They say history can't be rewritten. But they're wrong. You can change and improve your credit history. Here's what you need to know.
It pays – literally – to make your credit history as appealing as possible. You know the reasons: easier access to cheaper credit, lower insurance rates; even better job prospects. So pull your credit history and start removing the blemishes you can and dealing with the ones you can’t.
The information below comes from the pages of my latest book, Life or Debt 2010.
What not to do: pay for credit repair!
Don’t ever pay anyone to fix your credit. There are only two types of credit repair happening out there: outright rip-offs and companies that charge to do what you could do yourself for free.
Do these statements look familiar?
- We can remove judgments, liens, bankruptcies and bad marks from your credit history!
- We can erase your bad credit, guaranteed!
- Create a new credit identity!
If you’re going to fall for this stuff, you might as well try to lose 30 pounds in 30 days or make $1,000 a week from home in your spare time. Let’s set the record straight: Nobody can clean up your credit overnight or give you a new credit history, no matter how much they charge. And nobody is going to do anything for you that you can’t do for yourself.
How to improve your credit history
Your credit history is essentially a report card that follows you around for life. Since what’s in your credit report can affect you, you want to make sure all this information is accurate – and you want to take out as many dents and dings as you can. So let’s see how we’re going to go about it.
The tool that allows you to hammer your history into the best possible shape is the Fair Credit Reporting Act (FCRA). The FCRA is a law that protects your privacy and establishes rules for collecting, reporting, and altering information in your credit history. The companies that collect – and ultimately sell – this information about you are called credit reporting agencies, or CRAs.
The first step is to look at the information that’s in your credit report right now. Since different CRAs may keep different information, it’s a good idea to check with the three biggies: Equifax, Experian, and TransUnion. You can get one free credit report a year from all three by going to annualcreditreport.com.
There are other ways to get a free copy of your credit report. If something bad has happened to you as a result of your credit report – say you’re turned down for a loan, a job, or an insurance policy – you can request a free copy of the report that caused the problem, provided you do it within 60 days of the rejection.
You can also get one free credit report per year if you’re..
- unemployed and plan to look for work within 60 days
- on welfare
- your report is inaccurate because of fraud
Otherwise, a CRA is allowed to charge you up to $9 for a copy of your report.
Step 1: Fix mistakes
Mistakes in credit reports are common. Depending on the source of the statistics, from 30 to 90 percent of credit reports contain mistakes. So go over your report with a fine-tooth comb to make sure it’s all true. And if it isn’t? Then it’s time to contact the CRA to tell them to fix it! You can complain at the CRA’s website or send a letter. Here’s an example of what you should say, largely pulled from information at the Federal Trade Commission’s website…
123 Maple Street
Anytown, USA 12345
PO Box 1000
Chester, PA 19022
I am writing to dispute the following information in my credit file. The items I dispute are also circled on the attached copy of the report I received.
The $5,000 loan from Dewey, Cheatem, and Howe Finance is inaccurate because I never had a loan with this company. You must have confused my credit report with someone else’s. I am requesting that this item be deleted.
The 60-day delinquency reported on Chase Manhattan Bank MasterCard account # 4567-1234-8901 is inaccurate. I never paid this bill late. I am requesting that this item be deleted.
Enclosed are copies of my canceled checks and statements that validate my claims regarding the MasterCard account. Please re-investigate these matters and correct the disputed items as soon as possible.
Enclosures: canceled checks and statement copies relating to Chase Manhattan Bank MasterCard account # 4567-1234-8901
That’s the basic form the letter should take. It should be sent certified mail, return receipt requested, and you should keep a copy.
If you write a letter to a CRA like this and don’t get a response, try sending the same letter, only this time add a paragraph like this:
You haven’t responded to my previous request in a timely fashion, which, as you should know, is illegal under terms of the Fair Credit Reporting Act. Specifically, the Fair Credit Reporting Act (15 U.S.C. § 1681i) says, “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 re-investigate 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.” I don’t know how that statement could be any clearer. Since more than 30 days has passed since my initial inquiry, I’ll be expecting written confirmation that the items listed in my original dispute have been permanently removed from my credit history.
That should get a response. The Fair Credit Reporting Act requires agencies to investigate items in question (unless they can determine the request is frivolous) and they normally have to do it within 30 days.
If they indeed screwed up, it’s their responsibility to notify all the other nationwide CRAs of their mistake so everyone can fix your record. And in case you didn’t see it in the bit of law I quoted above, remember: The Fair Credit Reporting Act requires disputed items that can’t be verified must be removed from your file. In other words, when it comes to negative stuff in your credit file, you’re innocent if they can’t prove you guilty.
Let’s say, for example, that you have a delinquent account that shows up on your credit history, and you know for a fact that the company that reported it has long since ceased to exist. The CRA could then have a tough time verifying that negative report, and it could therefore possibly be removed from your report. I’m not suggesting you use this tactic, I’m just showing you how to remove items that are legitimately inaccurate from your credit history.
Nonetheless, that’s how the law reads. So in the interest of fair disclosure, I’m telling you about this potential loophole. It’s kind of like pleading innocent to a speeding ticket and hoping the cop doesn’t show up for the trial. You automatically get off.
Step 2: Deal with the bad stuff
Eventually negative information in your history will go away by itself, but not for a long time – 7 years, unless it’s a bankruptcy, in which case it’s there for 10. Information about criminal convictions has no time limit. And neither does information reported because you applied for a job with a salary over $75,000, or because you applied for credit or life insurance of over $150,000.
