Credit Rehabilitation Made Easy
by
David R. Hagen
MERRITT & HAGEN, APC
6400 Canoga Ave., Suite #113
Woodland Hills, CA 91367
Phone :818.992.1940
Fax: 818.992.3309
DRH@Forbankruptcy.com
A Step-By-Step Guide To Fixing Your Credit Report
Table of Contents
I. INTRODUCTION
II. WHY CREDIT REPORTS?
III. THE FAIR CREDIT REPORTING ACT
IV. CREDIT REHABILITATION, NOT REPAIR
V. CREDIT REHABILITATION SIMPLIFIED
- A. STEP 1 - CORRECT YOUR CREDIT REPORTS
- 1. Obtain Credit Reports
- 2. Identify Incorrect Information
- 3. Write Dispute Letters to Remove Incorrect Information
- 4. Follow up
- B. STEP 2 - ADD NEW, GOOD, INFORMATION TO YOUR CREDIT REPORT
VI. FICO SCORING
VII. RESOURCES
VIII.. SAMPLE LETTERS
I. INTRODUCTION
The three major credit bureaus (Experian (formerly TRW), Equifax and Trans Union) maintain files on approximately ninety percent of all adult Americans. The contents of a person's credit report can dramatically affect what they will pay for credit, or whether they will receive any credit at all. Because of this, it is extremely important that everyone know exactly what is on their credit report and take actions to ensure that the information contained on it is as truthful and favorable as possible.
II. WHY CREDIT REPORTS?
Banks and financial institutions want to know something about the people that they may loan money. Years ago, when times were simpler and towns smaller, a person would know their banker and the banker would know them. A person would go into their bank, look him or her in the eye, and ask for a loan. Loans were based on that personal relationship. Today, it is very unlikely that a person even knows their banker. Banks are larger and more impersonal than ever. Financial institutions, like credit card and other finance companies, have no personal relationship with their customers whatsoever. If a person wants to borrow money (open an account), the bank will want to know something about that person. They will want to know whether the person is trustworthy and what the chances of having that debt repaid might be. Further, if someone is a credit "risk," the lending institution will use that as an opportunity to charge them a greater rate of interest to offset the greater risk which they will incur.
It would be very time consuming and expensive for a financial institution to do a background check every time they considered opening up an account and lending money to a new customer. This is why credit-reporting agencies were created. Credit reporting agencies collect credit information on people, compile it, and sell it. They collect this information from financial institutions, the courts and other sources. They sell information right back to the financial institutions and also, more recently, back to the individuals themselves. As a result, the credit reporting agencies act as a "clearing house" for credit information. This is really all they do!
The various credit-reporting agencies do not really rate your credit worthiness. This is left up to the individual financial institutions who make loans. However, they do rely heavily upon the information supplied in the various credit reports.
Recently, an organization has begun to rate an individual's credit worthiness. This agency is called the Fair Isaac Company. They have developed their own proprietary, mathematical way of evaluating someone's credit worthiness. This is called the FICO score.
III. THE FAIR CREDIT REPORTING ACT
Because the information contained on a person's credit report can affect them so dramatically, Congress first passed the Fair Credit Reporting Act in 1971 and it has been revised several times since.
The relevant portions of this law are found in 11 USC Title 15, Chapter 41, entitled "Consumer Credit Protection." Among other things, the law limits who can get a report (Section 1681 b), requires that old or inaccurate information be deleted from a report (Section 1681 c), limits charges for a person to get their report (Section 1681 j), and imposes civil liability for noncompliance with the law (Section 1682 n-o).
Perhaps most importantly, that law provides for a procedure for the resolution of any reporting disputes. It provides, in Section 1681 i, that:
- If the completeness or accuracy of any item of information contained in a consumer's file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly of such dispute, the agency shall reinvestigate free of charge and record the current status of the disputed information, or delete the item from the file..., before the end of the 30-day period beginning on the date on which the agency receives the notice of the dispute from the consumer.
The section goes on to provide that if any dispute is not resolved, a consumer may file a brief statement of dispute which must be included in the report as well as a notation on the report that the item is disputed.
Finally, the credit reporting agency must also provide the consumer with notice of a description of the procedure used to determine the accuracy of any information, including the business name, address and telephone number of any furnisher of information. This description of the reinvestigation procedure must be provided within fifteen (15) days of the request.
