credit restoration ebook - revital creditrevitalize your credit 5...

Revitalize Your Credit

By Jeff Harris


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Introduction Few individuals are able to go though life without experiencing a financial hardship at some time. Whether it is a medical hardship, an untimely death in your family, the unexpected loss of employment, an unexpected expense, or any other various issue; we all face financial problems at some time in our lives. Financial hardships often lead to damaged credit ratings due to delinquent payments, an inability to pay medical or utility bills, unpaid taxes, and loan defaults. Seldom, in my years of working with individual and their credit, have I ever dealt with individuals that simply did not want to pay their bills. Most often, it’s quite the opposite. These are good people that simply had an unfortunate circumstance that caused them not to be able to meet their obligations. Until recently, credit reports, how credit scores are calculated, and even the information contained in credit reports was largely a mystery unless one was involved in the finance industry. Thankfully, over the last decade, tireless legislation and consumer advocacy groups have made it possible for individuals to learn how credit works, how scores are calculated, and have more direct access to the information contained in one’s credit report. This is so important considering the fact that credit now seems to govern so much of our lives. Credit is used to determine whether or not you are able to obtain a loan or line of credit, what interest rate you get, and can even be used by potential employers to determine if you are eligible for employment. So if you have purchased this book, obviously you have experienced credit issues. Your may have had some simple problems, or you may have faced something catastrophic such as bankruptcy. You will be happy to know that your credit future is never hopeless, even in the most severe circumstances. The key is to have knowledge and understanding to best resolve past issues, prioritize your efforts, and do it in the quickest time possible. This book will walk you through, step by step, to give you the knowledge you need to get your credit back on track.


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Chapter 1

Credit Reports and Credit Scores


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In order to be able to manage your credit, its best to first understand what information is contained in a credit report, and how credit scores are configured. As mentioned in the introduction, these facts were only available to the privileged few until recently. Thankfully, this information is more readily available that it was in the past, and individuals have unprecedented access to their own personal credit files. As a result, it will be much easier to optimize your credit standing. First of all, let’s examine the information that is contained in a credit report. Obviously, your personal information will be there: your name, any aliases, current and past addresses, social security number, and maybe even past or current employers. You may be surprised to know that this information is not obtained from any centralized database. Typically, the personal information contained in your credit report comes from creditors who report your account information to Equifax, Experian, and Trans Union. For various reasons, this information can be inaccurate and lead to inaccuracies in your credit report. We’ll discuss this issue further in our chapter on credit disputes. Your account information is also reported to Equifax, Experian, and Trans Union: mortgage accounts, auto and personal loans, lines of credit, and credit cards. Most creditors will report when an account was opened, the amount of your loan, your credit limit, your current balance, and a month-‐to-‐month pay history on how you paid your account. How these accounts are reported has the greatest impact on your overall credit standing. Seldom is information reported about active leases or active utility accounts. So if you have a great rental history or a great pay history with the electric company, do not think that this will translate to an excellent credit rating. In most instances, this information simply is not reported. There are other types of accounts that are reported to the credit bureaus; collection accounts. These are commonly referred to by many various names such as write-‐offs, defaults, etc. Simply put, these are closed accounts that have gone unpaid. These accounts can be reported either by the original creditor or by a collection agency that has acquired the account. And finally, there are public records. If anyone has ever filed a civil suit against you in court and won, it will appear on your credit report in the public records section as a judgment. The public record will list the plaintiff and the amount owed. If the


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judgment has been resolved, it will be listed as satisfied. Tax liens are also reported. Simply put, these are unpaid tax liens. There are federal and state tax liens, and also typically report an amount owed. If a lien has been resolved, it should report as released. Also, if you have filed bankruptcy within the last ten years, this will show up in the public records sections as well. So now that you know what information is contained in a credit report, let’s take a look at what constitutes a credit score. The important thing to consider is that a credit score is a risk assessment. Creditors use your credit score as a tool to help determine how likely you are to repay a debt. Please reference the details on how credit scores are determined: 35% of the total is based on your payment history and whether you paid your accounts on time, or if you ever missed payments. If you have several open accounts and have never been delinquent on any of them, chances are you are going to have a favorable credit rating. If you have had delinquencies, the negative effect to your credit rating is directly proportional to how many delinquencies you have had, and how recently the delinquencies occurred. In other words, someone with multiple delinquencies will have a lower score than someone with just one slip. In addition, a delinquency that reported within the last 30 days will have a much more profound negative effect on one’s credit score than one that occurred two years ago. If you have had a creditor report a delinquency, it is not the end of world. Just be patient, as it will take time to recover from it. First of all, bring your account back into good standing as soon as possible. Unfortunately, you will not regain all the points you lost as soon as the account reports current again. The only “cure” for late payments is the passage of time. As each month passes and you continue to pay your account on time, you gradually regain the points you lost as a result of the reported delinquency. In some cases, it can take up to a year to regain all the points you lost for a single reported late payment. In other word, your pay history is very important, and should be your number one priority. Collection accounts, judgments, and tax liens can be lumped into this category as well. Although these accounts do not report a monthly pay history, they certainly reflect an unpaid bill, and negatively affect one’s score. “When” a collection account or public record was reported to the credit bureau determines how much of a negative effect is has on one’s score. So just like a delinquency, a collection that first started reporting within the last 30 days is certainly going to hurt your score more than one that first reported 2 years ago.


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30% of the total is derived from the total amount of debt you have along with the total amount of credit you have available to you. So in other words: how much you owe as it relates to how much you borrowed. Revolving trade lines such as credit card accounts, home equity lines, and lines of credit are truly what fuels this segment of your credit score. The reason for this is that you control how much of your available credit you use each month. To the contrary, the balance installment loans such as a mortgages or auto loans, is determined more by how long you have had that account and not as much as a conscious choice of how you use your available credit. With that in mind, you optimize the scoring potential of your revolving trade lines by keeping the owing balance at 30% of your available credit, or lower. However, as a general rule, you will be well-‐served if you’re simply able to keep your balance levels less than half the credit limit. Once you exceed that 50% threshold, you begin to lose points at a large clip. In my years of working with individuals in improving their credit scores, I have seen people improve their credit score by as much as 100 points or more just by lowering their credit card balances. One thing to keep in mind is that creditors do not report your balances daily. Typically, your balance is reported once a month around the same time your statements are sent out. It would be in your best interest to have a general idea of when each creditor send out their statements, and make sure your balance is under that 50% threshold at least a week before statements are mailed if possible. More time than not, the balance that is on your statement is typically what is reported to Equifax, Experian, and Trans Union for that month. I wanted to mention one last issue related to credit card balances. A popular trend in today’s market is for individuals to transfer all their credit card balances to one credit card to take advantage of low introductory interest rates. Although taking advantage of these offers will certainly save you money in interest payments, it could have a negative impact on your credit scores. From the standpoint of your credit score, it would be much better to have small balances spread out over several accounts rather than having one large balance close to the credit limit on just one account. 15% is based on how old your credit lines are, or how long your accounts have been open. Having credit card accounts that are several years old is better than


