Are you in the process of making a substantial purchase? Buying a home? A car? Or some other significant purchase where a few points on your credit score can result in thousands of dollars spent or saved?
Or maybe you’re just sick of living with the embarrassment of a low credit score? The frustration of having a less-than-perfect credit history?
Not to mention the real and tangible expense of trying to live in our brave new world with a bad credit score? If so, you’re in the right place.
In this article, we’re going to go share the plain truth of how to raise your credit score, and do so in a timely manner. This is going to require us to formulate an all-out offensive war strategy and on multiple fronts.
Our big picture objective is to show current and future creditworthiness with responsible use of our credit accounts, along with building a positive payment history. Simultaneously, we’ll need to work on removing any dings, blemishes, and negative marks from your credit reports, because these are the true credit score killers.
Understanding Your Credit Score
Your credit score is very much like your Grade Point Average (GPA) in glory school days past. It doesn’t matter if you’re acing all your classes, if you’re failing The Art of Walking, because this negative mark is going to obliterate your overall GPA.
This same principle applies to your credit score. And this is why it’s of such paramount importance that we take action to clean up credit report dings, blemishes, and remove any negative items. More on that coming up.
First, you have more than one credit score. There’s the FICO (Fair Issac Corporation) credit score and your VantageScore. The VantageScore is a credit scoring formula created in a joint venture by all three of the major credit bureaus (Experian, Equifax, and TransUnion).
Your FICO score is used in over 90% of lending decisions, and this is the only credit score you need to worry about. That said, you have more than one FICO score.
You’ll have a FICO score based upon each of your three credit reports. In other words, you’ll have a FICO score determined solely on your TransUnion credit report. Then, you’ll have another FICO score based only upon your Equifax credit report, and so on and so forth.
In addition, you’ll also have industry-specific FICO scores. For example, if you’re in the process of buying a home, the mortgage industry may have a unique credit scoring formula that will generate an entirely different FICO credit score for you.
Nevertheless, the basic principles will guide and determine all your credit scores, both FICO scores, and VantageScore. In short, we can repair your credit score by removing the negative items that are dragging it down, and capitalize on the good, positive items that are making your credit score go up.
The Five Credit Score Components
Look, your credit score is a bit like baking a cake. It takes ingredients, and in this case that would be information from your credit reports, and mixes these ingredients together to determine your credit score.
We’ve outlined the five components or ingredients that go into your FICO credit score. Along with their approximate value, weight, or amount they’ll be used in your credit score cake.
1. Payment History (35%)
Your payment history is the biggest ingredient, worth roughly 35% of your overall FICO score. This component is looking at all the positive and all the negative accounts on your credit reports.
2. Amounts Owed (30%)
Your amounts owed category is looking at all your total debt, and comparing that to your available and unused credit. This is worth about 30% of your overall FICO score.
Don’t stress if you have substantial debt in the form of student loans, mortgage, car loan, etc. Debt isn’t necessarily bad. This focuses on revolving credit lines, such as an unsecured credit card, for example.
The takeaway is you want to have available and unused credit on your revolving credit lines. For instance, if you have a credit card with a $1,000 limit and your monthly balance is $978, then you’d only have $22 of available credit.
Naturally, the same fella with a monthly balance of only $250, would have $750 of available and unused credit. It may be common sense, but it’s true regardless, the fella with $750 of available and unused credit would appear to be more creditworthy when applying for financing, than the fella with only $22 of available credit.
3. Length of Credit History (15%)
Your length of credit history is worth 15% of your credit score. This is looking at both the age of each specific account on your credit reports, and it’s also looking at how long you as a human being have been using credit.
4. Credit Mix (10%)
Your credit mix is worth about 10% of your FICO score, and this is looking at what types of credit do you have and use. Do you have a credit card? Student loans? Mortgage? And so on and so forth.
5. New Credit (10%)
The last of your credit score ingredients is new credit. This is worth just 10% of your FICO score, and it’s looking at how often you’re applying for new lines of credit. As in how frequently are you trying to buy a new car, a new boat, etc.?