IV. CREDIT REHABILITATION, NOT REPAIR
It needs to be made extremely clear that there is a difference between "credit repair" and what we call "credit rehabilitation." Credit repair is something routinely done by credit repair agencies and others. It involves untruthfully denying truthful credit reporting information, creating multiple credit reporting files, using another person's Social Security Number, and other questionable, and quite frankly, fraudulent or illegal practices.
"Credit rehabilitation" is the process of removing any untruthful information from a person's credit report and then deliberately placing good, new credit on to a person's report to create a "rehabilitated" file.
One might not think that anything incorrect could be on their credit report. However, according to a 1997 study by the California Public Interest Research Group, out of the credit reports surveyed, 29 percent contained serious errors that could have resulted in the denial of credit and 70 percent contained mistakes or errors of some kind!
Other studies found that more than three in five consumers have negative information on their credit report and nearly half of the credit reports contained errors.
V. CREDIT REHABILITATION SIMPLIFIED
Credit repair or rehabilitation agencies will usually charge $1,000.00 or more to clean up the person's credit report. They make a big deal over how complicated it is to clean up one's report. Quite frankly, nothing is further from the truth. If an agency claims to have "secret" or "proprietary" methods to do this work, chances are that they are operating outside the law. If they are working within the law and really performing credit rehabilitation services, they are simply following the simple steps contained in this report.
If you are a person who does not like tedious things or tends not to follow up, you may be better off hiring an agency to handle this task. If you do so, be sure that their methods are within the law. If you want to accomplish the same task for thousands less, read on.
There are two simple steps to clean up a person's credit report. First, any erroneous or incomplete information should be removed. This section of the report will explain to you how to do exactly this. Second, new, good credit should be placed on the credit report by effectively using your credit over a period of time. Once these two processes are complete, a person's credit report will be rehabilitated. Using these techniques, we have had people tell us that they qualified to purchase a home, with A- credit, in as little as 2 years after a bankruptcy filing!
This process cannot be done overnight. In fact, it can take as much as a year or two to complete the process. Once again, it is not complicated. Rather, it just takes a bit of perseverance to stay at the process.
- A. STEP 1 - CORRECT YOUR CREDIT REPORTS
The first step is to get a copy of all three reports. You can do this in one of two ways.
First, many companies offer a combined credit report. You can find many of these agencies by searching the internet for the words "credit report." Many of these companies, like www.freecreditreport.com, offer you a combined credit report for free. Beware, they require that in order to get the free report, you must sign up for their yearly service costing almost $80! If you request this type of report, you will get one master report with the comments from all three credit reporting agencies.
Quite frankly, one report with information from three credit reporting agencies can get a bit complicated to understand. Accordingly, we recommend getting a copy of your credit report from each of the three major credit reporting agencies. It is just easier to keep track of what is on each of your reports this way. You can contact these agencies as follows:
Using the Internet is the easiest way to get your report. Go to their website and it will guide you through the process. Many times, you will be able to order and view your report right away. Be prepared to give them a credit card number to pay for the report, usually less than $10. If you have been denied credit in the last 90 days, you should be able to get the report sent to you for free.
If you are not on the Internet, you will need to get your report by mail. Call the number listed above for each company. They have a tape message that gives you an address and procedure for writing a letter requesting your report. Many people have heard that it is recommended that the request for the credit report be sent Certified Mail through the U.S. Postal Service or by one of the overnight mail services. We do not recommend this for your first letter, as it significantly adds to your cost of the process. A letter can be sent through one of these services at a later point in time if you do not get an initial response.
Send them a letter that includes your full name, date of birth, Social Security Number, current address, most recent past address, and driver's license number. Tell them that you want a copy of your complete credit report. Be sure to include the fee for sending you your credit report. This amount is stated in the tape recording you listened to over the phone. Remember, if you have been denied credit during the past 60 days, you are entitled to a free copy of your credit report. If this is the case, you should specifically state exactly how and when you were denied credit and request that the report be sent to you at no charge. You may also be entitled to a free report if you tell them that you are unemployed and intend to apply for employment in the next 60 days, or are a recipient of public welfare assistance; or have reason to believe that your consumer file on the consumer contains inaccurate information due to fraud. Be sure to include this information in your letter if you want a free report. A good sample letter for this use is attached to the end of this report as "Letter 1." You can copy it by hand or, if you are viewing this on the internet, copy and paste the text of the letter into yours.