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having ones that were just recently opened. Also, someone who is 50 and has 30+ years of credit history is going to have a better credit rating than a college student that just financed his first vehicle 6 months ago. This is something to keep in mind if you are considering accepting a new credit card offer or transferring balances to new accounts. Any time you open a new account, make certain that it is a necessity. Try to weigh the benefits of the new account to the potential “short-‐term” damage to your credit rating. For example, if you were going to be applying for a mortgage within the next few months, I’d certainly put off trading in the old car for a newer one. Another thing to consider is that a majority of your credit scores are derived from open, active accounts. Once an account is reported as closed, it does not factor into your credit score nearly as much as it did when it was open, regardless of how it was paid and used. One of the biggest mistakes I have seen people make is to pay off a lot of old credit card balances they have had for years, and then immediately close them. This can sometimes have devastating effects on your score depending on the other accounts that are still open to support the score. Certainly, things change in life. We all need upgrades to our vehicles from time to time. Better credit offers come along that are just too good not to take advantage of. My best advice here would be to try to find a few creditors that you trust and enjoy doing business with. Keep a few accounts with these companies as a solid base for long-‐term accounts. If you do pay off a lot of old credit card balances, do not be so quick to close them. JUST DON’T USE THEM. You might be surprised how much of a positive effect these “older” accounts may have to your scores just from the simple fact of how long they’ve been open. 10% is determined by how often you apply for new credit. Don't get caught up in applying for every card offer you see. Any time you apply for credit, the potential creditor pulls a copy of your credit report from one, or all three, of the credit bureaus. These credit pulls show up on your credit report as “inquiries.” A large enough number of inquiries within a limited period of time can have a negative effect on your scores. Also, an inquiry on your credit report that does not result in a new account could also negatively affect your score. And finally, new accounts can negatively affect your scores as well. Even if the account is paid as agreed and the balances are at appropriate levels, it will sometimes take a few months for this new account reporting to the credit bureaus to overcome the initial “lower score” from


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starting a new account. 10% of the final total is determined by the types of accounts you have open. In other words, you want to have a good mix of credit. Having too many of one type of account can have a negative effect on one’s credit score. For example, if you have 15 open credit card accounts, that’s probably too much. I often see the same thing with mortgage speculators; individuals that acquire and flip houses for profit. Often times, they are carrying multiple mortgages on their credit report. Having an unusually high number of mortgage accounts can harm your score as well. Keep in mind that a credit score is a risk assessment, and potential creditors are trying to determine how likely you are to repay a debt. The more obligations you have, the less likely you appear to be to repay a debt. If a “perfect” mix of credit did exist, I would imagine it would likely be one or two mortgages, one or two auto or personal loans, and 2-‐5 open credit card accounts.


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Chapter 2

Obtaining a Copy of Your Credit Report


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Until recently, consumers had very little access to their own personal credit reports. Many individuals who had applied for and denied credit were frustrated by the fact that they could not immediately see the information contained in their own credit file. The good news is that much has changed in recent years. New legislation, and heightened cooperation by the credit bureaus, has given individuals unprecedented, immediate access to credit reports. A new amendment to the Fair Credit Reporting Act dictates that consumers can request and obtain one free copy of their credit report every twelve months from each of the three major reporting repositories: Equifax, Experian, and Trans Union. All you have to do is request it. You can call or write to request a copy directly from each bureau, or simply visit their respective web-‐sites: Equifax PO Box 740241 Atlanta, GA 30374 (800) 685-‐1111 www.equifax.com Trans Union PO Box 1000 Chester, PA 19022 (800) 888-‐4213 www.transunion.com Experian PO Box 2002 Allen, TX 75013 (888) 397 3742 www.experian.com Even more simpler, you can safely get a copy of all three reports, simply by writing to the Annual Credit Report Service or going to their web-‐site: Annual Credit Report Request Service PO Box 105283 Atlanta, GA 30348-‐5283 www.annualcreditreport.com


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If you have recently applied for credit, you can even request a copy of the credit report pulled by your potential creditor. This practice was not legal in the past, but those laws are no longer relevant. Many creditors may still shy away from sharing your credit file with you, and they still have the prerogative whether they choose to do so or not. So don’t be discouraged if you are refused upon request. Many companies have these policies in place to protect themselves against credit discrimination suits. Still, it never hurts to ask. A general misconception still exists that one credit bureau may be better than the other, or that one is just as good as the other. This would be a false statement. Years past, the credit repositories were somewhat regional: Equifax serving mainly the South and Southeast, Trans Union serving mainly the North and Mid-‐West, and Experian serving mainly the West. For example, is you lived in Birmingham, AL, you probably did business with banks in the Birmingham area who only reported your credit information to their regional credit repository, Equifax. With an ever-‐emerging global economy, the notion of a local bank seldom still exists anymore. Also with the increased mobilization of the population, an individual is now less likely to live in one area of the country their entire lives. Increasingly, creditors are reporting to all three bureaus rather than just one regional repository. It also important to note that Equifax, Experian, and Trans Union all operate as completely separate entities. In other words, none of the three major bureaus are connected in any way. They do not share information. In today’s market, you never know which of the bureaus a potential creditor will access. Also, creditors that you currently have accounts with choose the repositories to which they report your credit information. They may choose to report to one, two, or even all three. In some cases, they may choose not to report at all. Simply put, it is important for you to know what information is reporting to each of the three bureaus. It would be awful to completely clear negative information from your Equifax and Trans Union credit report, only to later get a credit denial due to an unresolved issue that was only reporting to Experian.


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Chapter 3

Credit Bureau Disputes


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Under the Fair Credit Reporting Act, both the credit bureau and reporting creditor are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the credit bureau and the creditor as well. Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name, address, and social security number, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Make sure you dispute the specific information that is incorrect on your credit file. In other words, don’t just say “my Bank X account is reporting incorrectly,” rather specifically state what is wrong. For example: “It was reported that Bank X was delinquent in April of 2008. This account was not delinquent in April of 2008.” Even if you do not have documentation to support your claims, I highly recommend that you dispute anything on your credit report that is questionable. In many instances, accounts may appear on your credit report may be outdated, or never updated properly. There may also be collection accounts reported by collection agencies that no longer exist or are no longer actively collecting the account. Ultimately, it is your responsibility to ensure that all the information reporting on your credit report is up-‐to-‐date. Also, examine your personal information that is on file with each credit bureau. Keep in mind that the credit bureaus are repository. In other words, they receive and report information. They do not generate it. You may find discrepancies in the spelling of your name, your social security number, and former addresses. All of these variations may inadvertently add accounts to your report that do not belong to you, so make sure you address each of these discrepancies in your disputes. Regardless of whether your personal information is completely accurate or not, be sure to attach a copy of your identification (verifying your current mailing address and social security number) to each dispute that you mail to the credit bureaus. Once completed, send your letter by certified mail, “return receipt requested,” so you can document when the credit bureaus received your dispute. Keep copies of your dispute letter and enclosures.