Listen, the last three credit score ingredients (length of credit history, credit mix, and new credit) will be just fine with normal use. This is not where you should focus your efforts to raise your credit score.
Instead, the first two ingredients your payment history and your amounts owed credit score components are where you should invest your effort, time, and money. These two components are worth about 65% of your credit score, and they’re the most directly under your control.
3 Tips To Raise Credit Score
1. Build a Positive Payment History
Naturally, paying your bills on-time every month is good. However, the reason is because this will create a trail of responsible use and positive payment history.
2. Low Monthly Balances
As we shared, your amounts owed category is a big ingredient with your credit score. And to help this category we want to aim for low monthly balances on revolving credit lines.
Generally, it’s encouraged to keep your monthly balance at or below 30% of your credit limit. With a $2,000 limit that would mean a monthly balance at or below $600.
If you don’t currently have an unsecured credit card, and would like to use this tool to help fix credit, we encourage you to investigate secured credit cards. These won’t help your credit as much as an unsecured card, but it’s proven to be an effective tool.
The big difference is it’ll be reported to the credit bureaus as a secured account. This also means, you’ll need to first make a deposit with the credit card issuing bank, this is how you secure the credit card.
This deposit is fully refundable, so long as you keep your account in good standing. And this can be an effective way to create that trail of positive on-time payment history, along with improving your amounts owed category by carrying a low monthly balance. Capital One has a popular offer.
3. Don’t Close Old Accounts
Yes, we want to avoid closing old accounts, because unintentionally we may damage our amounts owed category by doing so. If you have a credit card with a $1,000 limit and you just rarely ever use the card, so you decide to close it.
In the eyes of the FICO score, that’s $1,000 less of available and unused credit you have. In other words, this can actually lower your credit score, by damaging your amounts owed credit score component.
These three tips will help to build your credit score. However, we now need to transition and address the items that are pulling your credit score down. This specifically is the negative information on your credit reports.
How To Deal With Debt Collections
Debt in collections is the most common type of bad credit, and many folks, unfortunately, want to use common sense and apply it here. This is not where common sense, makes sense.
For example, one of the most common concerns is people want to know will paying off collections improve credit score? It certainly makes sense that it would.
However, it doesn’t. In fact, paying off collections and nothing more, can actually hurt your credit score. First of all, if you only pay collections, the only thing that will change is the status of the item on your credit reports.
It’ll be changed to a paid collection. This is still a negative item to have. And Anthony Sprauve, a spokesman for FICO, says collections on your credit reports can damage and drag your score down by as much as 100 points. That’s huge!
Moreover, this payment can re-age the debt. In other words, just paying this collection account, can potentially result in this paid collection staying on your credit reports for seven more years, after the date of payment.
Additionally, it can and has frequently appeared in the eyes of the FICO credit scoring algorithm as recent activity. As in you recently screwed up and got a paid collection, and as such your credit score should be lowered.
Instead of the reality, which was taking financial responsibility for an account that may have been four years old. To clarify, the way the FICO score views this paid collection, could be very detrimental to your overall credit score and lower it, rather than raise your credit score, as we’d all like to believe.
4 Tips To Deal With Debt Collectors
Listen, there’s really four steps to deal with debt collectors most effectively. In full disclosure, some folks may discover paying off collections is the easiest most effective way to remove the item from your credit reports. And this is how to better your credit, of course, only after performing the necessary due diligence.
1. Request Debt Validation
The very first step for dealing with debt collectors is to request debt validation. This is your right as a consumer granted by the Fair Debt Collection Practices Act (FDCPA).
This federal legislation was passed by Congress with the intention of regulating the debt collection industry. In other words, there are rules that are supposed to be followed by debt collectors.
Requesting debt validation on your alleged collection account with a debt collector is your way of saying prove it. It’s most effective to make your debt validation 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 it. You see, the debt collector is required to respond by furnishing the paperwork, evidence, and documents that does, in fact, prove this debt is yours and they own the legal rights to the account.
