Credit Repair: Make a Plan, Improve Your Credit, Avoid Scams

By Amy Loftsgordon and Cara O'Neill

Improve Your Credit!

It’s generally pretty easy to fall into debt—but it can be hard to repay that money. Unfortunately, the consequences of mounting debt, like delinquent bill payments, defaults, lawsuits, repossessions, foreclosures, and bankruptcy, eventually find their way into your credit reports and damage your credit scores. 

Having bad credit can prevent you from getting a mortgage, car loan, credit card, apartment, or even a job. It can also mean paying more in rates and fees for any loans or credit you can get. This thorough, easy-to-follow manual will help you repair your credit and get the financing you deserve. Learn the practical measures to raise your credit scores and repair your credit. Credit Repair will teach you how to increase your scores by taking simple steps such as removing erroneous information from your credit reports and paying down high loan balances. Readers will also learn how to protect their credit by budgeting, avoiding problems with credit cards, and steering clear of identity theft.  

This book provides helpful tips to people with existing credit problems and can assist those who have thin credit files (not much credit history), too.  You’ll learn how to build a positive credit history and establish good credit habits.

Don’t wait to take action. Credit Repair will give you the tools you need to develop a plan to improve your credit, including strategies and useful information about the process involved in repairing or building your credit.

• Language: English
• Publisher: NOLO
• Release date: Oct 29, 2024
• ISBN: 9781413332100

Amy Loftsgordon

Amy Loftsgordon is a legal editor and writer at Nolo, focusing on foreclosure, debt management, and personal finance. She edits several Nolo books and is also the coauthor of The Foreclosure Survival Guide and Solve Your Money Troubles. Before joining Nolo, Amy worked in the areas of foreclosure and debt collections for over 15 years. Her broad experience includes helping people fight collection actions and enforcing debtors’ rights under the Fair Debt Collection Practices Act and other laws. As part of a national settlement involving the mortgage industry, she has also reviewed servicer records to uncover extensive credit reporting errors. Amy received a B.A. from the University of Southern California and a law degree from the University of Denver Sturm College of Law. She is licensed to practice law in Colorado.

Book preview

Your Credit Repair Companion

During an unexpected financial crisis, it’s easy to fall into debt. However, paying that money back can be challenging and lead to credit problems affecting many areas of your life. Interest rates increase, credit limits decrease, and credit privileges might be canceled. Bad credit can even raise car insurance rates.

A credit hit can also lead to a repetitive cycle that prevents you from doing the things that would help you get back on your feet financially. You might have trouble:

getting a loan or a new credit card

opening a checking account

renting a home, or

receiving a job offer.

But the consequences don’t stop there. When missed payments, defaults, repossessions, foreclosures, and bankruptcies find their way into your credit reports, getting new credit isn’t easy. Even when available, it will be costly because you’ll be required to pay more interest and fees than people with good credit.

But it’s a cycle you can break. Whether you’ve fallen behind on your bills, been sued, faced repossession or foreclosure, or even declared bankruptcy, this book will help you take practical steps to repair your credit. You’ll learn how to make a budget, negotiate with creditors, clean up your credit report, build good credit, and maintain it in the future.

As you read through this book, remember these things:

You’re not alone. Millions of honest, hardworking people like yourself have trouble paying their bills because of rising inflation, falling disposable incomes, and dwindling savings accounts.

You have legal rights. Debtors who stand up for themselves are more likely to get additional time to pay, have late fees dropped, settle debts for less than they owe, and get negative marks removed from credit reports.

You can do it yourself. You won’t need a lawyer, although you might want to consult with one in limited situations—we’ll tell you when it might be a good idea—and paying for costly credit repair services is unnecessary. (Chapter 3 explains why you should avoid using credit repair companies.)

Nobody’s credit is beyond repair. Many creditors will work with people with less than stellar credit when they’ve turned their financial situations around. As long as your financial troubles are behind you, you’ll probably qualify for limited types of credit relatively quickly and be eligible for a major credit card or loan within one to two years.

