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Avoid and Repair Bad Credit Report Entries
When you order your annual free credit report, be sure to check for the following which are the worst items to have listed:
Chargeoffs: Missing payments for 6 months or more may push your creditors to deem your account as 'uncollectible'. When this happens, the creditor writes off the account and updates your credit report as "charged off" or "written off and uncollectible". Accounts identified as a chargeoff (such as an unpaid credit card balance) remain on your credit report for seven years and may nudge future, potential creditors to consider you a very high risk.
Debt collections: Not only will creditors chargeoff your account after a period of nonpayment, they may also hire a debt collection agency to attempt to collect payment from you. Your credit report may or may not be updated to reflect a collection status. Sometimes the debt collector places an entry on your credit report or the original creditor places a note on your report indicating the account is in collection status. Once again, while on your credit report this entry may nudge future, potential creditors to consider you a very high risk.
Bankruptcy: Although filing bankruptcy lets you legally remove liability for some or all of your debts (depending on the type of bankruptcy you file), your credit report will reflect each of the accounts you included in your bankruptcy. Even though the bankruptcy information will remain on your credit report for seven to 10 years, you can sometimes begin rebuilding your credit soon after your debts have been discharged. A bankruptcy entry on your credit report will definitely cause future, potential creditors to consider you a very high risk.
Foreclosure: If you default on your mortgage loan, your lender will repossess your home and auction it off to recover the amount of the mortgage. This process is known as foreclosure. When your home is foreclosed it can severely damage your credit, limiting your ability to obtain new credit in the future. A foreclosure will remain on your credit report for seven years. Because a mortgage loan has a great impact on your credit, such a negative entry can likewise damage future, potential creditor acceptance.
Tax liens: When you don't pay property taxes on your home or another piece of property, the government (IRS) can seize the property and auction it off for the unpaid taxes. Even if your home is foreclosed because of a tax lien, you are still responsible for the mortgage loan. Non-payment of the mortgage will also hurt your credit. Unpaid tax liens remain on your credit report for 15 years, while paid tax liens remain for 10.
Lawsuits or judgments: Some creditors may take you to court and sue you for a debt, if other collections fail. If the lawsuit is accurate and a judgment is entered against you, it will remain on your credit report for 7 years from the date of filing even after you satisfy the judgment. This type of entry will defintely impact future creditor relations.
Remove Debt Collection Entries From Your Credit Report
Having a collection reported on your credit report harms your credit score. Although the damage of a collection lessens as it gets older, the entry will remain on your credit report for seven years for future creditors and lenders to see and scrutinize. The best option for dealing with collection accounts is to have them removed from your credit report.
Dispute False Debt: Mistakes happen, particularly with common names and misspellings. If it's not your debt, you're not required to pay it and collectors are forbidden to list it on your credit report. Use a credit report dispute to have the credit bureaus remove the debt from your credit report. Even if the debt belongs to you, that doesn't mean the collector is legally able to collect from you. If the debt collector first contacted you within the past 30 days, you can have the debt validated. This process requires the collector to provide proof that you owe the debt. If the collector can't validate the debt or doesn't respond to your request, the debt has to be removed from your credit report. Read more about credit reporting accuracy and disputes.
Dispute After Seven Years: According to the Fair Credit Reporting Act (FCRA), past due accounts can only remain on your credit report for seven years from the first date of delinquency. One sneaky tactic collectors use is to re-age a debt, making it look like the account became delinquent later than it actually did. This is called a 'Zombie Debt Collector' and their tactic can keep the debt on your credit report longer. If the seven year reporting period is up, dispute the debt from your credit report by providing proof of the first date of delinquency.
Dispute When New Debt Collectors Take Over: Collection accounts often change hands every six months or so. Debts are assigned and sold to other collectors, so there's a strong possibility the unknown collection agency listed on your credit report isn't the agency that's currently collecting on the debt. When this happens, you can typically have the collection removed by disputing it with the credit bureaus.
Pay For Removal: If you can't remove the debt by disputing it, you can negotiate with the collector to have the account removed from your credit report in exchange for a settlement payment. Send the collector a letter stating your interest in paying the account. Offer to make payment if the collector agrees to remove the entry from your credit report. Ask that the collector return a signed copy of the letter to you to seal the agreement before you send the debt settlement payment. If you negotiate a paid removal via the telephone, once again make sure you get the agreement in writing before you make a payment. Don't make payment until you have the agreement in writing.
Send all correspondence via certified mail with return receipt requested, so you will have proof if there's ever a question about whether the debt collector received your mail. After you've paid the collection, check your credit report to make sure the entry has been deleted. If not, dispute it and provide the credit bureau with a copy of your agreement with the debt collector and proof of payment.
Pay Off Debt: If you're not able to get the collection account removed from your credit report, pay it. A paid collection is better than an unpaid one and shows future lenders that you've taken care of your financial responsibilities.
Chargeoff Credit Repair
Chargeoffs are quite harmful to your credit rating. By the time your account gets charged off, you're already 180 days late, and the chargeoff info will remain on your credit report seven years from the date the creditor charged off your account. In total, the account remains delinquent on your credit report for seven and a half years.
When a creditor lists your account as charged off, it is not saying the debt is forgiven. It's saying that all attempts to collect have failed, so future creditor/lender beware! You're very much still responsible for paying the charged off account. And if you don't pay up, the creditor can continue attempts to collect on the account up to and including suing you for the amount.
While you have an account listed as a chargeoff on your credit report, new creditors will see it. So when you apply for a new credit card or a loan, expect to get rejected or; at best, to be approved but with astronomical interest rates and/or fees.
Hence it's in your best interest to get chargeoffs removed from your credit report, and debt negotiation is your best tactic for reducing the effects of a charged off account.
Here's a sample debt negotiation and settlement letter.
Talk to the creditor. When it comes to chargeoffs, you don't want to deal with a collection agency. After all, it's the original creditor who reports a charged off account and a collector can't do anything about what the original creditor reports to the credit bureaus. So contact the original creditor. Before you make the call, know how much you're able to pay. The more you can pay, the more negotiating power you have. Ask to speak to someone who has the authority to remove the chargeoff from your account. Otherwise, you face the risk of getting told no by someone who couldn't say yes if they wanted to. Let the creditor know you're interested in paying the account and would like to make payment arrangements in exchange for having the charged off status removed from your credit report. Speak politely and professionally. Avoid blaming the creditor or giving your life story. Keep it short and to the point. If you can't get the creditor to agree to remove the chargeoff completely, try for something less negative like a 'closed' or 'settled' notation.
Get the Settlement Agreement in writing, by either of these two options:- Have the person you spoke with fax you a copy of the agreement on company letterhead.
- Alternatively, get the name, mailing address, and phone number of the person you spoke with. Send a copy of your agreement to that person via certified mail with return receipt requested. Request the person sign and return a copy to you.
Avoid making payment until you have the agreement in writing and can prove beyond the shadow of doubt someone from the creditor's office made the agreement. Once you have fulfilled your part of the agreement, check your credit report to make sure the creditor has kept his. When You Can't Get Your Way: If all fails and you can't get the creditor to budge, decide if you want to pay the account or not. Even though the account will continue to be reported as charged off until the credit reporting time limit is up, it will affect your credit score less as time passes. However, some lenders will not grant you new credit or loans until you've taken care of all past due account. So, if you plan to get a mortgage or auto loan in the next seven years, it's better to pay the account. Once it's paid, make sure your credit report reflects the payment and satisfaction.
Read more tips on do-it-yourself, free debt settlement.
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