This paperwork will show you all the details about the debt. From who the original lender or creditor was, the dates of account activity, total balance, etc.
If they fail to validate your debt, then in accordance with the FDCPA, you’re no longer legally responsible for payment. As in the debt is legally forgiven. Moreover, the debt collector is supposed to notify all three credit bureaus to have them remove collections from credit report files, pertaining to this account.
2. Legal Time Window
If your account is validated, our next step is to review this paperwork in detail. We’re looking for your last date of account activity. You see, you’re not legally responsible for repayment forever.
In fact, state legislation in the form of the statute of limitations is what says exactly how long you are legally responsible for payment. This legislation does vary by state, so check out your local listings, for full details.
Generally, it’s about seven years from the first date of delinquency. Once this time window runs out and expires then in compliance with the statute of limitations, the debt is legally forgiven. Your legal obligation to repay, ends with the statute of limitations time window.
This applies to most types of consumer debts such as credit cards, medical collections, utilities, telecommunications, retail, charge off accounts, and so many more. The few exceptions include defaulted federal student loans, and federal income taxes.
Warning. Yes, a warning, debt collectors especially the late-stage collection agencies who often purchase the rights to your account from another debt collector, are notorious for re-aging consumer accounts. Often this is done illegally, and with the obvious purpose of continuing to attempt to collect payment.
3. Negotiate a Settlement Agreement
In this step, we’re going to negotiate a settlement agreement directly with the debt collector. There’s two parts to your agreement, and it’s best to get this agreement in writing.
First, we want to negotiate to settle and pay off this collection for just a fraction of the balance. Often, you’ll be able to negotiate so you can pay as little as 15% up to about 45% of the total balance. Somewhere in this ballpark. For example, with a $1,500 debt, you may be able to pay just 25% or $375.
This second part of your agreement is crucial. We must get this collection agency to agree to stop reporting our account information to all three credit bureaus, in exchange for our payment.
If we overlook this, we’re going to get stuck with a paid collection on our credit reports. As we shared, this is going to damage and cause us to have a poor credit score.
Have you heard about a pay-for-delete method of dealing with debt collectors? If not, this is where you first demand the debt collector stop reporting your account information to the credit bureaus, and then you’ll make payment.
This sounds terrific. And you’re more than welcome to try it, but please don’t hold your breath. Unfortunately, this pay-for-delete idea is wishful thinking, at best. It’s more likely will see PETA opening a butcher shop on every street corner in America.
It’s much more effective, and pragmatic to instead only get them to agree to stop reporting your account information to the credit bureaus. And this is something they will actually agree to.
4. Remove Collections From Credit Report
The last step is how to get collections off credit report files, because as we’ve shared this item is screwing up your credit score. To do this, we’re going to use more of your consumer rights, this time those granted by the Fair Credit Reporting Act (FCRA).
This federal legislation is what enables us to dispute and challenge 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 valid or frivolous. This is a conversation we’re about to have in detail, and for more credit restoration tips with Dan Willis, sign up for our free newsletter and join our congregation.
Once the credit bureaus get your dispute and find it valid, they’re required to investigate the item. They’ll call it a re-investigation. Nevertheless, during which they’ll contact the debt collector for verification of the collection account.
As per your settlement agreement, the debt collector won’t verify your collection account with the credit bureaus during their investigation. This results, and in compliance with the FCRA, the credit bureaus must remove this item from your credit reports.
Every single one of those dings, blemishes, and negative items on our credit reports, must be verifiable. Any items that aren’t verifiable, must be removed. This is how to get rid of bad credit, and before seven slow, embarrassing, and expensive years go by.
The key to get your credit score up, is getting a clear credit report. It’s imperative to remove this collection item, and about as powerful as removing a failing grade from your transcript is for your GPA.
As in this is the most effective way to fix credit score information, getting rid of the stuff that’s dragging it down in the first place. So let’s talk about this in more detail.