Overall, you can repair your credit through effort and consistency and pave the way for a better financial future. The in-depth information and easy-to-use forms provided on this book’s companion page will help.

Downloadable Credit Repair Forms at Nolo.com

This book’s online companion page provides a link to the downloadable forms discussed in this edition. To learn how to access the companion page, see Appendix B.

CHAPTER

1

The Elements of Repairing Credit

Credit repair isn’t a quick fix. Some steps require hard work, and you might have to wait until your finances are under control before diving in. But others are reasonably simple. In both cases, this book provides the support you’ll need throughout your credit repair journey. We walk you through your options, warn you about pitfalls that could worsen your situation, and give you sample letters and forms you can refer to when contacting creditors, debt collectors, credit reporting agencies, and others. Here’s what you can expect.

First steps: Learning about your credit reports and assessing your financial situation (Chapters 2, 3, and 4). Before beginning, you’ll want a clear picture of your current financial situation and credit history. You’ll start by learning about credit reports and the factors involved in credit scoring. Chapter 2 covers how to get and review your credit reports. Chapter 3 addresses fixing errors and explains how adding positive information increases reporting accuracy.

You’ll also learn why analyzing your finances and creating a budget is essential. Once complete, you’ll be ready to determine whether it’s time to implement credit repair strategies.

Next steps: Getting your income, debts, and expenses into balance (Chapters 5 and 6). The most direct way to improve your credit is simple: Pay your bills on time. But it’s also one of the hardest things to do after experiencing financial problems. These chapters cover why you’ll likely need to lower your debts and increase your income before saving money. We also explain how foreclosure and bankruptcy could impact your credit history while steering you away from scammers ready to take your money and derail your credit repair efforts.

Paying and negotiating debts (Chapters 7 and 8). Negotiating with creditors can help you settle debts for less, get better payment terms, and delete negative credit entries. In Chapter 7, you’ll learn about negotiation goals and techniques. Chapter 8 explains how to find legitimate credit counseling and debt relief services and avoid the rest.

Stepping toward the future: Rebuilding and protecting your credit profile (Chapters 9, 10, and 11). Chapter 9 recommends ways to improve your credit profile without getting additional credit. When you’re ready to use credit again, Chapter 10 provides information on choosing and safely using credit and debit cards. Finally, Chapter 11 covers identity theft and keeping your credit secure so you can enjoy the benefits of your hard work.

CHAPTER

2

Credit Reports and Credit Scores: The Nuts and Bolts

How Creditors Evaluate Your Creditworthiness

Credit Reports and Credit Scores: What Are the Differences?

Your Credit Reports

Getting Your Credit Reports

Getting Your Free Credit Report from Experian, Equifax, or TransUnion

Getting a Free Credit Report from a Specialty Consumer Reporting Agency

Getting Additional Free Credit Reports

Paying for Additional Credit Reports

What Is in a Credit Report?

Personal Information

Accounts Reported Monthly

Accounts Reported When in Default

Public Records

Inquiries

Investigative Reports

Who Can Look at Your Credit Report

Your Credit Score: What It Is and Why It Matters

What Is a Credit Score?

Who Uses Credit Scores?

How Credit Scores Are Calculated

FICO Scores

VantageScore

Other Scores

What Credit Score Do You Need to Get Credit?

Getting Your Credit Score

When You Can Get Your Credit Score for Free

Should You Pay to Get Your Credit Score?

Getting a Free Estimate of Your FICO Credit Score

People sometimes assume their credit is much worse or better than it really is. Others believe they can improve their credit scores while ignoring their credit reports. The truth is that your credit repair attempts will be more successful if you understand how credit reports and scores interrelate.

How Creditors Evaluate Your Creditworthiness

A potential creditor won’t loan you money unless it’s reasonably likely you’ll repay the debt. So when you apply for a credit card, a loan, or an installment sale contract, the lender will evaluate your creditworthiness before deciding whether to offer you credit at a particular interest rate. A current creditor will also routinely check for adverse changes to your financial situation and reduce your credit limit or raise your interest rate when your payment risk increases.