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Consumer reporting companies must investigate the items in question (usually within 30 days) unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the disputed creditor receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three credit bureaus so they can correct the information in your file. In addition, if the creditor cannot answer the dispute within this time-‐frame, the disputed account must be deleted from your credit file. When the investigation is complete, the credit bureau must give you the results in writing and a free copy of your report illustrating the changes and deletions made to your credit file. This free report does not count as your annual free report. If an item is changed or deleted, the credit bureaus cannot put the disputed information back in your file unless the reporting creditor verifies that information is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the reporting creditor. Upon request, the credit bureaus must send notices of any corrections to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes. If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports that is added to the account in question. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service. Also write the creditor reporting the disputed item, in writing, that you dispute their account. Be sure to include copies of documents that support your position. Many creditors specify an address for disputes. If the creditor reports the item to the credit bureaus, it must include a notice of your dispute. And if the information you dispute is found to be inaccurate, the information provider may not report it again. On rare occasions, you may find that the credit bureaus do not respond to your dispute request in a timely fashion (30 days). In these incidences, it likely means the bureaus are having difficulty receiving a response from the reporting creditor of a disputed account. Under the Fair Credit Reporting Act, the credit bureau is required to delete the disputed item if it can not be verified within this time-‐frame.


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In this situation, re-‐send a copy of your original dispute letter to the credit bureau along with a copy of the certified mail receipt indicating the date the credit bureau received your initial letter. Demand that the credit bureau delete this information from credit file. If they fail to comply, persistently address this issue with credit bureau in question. In addition, I suggest filing a complaint against the relative credit bureau with the Federal Trade Commission at www.ftc.gov. Your credit file may not reflect all your credit accounts. Although most national department store and all-‐purpose bank credit card accounts, mortgages, and auto loans will be included in your file, not all creditors supply information to consumer reporting companies. Some local retailers, credit unions, travel, entertainment, and gasoline card companies are among the creditors that don’t. If you’ve been told that you were denied credit because of an “insufficient credit file” or “no credit file” and you have accounts with creditors that don’t appear in your credit file, ask both the creditor and credit bureau to add this information to future reports. Although they are not required to do so, many credit bureaus will add verifiable accounts to your report for a fee. However, understand that if these creditors do not report to the credit bureaus on a regular basis, the added items will not be updated in your file.


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Chapter 4

Direct Creditor Disputes


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Should your disputes with the credit bureaus be unsuccessful, all is not lost. You can continue the dispute process directly with the creditor in question or related collection agency. If you are knowingly disputing negative information that is accurate, the credit bureaus only re-‐investigate an item a couple times before they start to consider your disputes “frivolous.” But if you have a legitimate issue that has not been resolved through the credit bureaus, do not give up. You need to continue to be persistent in your contact with the reporting creditor or collection agency. Continue to write the creditor or collection agency weekly regarding your complaint. Make sure attach copies of your supporting documentation (proof) that your claim is legitimate with each correspondence. Follow up with frequent phone calls to the credit or collection agency to demand that they take action. If you still cannot convince the creditor to correct the error on your credit report, there are a number of consumer advocacy groups that can assist you. The Better Business Bureau is a great resource to utilize for this purpose. Just visit the BBB web-‐site at www.bbb.org to file a complaint. The site will direct you to the appropriate regional office to file your complaint, and they are excellent at following up. Another resource to utilize is your state’s attorney generals office. Every attorney general office in the United States contains a consumer protection division. You can either call or write to file your complaint, and most are also excellent at following up. Some states have government offices that either license or regulate collection agencies. For instance, in my home state of NC, the Department of Insurance licenses collection agencies. They allow you to file a complaint if you have a concern. Depending on the state you live in, you need to do a little investigating to make sure you are contacting the appropriate office. Most of these governing bodies are usually excellent at following up. You can also file complaints against creditors or collection agencies with the Federal Trade Commission at www.ftc.gov. Usually, the Federal Trade Commission will do nothing more than log your complaint. However, if the FTC has received numerous complaints about how one particular company does business, they will get involved and ask for an explanation.


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You also need to be creative in your complaints, as there are a number of government agencies that might be able to help you with your complaint. For example, if you have an unresolved complaint about a phone bill, contact the Utilities Commission for help. If you have an unresolved complaint with a bank, contact the Federal Reserve for help. The more entities you contact for assistance, the better chance you have in getting resolution to your issue. Most importantly… BE PERSISTANT!


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Chapter 5

Fraud and Identity Theft


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Identity theft is becoming one of the fastest growing crimes in the nation. Using a variety of methods, criminals steal Social Security numbers, driver's licenses, credit card numbers, ATM cards, telephone calling cards, and other pieces of individuals' identities such as date of birth. They use this information to impersonate their victims, spending as much money as they can in as short a time as possible before moving on to someone else's name and identifying information. There are two types of identity theft. o "Account takeover" occurs when a thief acquires your existing credit account

information and purchases products and services using either the actual credit card or simply the account number and expiration date.

o "Application fraud" is what some experts call "true name fraud." The thief uses your SSN and other identifying information to open new accounts in your name. Victims are not likely to learn of application fraud for some time, because the monthly account statements are mailed to an address used by the imposter. In contrast, victims learn of account takeover when they receive their monthly account statement.

Generally, victims of credit card fraud are liable for no more than the first $50 of the loss. In most cases, the victim will not be required to pay any part of the loss if fraud can be proven. But debit card users have less protection against fraud. Not only are individuals' checking accounts wiped out, debit card users could be liable for the total amount of the loss depending on how quickly they report the loss to the financial institution. Even though victims are usually not saddled with paying their imposters' bills, they are often left with a bad credit report and must spend months and even years regaining their financial health. In the meantime, they have difficulty getting credit, obtaining loans, renting apartments, and even getting hired. Victims of identity theft find little help from the authorities as they attempt to untangle the web of deception that has allowed another person to impersonate them. So what do you do if it happens to you?