How To Clean Credit Report
Our very last strategy about how to raise your credit score is the most powerful, most effective, and most often misunderstood. Certainly, you’ve heard someone, maybe even Suze Orman, claim you have to just live with bad credit for seven long years?
There’s nothing you can do it about it. But, sit in that bad credit prison for seven excruciating years, and wait for this item to just naturally fall off?
But Suze, what if that item doesn’t naturally fall off? What is some slimy debt collector breaks the law, as their very well-known to do, and continues to report my account past seven years?
And what about the Federal Trade Commission (FTC) study in 2013 that showed over 20% of American’s have an error on their credit reports? That’s millions of people with bogus errors screwing up their credit.
Are they supposed to wait too? And for how long?
Besides, in 2017 didn’t Equifax have a data security scandal, where our government says over 140 million American’s personal information was shared with foreign hackers? This is who we’re supposed to trust?
Yet, tens of millions of American’s do. But, if we only peel back the onion, I guarantee you’ll be shocked, surprised, and maybe even horrified by the plain truths will reveal.
Let’s start in the beginning with the FCRA, this was passed by Congress way back in 1970 with the intention of giving everyday Americans a way to tell the credit bureaus there’s an error on their credit reports.
And will you please fix it. This law is how to dispute credit report items, and legally remove inaccurate, misleading, or incorrect information.
The credit bureaus are private-for-profit businesses, just like Apple, Target, and Starbucks. They’ve been around for many decades. And as it pertains to your credit reports, you’re guilty until proven innocent.
We know with absolute certainty, according to our government and the 2013 FTC study, millions of American’s have errors on their credit reports. We also know the FCRA passed by Congress is intended to give us a way to fix these errors, by using the credit report dispute process.
We should add, there have been amendments made, and recently added that you can now dispute a “data furnisher” this is the company reporting the information about your account to the credit bureaus. In other words, you can bypass the credit bureaus, and dispute a creditor, lender, or data furnisher directly.
Here, we’re going to talk about the traditional credit bureau dispute process. And in case you’re new to this, you have three credit reports (Experian, Equifax, and TransUnion). These three reports frequently contain different information.
Once you’ve identified the errors and accounts you believe are inaccurate, misleading, or incorrect. There’s three ways to file your credit report dispute: online, over the phone, and by mail.
Once the credit bureaus get your dispute, as we shared prior, they first get to deem it valid or frivolous. Only on valid disputes, does the FCRA, require the credit bureaus to investigate or what they call a re-investigation.
Here’s the sticking point, you’re virtually guaranteed to have the credit bureaus deem your dispute frivolous. This is for a number of reasons, and you may have seen a few years ago 60 Minutes aired a story featuring this, and how darn near impossible it is for the average consumer.
Now, here’s the plain truth the credit bureaus only spend money when they conduct their re-investigations. This industry is estimated to earn $4 billion a year in revenue. Two of the three credit bureaus you can buy stock in today.
This means the credit bureaus are not readily, nor speedily running off to spend this money to investigate the estimated 8 million dispute requests they get annually. That money is otherwise profit. And that’s a lot less of a dividend paid out to stockholders.
And yes, at your personal expense. And millions of other hard-working American’s personal expense.
Instead, the credit bureaus have poured massive amounts of money into Washington lobbyists to influence our lawmakers. Public relations campaigns to give consumer’s the perception the credit bureaus are our government or some quasi-government agency. And the bogus idea that it’s somehow illegal to remove “accurate bad credit” before seven long years.
Listen, every last one of these alphabet-soup laws are for you, the consumer. It ain’t to protect the credit bureaus or the debt collectors.
The worst part about this, is the credit bureaus have been known for decades to be cheating consumers, and violating consumer rights under the FCRA. They’ve been fined over and over, and over and over again by our government and the FTC.
One of the most amazing examples was not too long ago, when they were required to install toll-free phone numbers to handle consumer disputes. They did.
