, and negative items on your credit files. Because these marks are like kryptonite for your credit score.
In short, your credit score is like your Grade Point Average (GPA) in glory school days past. It doesn’t matter if you’re acing all your courses, if you’re failing The Art of Walking, because that negative item is going to cripple your GPA.
The negative items on your credit reports are exactly like failing marks on your report card. We must get these items removed, and we can legally, often before the seven year maximum sentence.
For some folks, this may require paying debt collectors, but only after first performing the necessary due diligence. Additionally, we’ll need to use federal legislation to remove any questionable negative information from your credit history.
Because according to the FTC, and Consumer Financial Protection Bureau (CFPB) it’s quite likely you have inaccurate information on your credit reports. And for millions of folks this is costing them real money in higher interest rates.
Of course, just like if you wanted to make the honor roll in school days, you’d have to continue to perform and earn good grades in all your classes. The same is true with your credit score, you will need to use your current and future accounts responsibly.
How long does it take to improve credit score? Great question, in short, it won’t happen overnight. It really depends on the severity of your issue and just like a medical doctor can’t diagnose an illness without seeing you, we can’t accurately diagnose you with knowing your specific circumstances.
That said, many folks see significant credit score improvement and many times full recovery in about six to 12 months. You have treatment options, and we encourage aggressive, all out, offensive on our enemy of bad credit.
If Only People Would Pay Their Bills
Certainly, you’ve heard some bonehead make such a remark, and it’d be great if it was true. But, it’s about as true as being able to accurately judge someone’s character based only on their religion, skin color, or gender. As in it’s not accurate!
Look, life is messy. Millions of people have their credit score held hostage, and are extorted annually to the tune of roughly $11 billion by the debt collection industry. This industry is much more akin to the Wild West, as in very little law and order.
We’re not even going to dig into the infinite number of ways for you through no fault of your own, to get stuck dealing with these predators. But, we will share the path of how to deal with debt collectors, protect your rights as a consumer, and keep your credit worthiness intact.
The first item on our agenda, is the Fair Debt Collection Practices Act (FDCPA). This federal legislation was passed by Congress with the intention of regulating the debt collection industry.
In short, debt collectors are required to be upfront and honest about their legal extortion. Not lie, deceive, or mistreat you. There also supposed to give you a modicum of respect and dignity, and there’s of course, much more and it’s worth reviewing at your convenience.
The most common concern for folks is will paying off collections improve credit score? In short, no. If all you do is pay collections, and nothing more, the only thing that will happen is a change in the status of that item on your credit reports.
It’ll be changed to a paid collection. This is still a negative item to have on your credit reports, and it will cause you to have a poor credit score. Anthony Sprauve a spokesman for FICO says collections on your credit report can damage and drag your score down by as much as 100 points.
The key is to remove collections from your credit reports. And for some folks, they may discover after following our tips here, that paying off collections is the easiest, and fastest way to clean up credit report dings, blemishes, and negative marks.
The Debt Collection Weapons
Debt collectors have a number of weapons. Of course, they’ll start calling you, sending demand letters, and they’ll report negative information on your credit reports.
They’ll also likely inflate your total balance due. They can legally charge your account a high interest rate, and believe it or not, even collection fees. And these can be massive amounts of money.
One of our members recently shared on a $50,000 student loan in default, that was sent to a collection agency he was charged over $25,000 overnight in interest fees, and collection fees. Unbelievable.
If they’re unable to collect payment, they have two options. They can sell the rights to your account to yet another debt collector. This new debt collector will of course begin calling you, sending letters, and report more negative information on your credit reports.
Or alternatively they can sue you. Yes, collection agencies can and often do file civil lawsuits against consumers. It’s a thriving industry. The goal is to win a judgement against you, because then they’ve really got you by the short and curlies.
Depending on your state of residence, because every state has unique laws, judgements can result in wage garnishment, liens being placed against you and or your property, and even asset seizure. The worst part is a judgement on credit report files will annihilate your credit score.
It’s a massive hit. Many of these lawsuits are won without proper evidence, because most people just don’t show up for their court date, and that’s a loss by default. And what the debt collector attorney’s want.
How To Deal With Debt Collectors
Now, let’s talk about how to deal with debt collectors, because it’s intimidating, hostile, and by nature adversarial. The very first step is to request debt validation on your account.
This is your consumer right granted by the FDCPA. Essentially, we’re saying to the debt collectors, you first prove it. Show me this is my debt, who the original creditor or lender was, the dates of account activity, etc.