1. Notify credit bureaus and establish fraud alerts. Immediately report the situation to the fraud department of the three credit reporting companies -‐-‐


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Experian, Equifax, and TransUnion. When you notify one bureau that you are at risk of being a victim of identity theft, it will notify the other two for you. Placing the fraud alert means that your file will be flagged and that creditors are required to call you before extending credit. Consider using a cell phone number if you have one.

Equifax: P.O. Box 740250, Atlanta, GA 30374-‐ 0241 Report fraud: Call (888) 766-‐0008 and write to address above TDD: (800) 255-‐0056 Web: www.equifax.com

Experian: PO Box 9532 Allen TX, 75013 Report fraud: Call (888) EXPERIAN (888-‐397-‐3742) and write to address above TDD: Use relay to fraud number above. Web: www.experian.com/fraud

TransUnion: P.O. Box 6790, Fullerton, CA 92834-‐6790 Report fraud: (800) 680-‐7289 and write to address above TDD: (877) 553-‐7803 E-‐mail (fraud victims only): [email protected] Web: www.transunion.com

Under new provisions of the Fair Credit Reporting Act, you can place an initial fraud alert for only 90 days. The credit bureaus will each mail you a notice of your rights as an identity theft victim. Once you receive them, contact each of the three bureaus immediately to request two things:

o A free copy of your credit report o An extension of the fraud alert to seven years

You may request that only the last four digits of your Social Security number (SSN) appear on the credit report. You must have evidence of attempts to open fraudulent accounts and an identity theft report (police report) to establish the seven-‐year alert. You may cancel the fraud alerts at any time. Once you have received your three credit reports, examine each one carefully. Report fraudulent accounts and erroneous information, in writing, to both the credit bureaus and creditor. The FTC’s identity theft guide provides a sample letter to send


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to the credit bureaus requesting that fraudulent accounts be blocked. http://www.ftc.gov/bcp/edu/pubs/consumer/idtheft/idt04.pdf Once you notify the credit bureaus about the fraudulent accounts, the bureau is required to block that information from future reports. The bureau must also notify the credit grantor of the fraudulent account. Ask the credit bureaus for names and phone numbers of credit grantors with whom fraudulent accounts have been opened if this information is not included on the credit report. In addition, instruct the credit bureaus in writing to remove inquiries that have been generated due to the fraudulent access. You may also ask the credit bureaus to notify those who have received your credit report in the last six months to alert them to the disputed and erroneous information (two years for employers). Monitor your credit reports. Be aware that these measures may not entirely prevent new fraudulent accounts from being opened by the imposter. Credit issuers do not always pay attention to fraud alerts, even though the law now requires it. That is why we recommend that you check your credit reports again in a few months.

2. Law enforcement. Report the crime to your local police or sheriff's department right away. You might also need to report it to the police departments where the crime occurred if it's somewhere other than where you live. Give them as much documented evidence as possible. Make sure the police report lists the fraudulent accounts. Get a copy of the report, which is called an "identity theft report" under the FCRA. Keep the phone number of your investigator handy and give it to creditors and others who require verification of your case. Credit card companies and banks may require you to show the report in order to verify the crime.

FTC regulations define an "identity theft report" to include a report made to a local, state, or federal law enforcement agency. If your local police department refuses to file a report and your situation involves fraudulent use of the U.S. mail, you can obtain an identity theft report from the U.S. Postal Inspector. If your case involves fraudulent use of a driver's license in your name, you might be able to obtain a report from your state's Department of Motor Vehicles. The FTC has more information on identity theft reports at http://www.ftc.gov/bcp/edu/microsites/idtheft/consumers/defend.html


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3. Federal Trade Commission. Report the crime to the FTC. Include your police report number. Although the FTC does not itself investigate identity theft cases, they share such information with investigators nationwide who are fighting identity theft.

4. If new credit accounts are opened by the imposter, contact those creditors immediately by telephone and in writing. Recent amendments to the FCRA may allow you to prevent businesses from reporting fraudulent accounts to the credit bureaus. Creditors will likely ask you to fill out fraud affidavits. The FTC provides a uniform affidavit form that most creditors accept: www.ftc.gov/bcp/conline/pubs/credit/affidavit.pdf. These affidavits should be notarized. Creditors typically require verification of your signature to initiate an investigation. Write the credit grantors in question and ask them to furnish you and your investigating law enforcement agency with copies of the documentation, such as the fraudulent application and transaction records. Federal law gives you the right to request these documents. A victim of identity theft must provide a copy of the FTC affidavit or another affidavit acceptable to the business, plus government-‐issued identification, and a copy of an "identity theft report" (police report) in order to obtain the documents created by the imposter. The business must provide copies of these records to the victim within 30 days of the victim's request at no charge. The law also allows the victim to authorize a law enforcement investigator to get access to these records. When you have resolved the fraudulent account with the creditor, ask for a letter stating that the company has closed the disputed account and has discharged the debts. Keep this letter in your files. You may need it if the account reappears on your credit report. 5. Handling problems with your existing credit or debit accounts. If your existing credit or debit accounts have been used fraudulently, report it in writing immediately to the credit card company.


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Request replacement cards with new account numbers. In addition to phoning the credit card company regarding the fraud, you will need to follow up in writing and will likely be asked to provide a fraud affidavit or a dispute form. Send the letter to the address given for "billing inquiries," not the address for sending payments. Carefully monitor your mail and bills for evidence of new fraudulent activity. Report it immediately. Add secure passwords to all accounts. These should not be your mother's maiden name or any word that is easily guessed.

6. Debt collectors. If debt collectors try to get you to pay the unpaid bills on fraudulent accounts, ask for the name of the collection company, the name of the person contacting you, phone number, and address. Tell the collector that you are a victim of fraud and are not responsible for the account. Ask for the name and contact information for the referring credit issuer, the amount of the debt, account number, and dates of the charges. Ask if they need you to complete their fraud affidavit form or whether you can use the FTC affidavit. Follow up by writing to the debt collector explaining your situation. Ask that they confirm in writing that you do not owe the debt and that the account has been closed.

Under new provisions in the FCRA, a debt collector must notify the creditor that the debt may be a result of identity theft. The FCRA also prohibits the sale or transfer of a debt caused by identity theft.

7. Check and banking fraud. If you have had checks stolen or bank accounts set up fraudulently, ask your bank to report it to ChexSystems, a consumer reporting agency that compiles reports on checking accounts. Also, place a security alert on your file. Your bank should be able to provide you with a fraud affidavit. Put "stop payments" on any outstanding checks that you are unsure about. Close your checking account and other affected accounts and obtain new account numbers. Give the bank a password for your account (not mother's maiden name, Social Security number, date of birth, pet's name, sequential numbers, or any other easily guessed words). 8. ATM cards. If your ATM or debit card has been stolen or compromised, report it immediately. Contact your bank and fill out a fraud affidavit. Get a new card, account number, and password. Do not use your old password. Closely monitor your account statements. You may be liable if the fraud is not reported quickly. Start with a phone call and immediately follow up in writing. Be sure to read the debit card contract for


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information about liability. Some cards are better protected in cases of fraud than others.