Seven years is a long time to lug around bad stuff on your credit report. But here’s the good news. You don’t have to wait years for negative stuff to die a natural death. You can actually get rid of negative things on your credit report anytime, at least theoretically.
How? Well, remember the way the system works. The CRAs are nothing more than giant computer banks, receiving information monthly from your creditors, storing it, and spitting it back out to those requesting your report. The CRAs don’t create any information themselves. So if we’re going to get rid of bad stuff, let’s go to the people who put it there in the first place: the creditors.
There’s no law that says creditors have to report delinquencies or other negatives. In fact, they don’t have to report anything. The only delinquency that’s required to be included in your credit history is child support. Nothing else has to be reported, and anything that has been reported can be removed at the whim of whoever reported it in the first place. And that’s the secret to fixing your credit history.
As you go through this process, you may have creditors tell you that the law requires negative items be reported on your credit history. Bull. They put it there, they can take it off, and there’s no law against it.
A friend of mine had a slew of negative stuff in her credit history, all the result of a time in her life when she was a lot less responsible than she is today. She’s been patiently working for a number of years, off and on, to restore her credit history to pristine condition. How? She simply writes a letter to each creditor that reported a negative item and asks them to remove it. This is a particularly effective technique in either of two situations: when you’re still a customer of the creditor or when you have an unpaid balance that you can negotiate with. Following is a letter she wrote to a credit card company that she still deals with:
August 19, 2010
123 Maple Street
Anytown, USA 12345
PO Box 12345
Wilmington, DE 12345
Regarding: MasterCard account #1234-4567-8910
As you know, I have been a loyal customer of your company for more than seven years. Over that time period, I have received many offers from other companies for credit cards with lower interest rates or other terms that could have been more attractive, yet I’ve remained with your company.
I recently obtained a copy of my Equifax credit report and was dismayed to learn that your company has reported that I made two late payments four years ago. I’m writing today to ask you to have this negative information removed from my credit history. Having become conversant with the Fair Credit Reporting Act, I’ve learned that this is easily accomplished.
As you are well aware, my record of paying on time is unblemished with those two exceptions. Since even one negative item in my credit history is one too many, please repay my loyalty and responsibility by helping me have these items removed.
Thank you in advance for your timely response. I look forward to continuing our mutually beneficial relationship for many years to come.
Believe it or not, this simple letter, or a variation thereof, has worked for her in five instances where she’s used it. So the odds of eliminating negative items placed by current creditors are pretty good. But don’t think that a simple letter like this will always do the trick.
Sometimes she got a response back like, “I’m sorry, but we are unable to act on your request because company policy precludes alteration of accurate negative information.” That’s not a defeat. It’s a challenge.
If you get a response like that, do what she did: Take the fight to a higher level. For example, write again, only this time to the president of the company. Maybe you can say something like…
I am enclosing copies of two letters: one that I wrote asking your company for help with my credit history, and their bureaucratic response. They state in their reply that your company policy prohibits their helping me. My assumption is that your company policy also includes making a profit. I’ve paid you more than $2,000 in interest during the seven years I’ve been your loyal customer. Am I to understand that you no longer value my business enough to write one simple letter to Equifax?
Blah, blah, blah; you get the picture. Be a squeaky wheel for as long as it takes to get results. Remember, this is a game of patience and perseverance.
If you have an unpaid balance, you might also use that to negotiate. You can offer to settle the debt completely by paying part of what’s owed, along with getting any and all negatives removed from your credit history. Crucial, however: Get a written agreement that it’s going to occur before you pay. Some creditors will happily tell you anything to get your money, then refuse to follow through on their promises. Make notes of any phone calls, including dates, times, and names. And always, always get everything in writing.
The two examples above rely on using your existing leverage – being a current customer or owing money – to negotiate from a position of strength. How can you get negative items removed when you’re not a customer and don’t have an unpaid balance?
Well, you can and should still write the creditors. Simply build a case that you shouldn’t have to suffer for years simply because you made a few mistakes, especially since you’re now a new, responsible citizen. If you had problems that caused the delinquencies way back when (medical bills, lost job, etc.), don’t be shy about playing a little verbal violin music.
While it’s sometimes hard to believe, the readers of these letters are actual human beings just like you, albeit perhaps a bit more jaded. o they are susceptible to the powers of persuasion, and the attempt costs only a few minutes and a stamp.
Step 3: If all else fails…
If you’ve got negative items that simply won’t go away, you still have one option left. You can explain them.
This isn’t nearly as good as having them removed, of course, but it’s better than nothing. The law (FCRA, 168i, (b)) allows the consumer to include a brief explanation of disputed items.
“Brief” means keeping the wording to 100 words or less. But don’t make excuses. Give explanations and resolutions. For example, let’s say you show one late payment on your credit card. You could say, “Payment late due to lost mail. Account brought current immediately upon being informed.”
Or you might say, “Defective merchandise required withholding payment. Payment made immediately upon resolution.”
What if you had three late payments in a row? You might say, “Late payments due to severe injury and loss of job. Accounts subsequently brought completely current.” That sort of thing. Of course, I’m not suggesting you copy these sentences if they don’t apply to your situation. But if you paid a bill late, there must be some explanation that you can add to soften the impact.
That’s it. Your credit history is so shiny you can see yourself! And the process was kind of like hitting yourself on the head with a hammer – no fun while it was going on, but feels good when it’s over.