It’s most effective to make this request in writing and send it using certified mail with return receipt requested. This way you’ll have evidence you made your request, and they received.
They’re required to respond by providing you with documents, paperwork, and evidence that does prove this is your debt. If they fail to validate your debt, for any reason, then you’re no longer legally responsible for payment.
And they’re supposed to notify all three of the credit bureaus, to have them remove collections from credit report files, regarding this account. Because it’s messing up your credit score.
Legal Time Limit
If your account is validated, our next step is to investigate the statute of limitations. This is a state law, and it does vary, so check out your local listings for exact details. This is a time limit for how long you’re legally responsible for payment of a debt.
Generally, it’s about seven years from the first date of delinquency. After this time runs out with no account activity, then by law, the debt is legally forgiven. Your legal obligation ends with the statute of limitations time limit.
This legislation applies to most types of consumer accounts including: medical bill collections, retail, telecommunications, utilities, credit cards, charge off accounts, and many more. The few exceptions are defaulted student loans, and federal income taxes.
Warning. Debt Collectors, especially late-stage debt collectors are notorious for re-aging consumer accounts, and often do this illegally. It’s naive for us to believe debt collectors will just vanish like a fart on a windy day.
Negotiate a Settlement Agreement
If your collection account is validated, and within the legal time limit, our next step is to negotiate a settlement agreement. There’s two parts to your settlement agreement, and it’s best to get this in writing.
First, it’s wise to negotiate with debt collectors to settle for less than the total balance. Often, you can negotiate down to where you’re paying somewhere around 15% up to 45% of the total balance due.
Before paying collections, wait, we’ve got to get this second part of your agreement so we can avoid getting our credit report hit with that paid collection. We need to get the debt collector to agree they’ll stop reporting our account information to all three of the credit bureaus, in exchange for our payment.
You’ll see many so-called experts suggest a pay-for-delete approach to negotiating with debt collectors. This faulty plan says you’re supposed to demand the debt collectors first delete the negative item from your credit reports, and then you’ll make payment.
It sounds great. And you’re more than welcome to try it. But, please don’t hold your breath. The much more effective and pragmatic approach is to simply get the debt collectors to agree to stop reporting your account information to the credit bureaus. And this they will agree too.
How To Clean Up Credit Report Dings
Now, let’s finish this article with the most powerful treatment option for a less-than-perfect credit score. We’re sharing how to clean up credit report dings, blemishes, and remove negative items. And do so legally, using the credit report dispute process.
The FCRA is federal legislation that empowers us to do this. It says we can challenge and dispute any item on our credit reports, so long as we believe it’s inaccurate, misleading, or made in error.
There’s three ways to dispute credit report items online, over the phone, and by mail. Once the credit bureaus get your dispute, they first get to deem it frivolous or valid, which is another conversation for another time and place, so make sure to sign up for our free newsletter for more credit help with Dan Willis.
Once the credit bureaus, get your dispute and deem it valid, they’re required to investigate. They’ll call it a re-investigation. Nonetheless, they’ll contact the data furnisher, the company reporting the negative information about your account. And ask them to verify it.
If the item is not verified, then in accordance with the FCRA, the negative item must be removed from your credit report. This is how to get rid of bad credit, and do so legally by using your consumer rights.
Using our earlier collection example, once the credit bureaus deem your dispute valid and they re-investigate the collection item. They’ll contact the debt collectors for verification.
As per our settlement agreement, the debt collectors won’t verify it. This is the second part of your settlement agreement, about the collection agency agreeing to stop reporting your account information, in exchange for your payment.
This results in the credit bureaus removing this collection item from your credit reports. Every mark on your credit report is supposed to be verifiable according to the FCRA.
It’s essential to clear credit history dings, blemishes, and negative items. These are the true credit score killers. It’s as powerful, possibly even more so, than removing failing grades from your report card is for your GPA.
Look, most folks feel like their living in biblical times as David going into battle with Goliath, when trying to fix bad credit. And you’re telling me all I get is this flimsy sling-shot?
There is hope, and help. We encourage our members to consider professional, legal, and legitimate credit repair companies. Because in 2016 alone, over 9 million negative items were removed from consumer’s credit reports.
One of the best firms is The Credit Pros. They’ve helped their client’s successfully remove late payments, collections, charge offs, judgements, liens, repossessions, foreclosures, even bankruptcy marks, and many more negative credit report items.
Get a free credit consultation with a certified FICO professional by calling toll-free 1-877-418-7596. And for more tips, techniques, and strategies about how to improve credit score with Dan Willis, sign up for our free newsletter and join our congregation.
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