Most information creditors use to evaluate your creditworthiness comes from credit reports and scores, but not everything. Below are factors many creditors consider.

How much debt you can handle. Creditors look at job length, income level, the likelihood your income will increase, whether you’re in a stable industry, and sometimes whether you’re professional. It’s also common for mortgage lenders to check your debt-to-income (DTI) ratio by comparing your total debt obligations to your income. Lenders use the DTI ratio to assess your ability to repay the money you plan on borrowing. You’ll likely provide most of the information evaluated in your credit application (although sometimes, employment information appears in credit reports), so present yourself in the best possible light. But don’t lie—providing inaccurate information to obtain credit is considered fraud.

Your existing credit and credit limits. Expect to be denied additional credit if you have a lot of open credit lines with credit cards, bank loans, and mortgages. Lenders will also review each account’s age and payment history and check credit limits to see if you’re maxed out.

Your assets. Creditors like to see that you have assets they can take if you don’t pay your debt. Owning a home or liquid assets like mutual funds might offer considerable comfort to a creditor reviewing an application, especially if your credit reports show late payments or other negative notations. Your credit reports won’t state what you own directly, but the amount owed on a mortgage or car loan will give the creditor a clue.

Your financial stability. Creditors assess financial character through objective stability factors. A creditor will consider how long you’ve lived at your current residence or held your current job, whether you rent or own your home (you’re more likely to stay put if you own), and whether you have checking and savings accounts.

Credit Reports and Credit Scores: What Are the Differences?

A credit score is a number that a credit scoring company, like FICO, generates based on what’s in your credit reports. Because there are many different credit scoring models, your score can vary depending on the model used to produce it and which credit reporting agency provided the underlying credit report. No matter how the score is produced, the number quickly tells someone a lot about how you handle credit.

Creditors use credit scores to decide whether you’ll repay an account or a loan. Credit scores save money by providing a shortcut. The creditor doesn’t need to evaluate each applicant’s credit history individually. You’ll likely be offered credit at good rates if your score is high. A creditor might reject you if your score is below the creditor’s threshold for routine approval or charge you higher rates or fees.

Some companies use specialized algorithms and mathematical models when determining credit scores, and others offer different scores for different uses. Regardless of the type used, all credit scores can improve or worsen with time.

But knowing what’s in your credit reports is even more important than knowing the score itself. Why? Because the contents of your credit reports determine your credit scores, you must deal with what’s in your credit reports if you want better credit scores.

Your Credit Reports

Your credit reports come from credit reporting agencies. Reports can include information about a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, and other financial information. The creditor decides whether to use a particular agency’s report, score, or other formula to determine creditworthiness.

Credit reporting agencies are generally for-profit companies that gather and sell information about a person’s credit history. Creditors provide most of the information they collect about you using a standard electronic reporting system. You might hear it referred to as Metro 2. It has several fields (boxes or blank spaces) where a creditor can insert pertinent information.

Credit reporting agencies often sell the compiled credit information to banks, mortgage lenders, credit unions, credit card companies, department stores, car dealers, debt collectors, insurance companies, landlords, and employers. Many use credit information to supplement credit, insurance, housing, and employment applications.

Credit reporting agencies might also provide identifying information and credit reports to government agencies to use when extending credit, reviewing the status of an account, attempting to collect a debt, granting a license or another benefit, or investigating international terrorism.

The three nationwide credit reporting agencies are:

Equifax

Experian, and

TransUnion.

Smaller regional credit reporting agencies usually get their information from the three nationwide credit reporting agencies. National specialty reporting agencies gather and report particular information types, such as rental history.

Terminology: Credit Bureau, Credit Reporting Agency, or Consumer Reporting Agency?

