How to Re-build Bad Credit and Improve Credit Score

Depending on how serious your situation is, you may or may not need to know a few important bullet points. This is not legal advice; if you are seeking legal advice, you should speak with a lawyer versed in the FCRA and FDCPA.

How to Re-build Bad Credit and Improve Credit Score

  • Bad marks, such as late (30, 60, 90 day) payments, liens, judgements, collections accounts, and chapter 13 bankruptcy will fall off your credit report at the 7.5 year mark from the Date of First Delinquency (DOFD) or the judgement date.
    • Note: Debt cannot legally be re-aged. All delinquencies must be dated from the DOFD or the judgement date.
    • If you have a Chapter 7 or Chapter 11 bankruptcy, you will need to wait until the 10-year mark for the public record to fall off of your report.
  • Creditors and collections agencies are obligated to comply with both the FCRA and the FDCPA. If you believe these laws are being violated, you should speak with an attorney.

 

Challenge Creditors to Fix Credit Score

  • The burden of proof is always on the creditor. Always ask for documentation. Period. Even if you know the debt and know you owe on the debt. When you pay off a debt in collections or under a judgement, you should always demand and keep proof of the payment.
  • Look up the statute of limitations of debt for your state. Please note that the link provided may or may not be completely up-to-date, and may or may not contain accurate information. Verify this with your state through your attorney.
    • Just because your statute of limitations is up doesn’t mean that a creditor is required to remove it from your credit report. The latter is governed by the FCRA, whereas the former is state law. It may, however, give you leverage against collections agencies and other creditors.

 

Things to do right away to rebuild credit score

  1. If you have various collections accounts or potential fraudulent accounts, pull your credit report from annualcreditreport.com. Dispute any inaccurate information. Obtain contact information regarding collections accounts that own your debt.
  2. If you have any revolving debt, reduce it to below 30% of its limit. 30% is usually the “red flag” threshold for debt. While 10-29% (rounded up) is not ideal for creditors to look at, it’s manageable and it doesn’t set off any red flags.

 

 

Handling your collections accounts to improve credit

Paying for delete of debt accounts

Negotiating with collectors can be tricky. Luckily, some of them are willing and able to negotiate a settlement offer in exchange for deleting the item from your credit reports. This exists as an option for a collections agency, and is not an obligation, so it may not always work. However, you miss 100% of the shots you don’t take, so it can only be beneficial to do this (assuming you do it correctly and carefully).

 

Goodwill letters for late payments

Some creditors are willing and able to remove 30, 60, and 90 day late notices from your credit report, assuming that you have been a solid customer for a long time since the derogatory mark. This can usually be done by contacting your creditor with a goodwill letter, or a request to remove the derogatory mark from your report from a consumer who has otherwise had a solid relationship with the financial institution.

Please note that This exists as an option for creditors, and is not an obligation, so it may not always work. However, persistence is key on this

 

Keep making on-time payments

Over time, bad marks and delinquent accounts (if you have any) will fall off at the 7.5 year mark from the DOFD. Bankruptcies will disappear at the 10 year mark. These two factors will also count against you less and less over time.

In addition to this, most creditors (as well as FICO) weigh your most recent 24 months of activity more heavily than the rest of your report. Your most recent two years of activity are a big enough indicator of risk (or lack thereof) for some lenders. Your mileage may vary.

 

Other Tips of Rebuilding Credit and Improving Credit Score

 

1. Time is the ultimate factor in credit building, so your response should be patience.

As was mentioned above, your age of accounts, combined with your payment history, account for 50% of your credit score. It goes without saying that letting time pass will allow both of these factors to become better established.

Over time, bad marks and delinquent accounts (if you have any) will fall off at the 7.5 year mark from the DOFD. Bankruptcies will disappear at the 10 year mark. These two factors will also count against you less and less over time.

In addition to this, most creditors (as well as FICO) weigh your most recent 24 months of activity more heavily than the rest of your report. Your most recent two years of activity are a big enough indicator of risk (or lack thereof) for some lenders. Your mileage may vary.

Don’t be discouraged with the time factor. With the exception of getting negative items removed from your report, the fastest way to build credit is at the regular speed of time, and the number one way to prove your creditworthiness is toactually be creditworthy.

 

2. Credit is not the end-all-be-all of finance.

Despite what some conventional wisdom might have you believe, your credit is not priority one. Your first priority in finance should be having enough for food and shelter for yourself and the people you provide for. Your second priority should be balancing out your cashflow with a budget, as well as paying down debt and saving for retirement. Once these are handled properly, only then do we get into credit, which really only needs to be optimized if you’re planning on a major loan in the near future.

 

3. Monitoring your credit can be important, but you should only do it for free.

There should be some emphasis placed on monitoring your identity, as well as knowing a ballpark figure for your credit score. But there should not be any circumstance where you should pay for your credit score and/or report. There are plenty of services that will give you a ballpark figure for free, and http://annualcreditreport.com is also there to provide you with an annual credit report every 12 months, as required by federal law.

Leave a Comment.