ATM and debit card transactions are subject to the Electronic Fund Transfer Act. Even if you are a victim of identity theft, your liability for charges can increase the longer the crime goes unreported.

9. Fraud involving U.S. mail. Notify the local Postal Inspector if you suspect an unauthorized change of your address with the post office or if the U.S mail has been used to commit fraud. Find out where fraudulent credit cards were sent. Notify the local Postmaster to forward all mail in your name to your own address. You may also need to talk with the mail carrier. Call the U.S. Postal Service to find the nearest Postal Inspector at (800) 275-‐8777 or visit its web site at http://postalinspectors.uspis.gov/ The online complaint form is available at https://postalinspectors.uspis.gov/forms/MailFraudComplaint.aspx You can mail your complaint to: U.S. Postal Service, Criminal Investigations Service Center, Attn: Mail Fraud, 222 S. Riverside Plaza Suite 1250, Chicago, IL 60606-‐6100. 10. Social Security number misuse. The Social Security Administration (SSA) does not provide assistance to identity theft victims in most cases. But be sure to contact the SSA Inspector General to report Social Security benefit fraud, employment fraud, or welfare fraud.

o Social Security Administration online complaint form: www.socialsecurity.gov/oig

o By mail: SSA Fraud Hotline, P.O. Box 17768, Baltimore, MD 21235

As a last resort, you might try to change your number, although we don't recommend it except for very serious cases. If your SSN card has been stolen or lost, order a replacement. Complete the SSA's application available at www.socialsecurity.gov/online/ss-‐5.html , or by visiting your local SSA office. You will need to provide the required documentation such as birth certificate and government ID at your local SSA office to get a replacement card.


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11. Phone service. Identity thieves often establish fraudulent cell phone accounts, with monthly bills going unpaid. The imposter might also have opened local and long distance telephone accounts. If the imposter has obtained phone accounts in your name, contact the phone company for information on how to report the situation. The steps that you take to clear your name with both the phone company and credit bureaus are much the same as with credit card accounts described above in steps one and three.

If your calling card has been stolen or there are fraudulent charges, cancel it and open a new account. For your own phone accounts, add a password that must be used any time your local, cell phone, and long distance accounts are changed.

12. Student loans. If an identity thief has obtained a student loan in your name, report it in writing to the school that opened the loan. Request that the account be closed. Also report it to the U.S. Dept. of Education:

o Call: U.S. Dept. of Education Inspector General's Hotline: (800) MISUSED (800-‐647-‐8733)

o Write: Office of Inspector General, U.S. Dept. of Education, 400 Maryland Ave., SW, Washington, DC 20202-‐1510.

o Web: www.ed.gov/about/offices/list/oig/hotline.html?src=rt

13. Driver's license number misuse. You may need to change your driver's license number if someone is using yours as ID on bad checks or for other types of fraud. Call the Department of Motor Vehicles (DMV) to see if another license was issued in your name. Put a fraud alert on your license if your state's DMV provides a fraud alert process. Go to your local DMV to request a new number. Fill out the DMV's complaint form to begin the investigation process. Send supporting documents with the completed form to the nearest DMV investigation office. 14. False civil and criminal judgments. Sometimes victims of identity theft are wrongfully accused of crimes that were committed by the imposter. If you are wrongfully arrested or prosecuted for criminal charges, contact the police department and the court in the jurisdiction of the arrest. Also contact your state's Department of Justice and the FBI to ask how to clear your name. If a civil judgment is entered in your name for your imposter's actions, contact the court where the judgment was entered and report that you are a victim of identity theft.


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20. Legal help. You may want to consult an attorney to determine legal action to take against creditors, credit bureaus, and/or debt collectors if they are not cooperative in removing fraudulent entries from your credit report or if negligence is a factor. Call the local Bar Association, a Legal Aid office in your area, or the National Association of Consumer Advocates to find an attorney who specializes in consumer law, the Fair Credit Reporting Act, and the Fair Credit Billing Act.

If you are a senior citizen or take care of a dependent adult, be sure to contact an elder law service or the nearest Aging and Independent Services program. Many district attorneys have an elder abuse unit with expertise in financial crimes against seniors.

21. Keep good records. In dealing with the authorities and financial companies, keep a log of all conversations, including dates, names, and phone numbers. Confirm all conversations in writing. Send correspondence using certified mail with return receipt requested. Keep copies of all letters and documents.


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Chapter 6

Resolving Valid Collection Accounts


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Once you have verified a collection account belongs to you and you are ready to address it, now begins the delicate task of contacting the creditor or collection agency handling the account. Unless you have funds available to start making payments or negotiate a settlement, it’s probably best to avoid contact as best you can. Collection representatives can be ruthless and intimidating. The one thing to keep in mind is that despite the fact that you’ve allowed an account to go into collections; you are still the one in control. In other words, you control your money and where it goes. After account goes into collections, you will find that these accounts can start to move around rather quickly; from department to department inside the offices of the original creditor and eventually from one collection office to another. If you have taken our initial advice and requested the credit bureaus to verify all collection balances, you have already taken steps that will ease the process of tracking down who is handling your account. When an account is verified by the credit bureaus, usually you are supplied with the most up-‐to-‐date information about an account. However, don’t be discouraged, when you make that first call, if you get transferred around a few times before you’re speaking to the appropriate agency. The last thing you want to do, when dealing with a collection account, is make a promise you can’t deliver on. This will only compound the issue. Be honest with the collection agent, but do not give them too much information, only what they need to know. Whatever information you give them, they will likely be able to use it against you. When handling a collection account, the best way to save the most money is through what’s called a “lump-‐sum” settlement. With this, you will be making one large payment to satisfy the entire owed balance at a fraction of what you actually owe. Once the funds have cleared, you have legally settled the debt in full. For example, most credit card companies with settle credit card balance for roughly 50% of the balance. In other words, if you have a $1,000 collection balance, you can probably convince the company to accept a one-‐time payment of $500 to resolve the debt. In some cases, it may take some coaxing to negotiate this kind of arrangement. If you’re dealing with an uncooperative collection agent, set up three affordable payments and live up to your word. Think of this as a “show of good faith.” After you’ve made a few payments and establish a degree of trust, the collection will likely be more inclined to negotiate a better deal.