You might hear about credit reporting agencies, credit bureaus, or consumer reporting agencies. Those are three names for the same thing. Sometimes, you will hear about credit reports or consumer reports, again, the same thing. Consumer reports and consumer reporting agencies are the terms used in the federal law that protect consumers in connection with their credit reports, such as the Fair Credit Reporting Act (FCRA). (15 U.S.C. § 1681 and following.) However, most people call them credit reports and credit reporting agencies.

Getting Your Credit Reports

Even if your credit is strong, consider getting and reviewing your reports regularly. Under the Fair Credit Reporting Act (FCRA), credit reporting agencies that collect public record information and consumer credit account information must give you a free copy of your credit report every 12 months if you ask for it. However, the agencies now provide free weekly reports online, a service they started during the COVID-19 pandemic. Go to AnnualCreditReport.com to get them. Specialty credit reporting agencies (explained below) must also provide a free report every 12 months if asked.

In a few other circumstances, you can get even more free copies of your credit reports if you’re turned down for credit or offered less favorable credit terms than you requested. Or you can buy one. But with all the free ways to get your reports, you shouldn’t need to pay for them.

Where Do You Find Your Credit Report Rights?

Most protections for your credit reports and scores come from federal law, including the 1970 Fair Credit Reporting Act (FCRA) (15 U.S.C. § 1681 and following.), regulations, including Regulation V, Fair Credit Reporting, and enforcement actions by federal and state agencies. The FCRA establishes what is in your credit reports and your rights to correct errors.

The 2003 Fair and Accurate Credit Transaction Act (FACTA) lets you get free credit reports each year. The 2010 Dodd-Frank Act requires creditors, in many cases, to give you the actual credit scores used when denying credit or offering credit with unfavorable terms.

Getting Your Free Credit Report from Experian, Equifax, or TransUnion

Here’s how to contact the Annual Credit Report Service to get free reports from the three nationwide credit reporting agencies, Experian, Equifax, or TransUnion:

online at www.annualcreditreport.com

by phone at 877-322-8228, or

by mail at Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281 (download the form at www.annualcreditreport.com/gettingReports.action).

When requesting a report online, expect to enter your state, full name, date of birth, Social Security number, current address, and previous addresses if you’ve been at your current address for less than two years.

The Annual Credit Report Service will ask which of the three nationwide credit agency reports you’d like to receive and transfer you to that company’s website to answer security questions such as How much is your mortgage payment?

If you prefer, you can call or write to request copies of your credit reports. (See above for contact information.)

TIP

Review your reports as you read this book. You might want to get your credit reports now and refer to them as you read through this chapter. You can keep track of anything you’d like to remember by notating it directly on the reports.

CAUTION

Beware of imposter websites. Be sure to use the exact URL to reach the Annual Credit Report Service (www.annualcreditreport.com). Some businesses use similar names and URLs to get you to pay for a credit report or other services. If a website claims to provide free credit reports, beware. The free report often comes with strings attached, such as a service you must pay for when the introductory period ends. Don’t respond to an email or click on a pop-up ad claiming to offer free credit reports. The official Annual Credit Report Service website won’t require you to respond to an email solicitation before giving you your free report, use pop-up ads, or call you for personal information. Although the law requires advertisers to clearly disclose that they aren’t offering the free credit reports you’re looking for, not all comply, so be on guard.

SKIP AHEAD

If you’re ready to review the information in your credit reports, get copies from the three national credit reporting agencies, and skip to What Is in a Credit Report? If you’re not ready to get your reports but want to see what will be included, you’ll find an example of a credit report at www.experian.com/consumer-education-content.

Getting a Free Credit Report from a Specialty Consumer Reporting Agency

Besides the three nationwide credit reporting agencies, nationwide specialty credit reporting agencies keep records on particular transactions like tenant histories, insurance claims, medical records or payments, employment histories, and check writing. In addition to free yearly credit reports from the regular nationwide credit reporting agencies, you can also get a free yearly credit report from each nationwide specialty credit reporting agency.

You’ll contact each agency individually and might need to call multiple phone numbers if you need different reports from the same agency. Unfortunately, knowing which reporting agency your landlord, employer, or insurance company uses is not always possible. Below is the contact information for some commonly used nationwide specialty credit reporting agencies.