Once you mail out each of the three letters, mark on your calendar thirty (30) days out to remind yourself to follow up in the event you do not receive your credit reports in a timely manner. The media is full of stories about people who were never able to even get copies of their credit reports. However, our experience has been that the vast majority of the time you will receive your credit report in the next thirty (30) days.
- 2. Identify Incorrect Information
The next step is to review each of the credit reports for errors. It used to be that credit reports were extremely complicated to review. However, this is no longer the case. Credit reports are usually much clearer and contain explanations of any symbols or abbreviated information on the back pages of the credit report. These credit reports do take some time to review, however, because there is a tremendous amount of information put on any particular page.
Highlight any information that you believe is incorrect or inaccurate. For example, if the credit report indicates that you were delinquent for a month, and you were not, highlight this information. If your credit limit is incorrectly reported, highlight this information.
Specifically look for the following incorrect information:
- Incorrect or incomplete name, address, phone number, or Social Security Number;
- Incorrect, missing or outdated employment information;
- Bankruptcies older than 10 years or not specified by the Chapter of the filing;
- Any other negative information older than 7 years old;
- Credit inquiries older than 2 years;
- Credit accounts that are not yours;
- Lawsuits you were not involved in;
- Incorrect credit histories, especially those that show late payments when you paid on time;
- A missing notation that you dispute a charge on a credit card;
- Accounts where the collection agency is listed separately from the original creditor making it appear as though you had two problem accounts;
- Closed accounts incorrectly listed as open; and
- Any account you closed that doesn't have a "closed by consumer" notation.
If you have trouble understanding your credit report, Consumer Counselors of Los Angeles, a non-profit organization, offers a low cost one hour review of your credit report, usually for less than $50. Get in touch with them via the internet at www.cccsla.org or call (800) 750-2227. With a bit of effort, you can really do it yourself. However, for those who like their "hand held," it is good to know that there is low cost help.
- 3. Write Dispute Letters to Remove Incorrect Information
Once you have identified all of the errors, you want to send one letter for each erroneous piece of information on each report. This means that if your Trans Union report has seven errors, you want to write them seven separate letters. If your Equifax report has three errors, you want to write them three separate letters, even if the same errors are contained on one of the other reports. We found that if someone tries to include all the errors on one letter, the credit reporting agency becomes confused or thinks that you're somehow trying to trick them with an abundance of disputes. Separate letters also allow you to systematically track each specific error until it is corrected or removed.
You may choose to use a letter very similar to the one which we provide as "Letter 2."You can copy it by hand or, if you are viewing this on the internet, copy and paste the text of the letter into yours. For each letter that you send, put a note on your calendar thirty (30) days out so that you remind yourself to follow-up in the event the credit reporting agency does not respond.
You need to follow each and every letter you send until the issue it deals with is resolved to your satisfaction. Most of the time, you will receive a letter and an amended credit report from the reporting agency. Most often, this will occur within 30 days. If you don't hear from the agency within 30 days, send a follow-up letter. You can use the letter that we've included as "Letter 3." If the agency sends you a letter informing you that the item has been verified and will not be corrected, you should then send a letter to the source of the incorrect information. Usually, this means contacting the creditor directly. Consider contacting the creditor directly and asking that the inappropriate or incorrect information be removed. Write to the Customer Service Department, or even better, the President or CEO of the company. Most Presidents and CEO's have a staff assigned to issues specifically such as this. Be sure to include as attachments only your prior correspondence. You can use the letter that we've included as "Letter 4."
If the credit agency cannot verify that the information which you dispute is correct, they must remove the information from your file. We have heard that often credit bureaus will remove an item on request without investigation if rechecking the item is more bother than it's worth. Quite frankly, if they want to be lazy or sloppy in deleting something you've asked to be corrected, there is no harm. Once again, this is in stark contrast with "credit repair" agencies which encourage people to improperly deny truthful information on their account.
Again, follow up each issue until it is resolved. If you cannot get the matter resolved after a letter-writing campaign, you will need to retain an attorney. Unfortunately, this can get expensive as the attorney will have to file a lawsuit. It may not be worth it at this point to pursue the matter due to the cost, but you should at least contact an attorney to discuss the time and cost that may be involved. There are extreme cases where attorneys have sued creditors or a credit reporting agency and obtained large judgments, but it does not happen often.
