Section 3: How to Repair your Credit on the Road to Portland Home Buying

Repairing Damaged Credit

Under the law, credit bureaus are required to investigate your claim, usually within 30 days. A credit bureau must forward all information you give it to the creditor or other “information provider” that is reporting an error on your credit report.

If the creditor or information provider determines an error exists, it must correct it and notify all major credit bureaus. In turn, the credit bureau that reported the error must send you a free credit report to show that it has been corrected.

To request an investigation of an error or omission:

• Document your claim. Write a letter to the credit bureau with a clear explanation of what item on your credit report is erroneous. Be sure to phrase your request as a dispute of an item in your credit report. Send all available information to substantiate your claim and request the error be corrected.

Inform both credit bureau and creditor. At the same time you contact the credit bureau, you should also inform the creditor or information provider. After all, it is responsible for the error being reported to the credit bureau. Be sure to phrase your request as a dispute.

Send copies. Most likely, a credit report will have tipped you off to an error. Keep the original report and send the credit bureau and information provider a copy instead. In case you decide to litigate, original documents hold up better in court than copies.

Keep records. You will want to keep records of all correspondence with the credit bureau and information provider. Be sure to record vital information of any and all conversations. Include dates of the conversations and with whom you spoke.

Use certified mail. Using certified mail may cost a few extra dollars, but you receive notification from the deliverer that your letters have been received. The clock begins ticking for an investigation once the credit bureau receives your dispute.

If the credit bureau considers your request as frivolous, you may wish to contact the U.S. Federal Trade Commission’s consumer help-line (877-FTC-HELP).

Notify any soft inquiries of corrections. If an error does exist, request the credit bureau to notify any parties that may have reviewed your credit report in the past six months. You can also request any corrected credit reports be sent to prospective employers that have accessed your credit report in the previous two years.

DIY Repair of Credit:

If you determine that your loan payment history needs repair, consider the following steps. Over time, these steps will help to boost your credit score:

List what you owe. Prepare a table of how much you owe each creditor, what the interest rate is and how much you pay monthly. In short, you want to itemize your personal liabilities. Much of this information, in fact, is what’s shown in your credit report.

Review your personal cash flow. Prepare a sheet that shows how much you pay out and how much you receive each month in cash. This statement represents your personal cash flow and identifies where you may be able to set aside additional savings to pay off debt.

Prepare a personal budget. You can use a personal budget to augment your personal cash flow statement. A personal budget and personal cash flow statement need to work together: You want to find ways to cut non-essential expenses that identify an extra $50 or $100 a month to repay debt.

Set up a debt repayment plan with each creditor. Lenders want to get repaid, even for small debts. If you’re unsure of how to set up a debt-repayment plan, visit a representative of your lender or a repayment specialist.

Apply for a secured credit card. A secured credit card is backed by deposits or investments that you keep at the lending institution. It may offer only a small credit limitinitially, even less than an amount you are required to deposit. Nevertheless, by charging and making payments regularly, you build a better credit history. In turn, your credit score will increase.

Credit Counseling:

If you’re unable to pay off your debts or are overwhelmed by the amount of debt you owe, you may wish to obtain credit counseling. Nonprofit financial counseling is available in most communities and offers an affordable service aimed at helping consumers improve their debt-management habits and take steps towards improving their credit. A financial or credit counselor will look at your whole financial picture, explain the most common types of credit problems, help you obtain and read your credit report, and determine the best solution for your situation.

National networks of nonprofit organizations offering financial and/or credit counseling services include:

• NeighborWorks organizations are nonprofit organizations across the country that provide housing and financial counseling as well as other homeownership services. To find an organization for Portland Credit Counseling, call (202) 220-2300, or visit the Web site

• Consumer Credit Counseling Services (CCCS) are nonprofit organizations that offer financial counseling across the country. To find an office near you, call (800) 388-CCCS or visit the Web site

Always do your homework when selecting credit counseling services, even if they are from a nonprofit organization. When you are struggling to pull yourself out of financial trouble, you need the help of a well-trained counselor — one that is certified by the NeighborWorks Center for Homeownership Education and Counseling (NCHEC) or the National Foundation for Credit Counseling. Poor counseling can lead you into even more trouble.

Here are some questions to ask before you begin working with a credit counseling agency:

• What is the company’s name and business address?

• What are the payment terms for services, including the total cost?

• What will the counseling involve and what are the services to be performed (in detail)?

• How long it will take to achieve the results?

• What guarantees does the company offer?

• How much training do the counselors have?

• What information do counselors need to make a financial assessment and how long will the assessment take?

• What are the company’s other sources of income?

• How long is the wait for counseling?

Of course, good credit management skills help most if you have them before you get in credit trouble. Don’t be afraid to contact a financial or credit counseling before you are in trouble, as many of them offer financial education classes and other resources to provide you with sound money management skills.

Credit Repair Services and what to look out for:

Be careful not to confuse reputable credit counseling services with high-cost credit repair services.

Unscrupulous credit repair services promise to end your credit woes with claims of “Bad Credit – No Problem!” and “Erase Bad Credit – 100% Guaranteed!” Others claim to be able to remove an adverse public record such as a judgment, lien or personal bankruptcy filing from your credit report.

Such claims are false and misleading. Most firms that make the claims charge you a lot of money to do nothing more than you can do for yourself. These firms often aim to improve your credit history by taking shortcuts. The fact is that there are no shortcuts to erase bad credit. Only the creditor who reported negative information about you can take that information off your credit report. If that information is correct, the creditor will probably not remove it. You can try to explain it or show more recent examples of good credit, but unless it is incorrect, negative information will be on your record for seven to 10 years. Don’t be taken in by companies that promise results that they cannot deliver.

Below is a list of danger signals:

• The company asks you to pay for credit repair before services are provided. This is a direct violation of the Credit Repair Organizations Act, which says that credit-repair companies cannot charge you fees until after they have completed the promised services.

• The company advises you to dispute all negative information in your credit report. The company will flood credit reporting agencies with letters that dispute accurate and inaccurate information. While items are under investigation, the credit reporting agency has to delete them from your report. However, once they are verified as accurate, the information will be put back into your credit report.

• The company over-promises. Credit repair companies cannot remove accurate negative information from your credit report. Most negative information stays on your credit report for seven years.

• The company offers to help you get a new identity. The company tells you to apply for an Employer Identification Number (EIN) to use instead of your Social Security number. Then they instruct you to apply for credit using this and a different address and phone number to invent a “new” credit report. This practice, known as file segregation, is illegal. If you follow illegal advice and commit fraud, you may be subject to prosecution.

If you have had a problem with a credit repair company, don’t be afraid to report it. There are laws in place to protect you. Contact your local consumer affairs office or your state attorney general’s office.

Remember, the best way to improve your credit is to repay your debts. By making payments on time, you’re more likely to repair your credit history than by taking any magical elixir that a credit repair service claims to offer. Be patient, as improving your credit record takes time. You probably didn’t get in trouble over night, and you won’t be able to fix immediately either.

For more information on on how to protect yourself from unscrupulous credit-repair services, see the FTC brochure, Protect Yourself from Credit Repair Scams.

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