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I highly advise not “fishing” to see what kind of deal a collection agency might give you. In other words, don’t call a collection agency to see what kind of settlement they will take if you don’t have any money. They will probably make you the best offer the first time. If you tell them you don’t have it or can’t pay it, I doubt you’ll get as good a deal the next time. Even if you don’t have the funds necessary to settle an account now, don’t be discouraged. And definitely do not ignore it. What I often suggest to my clients is setting up a “settlement savings account.” Rather than paying the token payment to a collection agent on a balance that is still accruing interest, I say pay yourself. Work on building a lump sum of money that you can eventually offer as a reasonable settlement on a debt. You’ll save yourself the most money when handling accounts this way. As stated earlier, you can negotiate most settlements for around 50% of the owed balance. However, there are situations when you can get better settlements. If you are dealing with an extremely old account (one that has been in collections for 3 years or more), you are likely to be able to get a better deal. In other words, the older an account is, the less reasonable you should be in your offer. Also, I’ve found I’m able to negotiate quite favorable settlements for most repossession balances. Let’s face it, they’ve already gotten the vehicle back and recovered a good portion of the balance through the re-‐sale of the vehicle. In contrast, there are other types of collections where one would be less likely to receive any kind of settlement at all. For example, most medical and some utility bills (such as phone, cable, etc) are more difficult to settle. Its still worth the effort to try, but don’t be discouraged if you don’t get as good a deal (if any) on these types of accounts. One thing to note, you’re more likely to be able to arrange settlements on these types of debts if the balances are over $500 than you would on balances of perhaps $200 or less. This is very important: Get everything in writing! Should you negotiate a favorable settlement on a bad debt, make sure to request the terms of the agreement in writing from the collection agent (that references the account and the account number). If they refuse to supply this to you, they’re probably not being completely honest with you. Most collection agents are fair, but I have seen many of instances where individuals have lived up their promise, only to have a collection agent go back on their word. Simply having the offer you negotiated in writing, along with


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record of your payment, will give you the ammunition you need for a further dispute (if necessary). Also, if the creditor or collection agent has filed a judgment against you, make sure they contact the court to report that it is satisfied. It is the responsibility of the creditor to update the court record, but they do not always do so. You will also need to prioritize your collection accounts. Trade accounts (or accounts you’ve had with a lender who given you a loan or line of credit) are much more serious than an unpaid medical bill or unpaid phone bill. Try to focus on these accounts first. Also, it’s much more important that you have fewer unresolved collection accounts than it is to have “the one big one” resolved. In other words, if you have 4 credit card collections totaling about $750 each, and one repossession balance totaling $5,000, you will be better served resolving the four smaller collection balances first. In some cases, the sheer number of collection accounts and amounts of your collection balances can be daunting. If you feel you are over your head, and you’ll never be able to escape the bad debt you’ve accumulated, you’re probably right. In such circumstances, it might not be a bad idea to consider other alternatives such as bankruptcy that I’ll address in a future chapter. I’ve seen too many individuals over the years deprive themselves and their families of the bare necessities in life simply trying to resolve past mistakes; spending years dedicating every expendable dollar toward collection accounts. Years later, despite their dedication, they are still left with mounds of bad debt, and nothing to show for their efforts. If I could suggest one thing, it’s this: take a look at how much bad debt you have. Do a budget, and figure out how much of your expendable income you could put towards collections. If you can pay it off yourself within two years, you should make the effort. If not, you should consider other avenues of debt relief. If you find that your debt has been referred to an attorney’s office, and is no longer being handled by a collection agency or the original creditor, you need to take immediate action. Usually, this indicates that legal action is pending. Even if you don’t have funds available for a lump-‐sum settlement, it is a good idea to speak with the attorney and try to set up payment arrangements that you can afford. Later on, after saving for a while, you can go back and negotiate a settlement with the attorney just as easily as you could with a collection agent. Ignoring the matter will likely lead to legal action, judgments (or public records), and possible wage garnishment.


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And finally, remember that you have rights that protect the way you are to be treated by collection agents. If you are being harassed or intimidated, despite the fact you’re making an honest attempt to resolve your issues, remember that there are agencies that you can utilize to file grievances against collections agencies. Refer back to Chapter 4.


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Chapter 7

Defaulted Student Loans


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If you have student loans that have gone past due, the best thing to do is call your student loan servicer and make arrangements to bring your loan back into good standing as soon as possible. In most situations, your servicer will be extremely agreeable in helping you get your loan back on track with various options based upon your ability to repay. If you have not paid on your student loans for a long period of time, your loans may have slipped into default. At this point, your options are more limited. If this is the case, you may want to consider rehabilitating your defaulted loans. There are several advantages of using the rehabilitation program. Your loans will no longer be considered to be in a default status. The default status reported by your loan holder to the national credit bureaus will be deleted. You will be eligible for the same benefits that were available on the loans before the loans defaulted. This may include deferment, forbearance, and Title IV eligibility. Wage garnishment ends and the Internal Revenue Service no longer withholds your income tax refund. To rehabilitate a Direct Loan, you must make at least nine full payments of an agreed amount within twenty days of their monthly due dates over a ten month period to the U.S. Department of Education. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation cannot be counted toward your nine payments. Once you have made the required payments, your loans will be returned to the Direct Loan Servicing Center. To rehabilitate a FFEL, you must make at least nine full payments of an agreed amount within twenty days of their monthly due dates over a ten month period to the Department. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your nine payments. Once you have made the required payments, your loan may be purchased by an eligible lending institution. To rehabilitate a Perkins Loan, you must make twelve on-‐time, monthly payments of an agreed amount to the Department. Payments secured from you on an involuntary basis, such as through wage garnishment or litigation, cannot be counted toward your twelve payments. Once you have made the required payments, your loan will continue to be serviced by the Department until the balance owed is paid in full.


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Once you have entered into a rehabilitation agreement, your loan may be eligible for consolidation. In other words, you will not have to wait 9-‐12 months of the rehabilitation program to bring your loan out of default.