LexisNexis Personal Reports. LexisNexis compiles various reports on insurance claims, among other things, and provides the data to businesses or the government for insurance underwriting, credit transactions, and more. To learn the information the agency could provide about you in a Consumer Disclosure Report, go to https://consumer.risk.lexisnexis.com.

Experian RentBureau. RentBureau is a specialty credit reporting agency that Experian owns, which allows participating property owners and managers to provide positive and negative rent payment information directly to the agency. In the past, RentBureau concentrated on the multifamily rental industry, meaning tenants who rented from smaller-volume landlords or property management companies weren’t always included in the reports. However, the service now offers property managers, individual landlords, and independent rental owners with 500 or fewer units the ability to report rental payments by signing up (along with their tenants) for a rent payment service. To request a copy of your rental history report, download a form at www.experian.com/rental-property-solutions/rentbureau/rental-history or call 877-704-4519.

Medical Information Bureau. For a private health insurance medical history report, visit www.mib.com or call 866-692-6901.

Verisk. For an insurance claims report, go to https://fcra.verisk.com/# or call 800-627-3487.

Telecheck. For a check writing report, go to https://getassistance.telecheck.com/consumer-file-report or call 800-366-2425.

ChexSystems. For a check writing report, go to www.chexsystems.com or call 800-428-9623.

Certegy. For a check writing report, go to www.askcertegy.com or call 800-237-3826.

Also, you can find a list of most credit reporting agencies (medical, employment, tenant, insurance) on the Consumer Financial Protection Bureau’s website at www.consumerfinance.gov. Search for list of consumer reporting companies and follow the link. The list indicates which companies provide free reports.

Getting Additional Free Credit Reports

In addition to your free annual reports, federal law also says you’re entitled to another free credit report if any one of the following is true:

You were denied credit, insurance, employment, or a government benefit or a license.

An unfavorable action related to your employment, insurance coverage, a government benefit, or a license was taken.

You were granted credit, but you received far less than requested or on different terms.

Your credit account was terminated.

A creditor made unfavorable changes to your account but not to other similarly situated accounts.

A creditor or another user took action or made a determination adverse to your interests in response to your request.

You’re also entitled to the name and address of the credit reporting agency that provided the information leading to the denial of credit or another adverse action. If you want a copy of the report, you must request it from the credit reporting agency within 60 days from the denial of credit or adverse action. (You can use Form F-1, Request Credit Report, to get your report. You can also get free weekly reports at AnnualCreditReport.com.)

If a creditor takes any of these unfavorable actions without giving you notice of your right to a free credit report or telling you the name of the credit reporting agency that supplied the report, you have a remedy. You can use Form F-30, Request for Basis of Unfavorable Credit Offer or Action, to request that information. You can also adapt Form F-30 to send to an insurer, an employer, a government agency, or another credit report user that takes unfavorable action based on credit report information without providing the required notice. (See Appendix B for a list of forms, sample letters, and downloading instructions.)

In addition, you can get a free report in the following situations.

You’re unemployed and planning to apply for a job within 60 days following your request for your credit report. You must enclose a statement swearing that this is true. It might also help to include a copy of a recent unemployment check, layoff notice, or similar document verifying your unemployment. You are entitled to one free report from each agency every 12 months.

You receive public assistance. Enclose a statement stating that you receive public assistance and include a copy of your most recent public assistance check as verification. You are entitled to one free report from each agency every 12 months.

You reasonably believe your credit file contains errors due to fraud, such as someone using your credit cards, Social Security number, name, or something similar. Enclose a statement swearing that your statement is true. You are entitled to one free report each month.

You are a victim of identity theft or fraud or think you might be. If you suspect in good faith that you are, or might be, a victim of identity theft or another fraud, you can instruct the three nationwide agencies to add a fraud alert to your file. You’re also entitled to a free report from each agency after the fraud alert is placed in your file. (To learn more about identity theft, fraud alerts, and how to get additional reports in this situation, see Chapter 13.)