We have found that the vast majority of the time, a person's credit reports can be cleaned up so that all of the incorrect information is deleted. It takes a good deal of work, but it is worth it in the long run.
Be sure to keep a copy of each letter you write. You will need to make copies to include with later correspondence. It may be a good idea to create a notebook with sections for each dispute. This way, you can keep the original dispute letter, together with any follow-up correspondence, on each issue together. This makes it very easy to follow up and close out each section once the corrections have been made.
- B. STEP 2 - ADDING NEW, GOOD INFORMATION TO YOUR CREDIT FILE
The next step is to start putting new, good information on your report.
If any crucial information about you is not in your credit file, you may want to consider sending a letter to the credit reporting agency and ask that they include the updated, or corrected, information. This may include your current and previous employment, your current and previous residence, as well as any other areas that are not included in your credit report.
It is then critical to generate new, positive credit with a new credit card that will be put on your credit report. Believe it or not, some do not, and there is certainly no legal requirement that they do so. If you have a credit card account, verify with the company that they report your credit history to the credit reporting agencies every month. If not, open an account with a credit card company that does. This credit card company will be your partner in helping to put new, good credit information on your report.
If you do not have a credit card, or are looking for a new credit card company, we recommend that you use the internet to find a credit card company that is appropriate for your use. You can find a good listing of credit card companies at 4credit.com. Even if you have just filed bankruptcy, you can obtain a secured credit card on this list. If you are not on the internet, call our office and we will send you a copy of this page.
You obviously want to use a credit card company that has a reasonable rate of interest and waives the annual membership fee. However, the most important attribute is to ensure that they will report your new, good credit history to all three credit reporting agencies every month. You only need apply for one or two cards. In fact, it is very dangerous to apply for too many credit cards, as this could serve to harm your credit rating.
Use this credit card a small amount each month and pay it on time. It is important that the credit card have some use and, most importantly, it show that the account was paid on time.
Using this method of credit rehabilitation, your credit report should be substantially rehabilitated in a period of approximately two years. Your credit report will still show some of your old negative credit information. However, the one or two accounts which you have used will show currency for 24 months. This will then be your rehabilitated credit report.
You’re Finished. Really, that's all there is to it! If you follow this simple two-step procedure, you will be able to rehabilitate your credit profile in as little as two years. If this seems too complicated, you can always use a credit repair agency. However, be extremely careful about the tactics which they might encourage you to use.
VI. FICO SCORING
A person's FICO score is produced from software developed by Fair, Isaac and Company. FICO scores are provided to lenders by the three major credit reporting agencies. Along with the credit report, lenders can also buy a credit score based on the information in the report. That score is calculated by a mathematical equation that evaluates many types of information that are on a person's credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies a person's level of future credit risk.
FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a "good" or "bad" customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single "cutoff score" used by all lenders and there are many additional factors that lenders use to determine your actual interest rates. However, most consider a FICO score of 700 and up to be a good score.
Your score might be slightly different with each credit-reporting agency. This is because each credit-reporting agency may have slightly different information about you which effects your FICO score.
An excellent resource to get further information about FICO scoring is myfico.com. It has areas that allow you to get your credit report and FICO score. It also has a FICO calculator that allows you to see what will happen to your score if you take certain actions.
VII. RESOURCES
An excellent and inexpensive aid in cleaning up your credit file is Nolo's law form kit: Rebuilding Your Credit, by Robin Leonard (Nolo's). Nolo's writes excellent consumer manuals. It is unfortunate that they are decidedly anti-lawyer. Nonetheless, we recommend their materials highly.
There is also an excellent web site which contains information about credit repair. It is called the "Electronic Credit Repair Kit ™." It can be found on the web at mix6.com/credit.
VIII. SAMPLE LETTERS
The following letters can be used as sample formats when rehabilitating your credit report:
- Letter 1 - Request for credit report
- Letter 2 - Dispute letter and request for correction
- Letter 3 - Follow-up dispute letter and request for correction
- Letter 4 - Dispute letter directly to creditor and request for correction
There is nothing special or magic about these letters. They are sample formats only. You can copy these by hand and include the information which is specific to you. Or, you can copy these letters on your computer and then insert your specific information. Either way, these letters are just designed to get you started with a general format.