The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. Under these programs, a borrower’s loans are paid off and a new consolidation loan is created. These programs simplify loan repayment by combining several types of Federal education loans (that may have different terms and repayment schedules or may have been made by different lenders) into one new loan. The interest rate may be lower than on one or more of the underlying loans. In addition, the monthly payment amount on a consolidation loan is usually lower and the amount of time to repay may be extended beyond what was available in the separate loan programs. These features should result in more manageable debt and should make borrowers less prone to default. To find out if you qualify for loan consolidation, contact Direct Loans: Direct consolidation loans Phone: (800) 557-‐7392 FAX: (800) 557-‐7396 TDD: (800) 557-‐7395 E-‐mail: [email protected] http://loanconsolidation.ed.gov/


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Chapter 8

Tax Liens


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If you have had an unpaid tax liability with the IRS or your local state department of revenue, it may result in a tax lien. Tax liens show up on your credit report as a public record. The appearance of these liens will affect the credit you are offered and any personal property you own. In extreme cases, a bank levy, or wage garnishment, will be administered by the IRS of state department of revenue to collect a back tax liability. One possibility is to prove undue hardship to get a lien or garnishment released. To prove hardship, you will need to provide substantial and convincing proof that the lien is causing an undue hardship. They will require past due and/or eviction notices before releasing a lien. If you own a business under a state of federal lien, you may be able to get it released by showing an undue hardship to your employees. Another option is to enter into formal resolution for back tax liability. Federal and state departments of revenue will typically issue a release of the lien once a resolution is in place, and in some cases, when it is proposed. The minimum qualifications for a resolution of a back tax liability and garnishment require you to be current with current tax payments, have all past tax returns filed, and be qualified for the resolution you are proposing. In some cases, you can negotiate the release of a lien. Contact your local federal or state collections officer and ask to negotiate a release of your lien. By providing requested documentation, you may be able to establish a plan to resolve the outstanding back tax liability. But keep in mind; most collections officers do not have the authority to release a lien on a promise. You will need to take action. You can also submit formal appeals and utilize taxpayer advocate services to get liens released. There are appeals available that can prevent or delay and lien, and in some cases release a lien. These appeals are called the Collection Appeal Request and the Collection Due Process Request. Most individuals will need an experienced tax attorney to file and negotiate these appeals. You can also file a Taxpayer Advocates Assistance Request, which will put you in touch with a liaison to the IRS and state departments of revenue. But please keep in mind that they do not have the authority to release a lien. For more information, visit the IRS website at: http://www.irs.gov/businesses/small/article/0,,id=108339,00.html Or contact your state’s department of revenue.


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Chapter 9

Consumer Credit Counseling


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This chapter will be brief. There is only one instance where I see a benefit in using consumer credit counseling. If you have had a generally good pay history on all of your accounts, are devoid of multiple collection accounts, and are simply in a situation where you find yourself in a position where you can’t make your minimum monthly payments on your credit card accounts, then consumer credit counseling may be your best option. Consumer credit counseling should be considered as one last-‐ditch effort to avoid filing bankruptcy. If you find yourself in a situation where you can afford your house payment and/or car payments, and simply need some relief on your credit card obligations, then consumer credit counseling may be your best option. Don’t wait until you’re a couple months behind to take advantage of this service. If you see a problem developing, start looking into consumer credit counseling before you start to miss payments. What consumer credit counseling does is consolidate your credit card payments into one monthly payment. Only credit card accounts can be included in these agreements. These are non-‐profit organizations. You pay the consumer credit counseling agency one monthly payment, and for a small fee, they pay all your credit card payments for you each month. In most instances, they are able to lower your minimum monthly obligations. In some cases, they are even able to lower or eliminate interest charges. This is simply a way to lower your minimum monthly obligations, and get rid of this debt… nothing more. You need to be aware of a few things before considering this option. Entering in a consumer credit counseling program closes all the accounts included. In other words, you can’t use them anymore. If you’re depending on your credit cards to stay afloat, this is probably not your best option. Also, you will probably not be able to apply for or receive any new loans or credit while enrolled in consumer credit counseling. Simply put, consumer credit counseling is simply a way to protect your credit rating if you’re in a bind, or an easier way to lessen your credit card obligations should this be your top priority. As soon as you are in a position to take control of your obligations on your own, all you have to do is request to do so. I suggest you should. There are numerous consumer credit counseling agencies out there. Some are more credible than others. In choosing one, I suggest contacting at least three and comparing their offers. Also, ask for references, and investigate their reputation on


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the Internet. Another thing you can do is contacting your local YMCA office. Many YMCA offices offer credit counseling as a community service. In many cases, they have already done the investigative work for you, and can refer you to a more credible service.


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Chapter 10

Bankruptcy


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Chapter 7 and Chapter 13 are the two main chapters under which individuals can file personal bankruptcy. Chapter 7 bankruptcy is a liquidation of assets while Chapter 13 bankruptcy is a reorganization where the debtor creates a three to five year payment plan. The primary reasons for filing personal bankruptcy are unforeseen medical expenses, excessive credit card debt, loss of employment, and divorce. Needless to say many of these events create not only financial difficulty but also a tremendous amount of distress in and of themselves. This makes it especially important that individuals consider all available options and bankruptcy alternatives to make sure whatever action they settle upon is in their long-‐term interest. Bankruptcy should be your last resort. If you determine that personal bankruptcy is the best option available, then you should learn more about the federal bankruptcy law. Bankruptcy is an important decision, and its application to one's particular situation, can be very complicated. It is generally recommend that you consult with an attorney with experience in the personal bankruptcy field. The first part of the bankruptcy filing process is collecting all of your personal financial information. This will include a list of all your secured and unsecured debts (you might find having your credit report helpful), tax returns for the last two years, deeds to any real estate you own, car titles, and any other loan documents you may have. At this point, your attorney will need to complete the bankruptcy forms. If you are filing a Chapter 13 bankruptcy, a proposed repayment plan must also be submitted with your petition. Once the bankruptcy petition is completed you will need to file the petition with your local United States bankruptcy court. Your attorney will alert you to the fees necessary to retain their services and how much your total obligation will be to file. Expect to pay at least $1,000 in attorney fees. This may seem expensive, but keep in mind the amount you are spending on the bankruptcy is probably small in relation to the total amount of debt to which you are seeking relief. Immediately upon filing your petition with the bankruptcy court, an automatic stay goes into effect. This provision prevents creditors from making direct contact with you or staking a claim to any of your property from the date of filing. Approximately


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a month after filing, the trustee will call a first meeting of creditors. This meeting, often call a 341 meeting, requires the presence of the debtor. Creditors are invited to attend the 341 meeting to ask any specific questions about the bankruptcy filing. Objections are typically resolved by negotiations between your attorney and the creditor. If a compromise cannot be reached, a judge will intervene. The meeting of creditors typically lasts about five minutes. If there are no challenges, you will receive a notice from the court, usually within four to six months, that the bankruptcy is discharged. But you will be entered into a repayment plan with any creditor that stakes a claim. The bankruptcy trustee determines an affordable monthly payment and set period of time for you to repay your debts through the court. Once you have satisfied your responsibility, the bankruptcy is discharged Another type of bankruptcy, Chapter 7, is a court-‐supervised procedure by which a trustee collects the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-‐asset cases.” Usually debtors with assets that they wish to keep and that are not covered by exemptions file chapter 13 bankruptcy. However, there are some instances where a debtor files Chapter 7, which would allow him to keep his primary residence and vehicles. A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, the debtor receives a discharge that releases the debtor from personal liability for certain dischargeable debts. In other words, they can include almost all of their debts in bankruptcy claim. Once the paperwork is filed, you receive a stay from creditors identical to Chapter 13 process. Then, the debtor normally receives a discharge three to four months after the petition is filed. What this means is, once your bankruptcy is discharged, you never have to pay off any of the accounts or debts that were listed in the bankruptcy. Bankruptcy is no fun, and definitely nothing to be proud of. I would definitely look at bankruptcy as a last resort to resolve your credit issues. But if you are faced with certain circumstances, bankruptcy may be the best option for debt relief. I have found that bankruptcy is a taboo word for many families, but many of the horror stories that have been told about bankruptcy are unfounded. In most cases, the