TIP

How to request an additional free report. If you check the correct box, you can use Form F-1, Request Credit Report, to request an additional free credit report. Again, remember that you can get free weekly reports at AnnualCreditReport.com. (See Appendix B for a list of forms, sample letters, and downloading instructions.)

Paying for Additional Credit Reports

With so many ways to get your credit reports free, you’ll probably never need to buy a copy. But if you do need another copy—or if you don’t qualify for a free copy—you’ll have to pay about $14 to get a credit report from one of the nationwide credit reporting agencies. Be careful. Many websites hide the charge for ordering one credit report by advertising a low-cost or free copy with a trial membership for one of their services, such as credit monitoring. If you don’t want the service, cancel it within the trial period to avoid the high monthly fees, which can be as much as $10 to $20 per month and add up to a staggering $240 a year.

In most cases, it’s best to avoid these services altogether and get your free reports from the Annual Credit Report Service rather than buying them from the credit reporting agencies.

Contact Information for Equifax, Experian, and TransUnion

To get your free credit reports from Experian, Equifax, and TransUnion, contact www.annualcreditreport.com.

To get a report from one of the three nationwide credit reporting agencies directly, contact:

Equifax

866-349-5191

www.equifax.com

Experian

888-397-3742

www.experian.com

TransUnion

833-806-1627

www.transunion.com

What Is in a Credit Report?

Your credit report has five main categories:

personal information about you

accounts reported monthly

accounts reported when in default

public records, and

inquiries.

Generally, negative information can stay in your credit file for seven years, but bankruptcies can remain for ten. (See Chapter 3 for details.) Sometimes, credit reports separate the good from the bad by highlighting negative items.

Credit reports sometimes contain a credit score, but don’t expect it with your free copy. Special credit reports or investigative reports include even more information.

Credit reports don’t contain information about race, religious preference, medical history, personal lifestyle, political preference, friends, or other information unrelated to credit. Typically, ordinary credit reports don’t contain information about your income, investments, or bank accounts.

Whether you are married, separated, divorced, or single, your credit report should contain information only about you. Information about your spouse should appear in your report only if you are both permitted to use or obligated to pay an account. For example, information about joint accounts should appear on both spouses’ credit reports.

The bulk of information in your credit report is your credit history (see Accounts Reported Monthly and Accounts Reported When in Default, below). Typically, creditors use automated systems and standardized terms to communicate the account information about consumers to credit reporting agencies.

Personal Information

A credit report usually includes your name, former names, past and present addresses, Social Security number, and telephone number, and might include your employment history, including salary. Credit reporting agencies get this information from creditors, who get it from you every time you fill out a credit application. For this reason, it is important to be accurate, complete, and legible when completing applications.

Accounts Reported Monthly

Certain creditors (see below) provide monthly reports to credit reporting agencies showing your account status. Each account is reported separately, and your credit report will typically contain the following information:

name of the creditor (which might be the original creditor or another creditor to which the account was transferred, including a transfer to a debt collector)

type of account (for example, mortgage or revolving)

account number

when you opened the account

your account responsibility (for example, individual, authorized user, or joint account holder)

your payment history—that is, for each payment whether you paid on time or were late and by how much (30, 60, 90, 120, 150, or 180 days late); whether the account has been charged off or placed for collection, and the date the delinquency began; whether the account has been turned over to a collection agency; whether the account has been discharged in bankruptcy; whether the account was placed in foreclosure or repossession; or whether you are disputing any charges

your credit limit or the original loan amount

your current balance, and perhaps

your highest balance on revolving accounts.

Why Are So Many Accounts Listed in Your Report?

Information on each account is reported separately in what creditors often refer to as a tradeline. If an account is transferred to a different creditor, the new creditor’s information is reported in a new tradeline. So, you could have more than one tradeline that deals with the same debt. For example, suppose your mortgage is transferred to a different creditor or a past-due

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