But, they didn’t hire anyone or assign anyone to actually answer the phones. Seriously, there were reports of people waiting over 30 hours on hold.
And this is who we’re supposed to trust to first say if our dispute is valid or frivolous? The guy with a clear financial interest in finding our dispute frivolous. Come on, man!
The FTC did step in and fine all three of the credit bureaus again for the phone number fiasco. And all three credit bureaus in 2015 paid $6 million to 31 states attorney general. And countless other FTC fines. And being sued by countless individuals.
Typically, the credit bureaus will respond to your dispute, by requesting you provide them with additional information. Comply with their request, but don’t hold your breath.
Eventually, with enough persistence, most people are able to get their dispute deemed valid, and the credit bureaus will investigate or what they call a re-investigation of the item. As if there was an investigation that took place before it was smacked on your credit report.
During which, they’ll contact the “data-furnisher” or the company reporting the negative account information. And they’ll ask them to verify the account, and the pertinent details like the balance, dates, etc.
If your account is not verified, then in compliance with the FCRA, the item must be removed from your credit report. This is how to clear credit report dings, blemishes, and remove negative items and do so legally by exercising your consumer rights.
It ain’t easy though, evidenced by an Oregon woman named Julie Miller who in 2013 sued Equifax. Julie woke up one day to discover 38 bogus collection accounts appearing on her credit report.
For the next two years, she tried to dispute Equifax, and they kept finding her dispute frivolous. She sent them W-2’s, pay-stubs, tax returns, and all but her first-born child. And they still said her dispute was frivolous.
Julie finally got fed up and sued them. She won and a federal jury awarded her $18.6 million which was later reduced by a federal judge to $1.8 million. But, even a federal judge found Equifax’s behavior so reprehensible he awarded Julie nine times her compensatory damages in punitive damages.
In other words, Julie’s life damages or compensatory award was $180,000. And her punitive award or the damages for the annoyance, frustration, and aggravation were $1.62 million, nine times as much.
Hopefully, you’re circumstances aren’t as dire as Julie’s. And here’s the good news, every year the credit bureaus do comply with federal law and remove millions of negative items from consumer’s credit reports.
How Long Does It Take To Raise Credit Score?
Our final point, is how long does it take to improve credit score? We can say with certainty, it won’t happen overnight. Realistically, it won’t happen in as little as 30 days.
That said, with wise and aggressive deployment many people see significant credit score improvement in as little as 90 days. Full recovery often is seen between six months to one year.
But, just like a medical doctor can’t accurately diagnose an illness without seeing you. We can’t accurately diagnose the exact amount of time, your specific circumstances will dictate. It depends on what’s happened.
The good news, is no matter what your circumstances are, it doesn’t have to take seven long years to escape bad credit prison. After all, if O.J. didn’t have to serve his maximum sentence, odds are, you too can get early release.
Look, it ain’t easy dealing with the credit bureaus, the debt collectors, or the endless number of alphabet soup laws at your disposal. And it can be a challenge just to find true and accurate information, much like our current political climate.
The two big takeaways, are you don’t just have to live with bad credit for seven long, expensive, and frustrating years. That’s the maximum amount of time, seven years.
There is no minimum amount of time. Let us repeat, there is no minimum amount of time any negative item must remain on your credit reports.
Second, your credit score is like your GPA in glory school days past. It doesn’t matter if you’re acing all your classes, if you’re failing The Art of Walking, because this negative mark is going to obliterate your overall GPA.
This is also true of your credit score. And this is why it’s so imperative to restore credit, we remove any dings, blemishes, and negative marks from your credit reports. We encourage our members to consider professional, legal, and legitimate credit repair companies to help.
Because the best news is in 2016 alone, over 9 million negative items were removed from consumer’s credit reports. One of the best credit repair firms is The Credit Pros. They’ve successfully helped their client’s remove late payments, collections, charge offs, judgements, liens, repossessions, bankruptcies, and so 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 get your credit score up with Dan Willis, sign up for our free newsletter and join our congregation.
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