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process is fairly smooth and gives a debtor immediate financial relief and peace of mind. But make no mistake, a bankruptcy will remain on your credit report for ten years. It will undoubtedly have a negative impact on any future credit dealings (and employment, in some cases) for as long as it is there. But also keep in mind, a bankruptcy does not eliminate the possibility of any future credit dealings. In fact, you may find it easier to get approved for some credit almost immediately after a bankruptcy is discharged. Some creditors will probably find you more credit-‐worthy simply because you no longer have that “mountain” of debt hovering over you. Just like any other negative thing, the further the bankruptcy gets behind you, the less affect it will have on your life. But be smart. Don’t start repeating the same mistakes that got you in the mess to begin with: delinquent payments, over-‐extension of credit, etc. Having bad credit after a bankruptcy will only compound your problems. You’re going to have to be careful and “near-‐perfect,” but you can re-‐establish yourself in fairly quick fashion. Within a few months of your discharge, you will probably start receiving credit card and auto loan offers, and within 2 years, you can even finance a home. Don’t shy away from establishing new credit. You’ll need new accounts to rebuild your credit score. But stick to the basics. One auto loan and a couple credit cards is more than enough to rebuild your scores. PAY ON TIME!


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Chapter 11

Re-‐establishing & Establishing Credit


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Remember that bad credit can happen to good people. Don't despair if it has happened to you. There are ways you can get your credit in shape over time. But you have to start working on it immediately, and keep working hard, to show potential lenders that you're serious about getting your ability to take on credit in order. As you do so, your credit should improve, and that should result in better credit offers and a savings in money. There are no quick fixes to improve your credit because accurate and timely credit information generally cannot be removed from your credit report. You will have to show a lengthy history of improving credit behavior, and over time, you will be able reestablish your credit and credit capacity. There are a number of things that you can do that may help. 1. Open new accounts and pay them off Being able to repay a variety of new accounts is a key step in rebuilding your credit. Devise a strategy to open and pay off as many different kinds of accounts as you can. This is better than adding more debt to an existing credit card (or piling on). In other words, you’re going to need to have several open accounts, not just one. One auto loan and two credit cards is a good start. 2. Start small Reestablishing your credit can be similar to starting over from scratch, and starting small may be the easiest option. Credit cards from department stores or your local credit union can be useful. Consider asking for help. If you can't qualify for credit on your own, ask a friend or family member to cosign for a small loan or credit card. If you can stay current on a major credit card account or small auto loan, this will speed up the process of re-‐establishing good credit on your own. 3. Consider a secured credit card These credit cards are guaranteed by a deposit that you make with the credit grantor. You can initiate most secured credit card accounts with a deposit ranging from $200-‐$500. Secured cards work just like major credit cards, they’re just secured by savings deposit the bank initiates for “insurance” that you’ll make timely payments. Don’t confuse secured cards with debit cards or pre-‐paid credit cards. The pay histories of these accounts are not reported to the three major credit


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bureaus. Make sure the grantor reports payment histories to three major credit bureaus so you're building your positive payment history. 4. Use your new accounts in moderation Make payments that are more than the minimum due. You can keep a small balance on your accounts so that your positive payment history will continue to show up on your credit report. Remember from earlier chapters to avoid carrying a balance that is more than 30% of your credit limit (lenders may view it as excessive debt that you may not be able to stay current with). 5. Reduce your household spending Review your household expenses and determine which ones you could do without. Consider creating a budget to track exactly where your money goes each month. 6. Call lenders if you can't pay some of your debts If you find yourself in a position where you cannot pay a bill, be proactive and call your creditor. If you are up-‐front and explain your situation, many of the lenders will be willing to work out a plan for you to pay back what you owe or get back on track. You may even be able to defer payments if you’ve kept a good pay history 7. Track your progress All three of the major credit bureaus offer “credit tracking” services for a small monthly fee. You don’t need all three, but I suggest choosing at least one. This will allow you to monitor your credit score on a daily basis. Over time, you will see how your credit score is trending, and be in a position to address any new negative issue you were unaware of as soon as it is reported. These programs also allow you to set credit-‐score goals, and offer you monthly suggestions on how to reach those goals. Just contact Equifax, Experian, or Trans Union directly for more information. 8. Don’t Wait You don’t have to wait until you’ve resolved all your past negative credit to start re-‐establishing credit. In fact, I consider re-‐establishing credit the first step in credit restoration. If its nothing more than a couple of secured credit card accounts, make


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sure you have some open, active trade lines reporting a positive pay history. You can develop your good, new credit while simultaneously working on past transgressions. It takes time to re-‐establish a good pay history. By starting your plight with getting new accounts started, you’ll lessen the time-‐frame needed for the effects of your efforts to pay dividends. 9. Be patient It takes some time for your new credit to gain momentum. You are demonstrating that you are not depending on certain credit cards and loans for your financial survival. That's why opening and paying down accounts may make it a little easier to get more credit. With patience and timely payments, you'll likely be able to reestablish your creditworthiness so that lenders will look favorably when making decisions about your ability to handle even more credit.


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Federal Agency Contacts Federal Trade Commission Consumer Response Center 600 Pennsylvania Avenue, NW Washington, DC 20580 (1-‐877-‐382-‐4357) www.ftccomplaintassistant.gov Federal Reserve Bank Consumer Complaints P.O. Box 27622 Richmond, VA 23261 804-‐697-‐8000 www.richmondfed.org Office of the Comptroller of the Currency Customer Assistance Group 1301 McKinney Street Suite 3450 Houston, TX 77010 www.occ.treas.gov U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, DC 20530-‐0001 202-‐514-‐4609 www.usdoj.gov

Federal Deposit Insurance Corporation Compliance and Consumer Affairs 550 17th Street, N.W. Washington, DC 20429 (202) 942-‐3100 or 1 (800) 934-‐3342 Office of Thrift Supervision Consumer Programs 1700 G Street, N.W. Washington, DC 20552 (202) 906-‐6237 or 1 (800) 842-‐6929

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