Credit Restoration
If you have done any web surfing on the subject of credit repair, you probably have come away with the belief that credit repair does not work, is a rip-off, and is illegal, immoral and fattening. This belief is spread by the credit bureaus (who have vested interest in keeping scores low) and by the Federal Trade Commission, who unfortunately deals with the problems within the credit repair industry.
Credit Reporting Problems are Real
The plain truth is that credit repair does work. It can be effective and does work for the majority of people. Most credit files are a mess. Consider the following statistics:
- 25% of credit reports contain a serious enough error that credit may be denied to the consumer.
- 54% of credit reports contained personal information which is wrong, outdated or belong to another person. For example, the author’s credit report contains home addresses in Oregon, Northern California and Louisiana.
- 22% contained multiple listings for mortgages – increasing the number of mortgages the consumer held.
- 8% of credit reports were missing major credit items – things like car loans, mortgages, or other major item purchases.
- 30% contained accounts closed by the consumer but were still listed as open.
- In total 79% of credit reports contained some kind of error.
Source: “Mistakes Do Happen: A Look at Errors in Consumer Credit Reports” Public Interest Research Group, 2004
4 in 5 reports contained errors which would impact a credit score; nearly always decreasing the consumer’s score. Simply by cleaning up the errors and mistakes a score can be improved. Just imagine what your credit score would look like if your phantom mortgage was removed.
How Credit Repair Works
While credit repair is real and can be effective, a lot depends upon two factors which cannot be fully controlled by the average consumer. The first is the professionalism of the credit repair company. Results Advisors, who have assembled a multi-discipline team of financial, real estate and other professionals, who more importantly only get paid when you get results, is clearly professional. The second factor is the credit bureaus and the creditors. Sometimes they actually do their jobs correctly, sometimes they do not. If their job is not done correctly, there will be issues with a credit repair file.
This is because in large measure, credit repair is a challenge/response system. The consumer challenges a statement made on a credit report and the credit bureau then conducts an investigation. The credit bureau itself does not do the investigation; the reporting creditor does. This is critical to understand. The bureaus are sort of like a sports scoreboard – it’s the clearing house for information, but all the information is taken from what is happening on the field. Some creditors take the investigation claim seriously, some do not, some get nasty; you need to understand that can’t be predicted in advance and it will affect the net results.
If you are considering credit repair, we know from experience two situations in which credit repair will not work, and for that reason should not be attempted until the underlying financial circumstance is corrected.
- If the majority of your negative items are a reports of unpaid collections, charge-offs, repossessions and foreclosures and there is no money to pay or settle them. Even if the item is removed as a result of a challenge one month, it will simply reappear within the next 30-90 days. In that situation, it is more cost effective to settle the debts – hence the need for debt settlement, discussed elsewhere on this website. This is because for a debt to be removed completely from a report, and to stay that way, the status must be “current, paid, settled, transferred or sold” – hopefully one of the first three.
- If you are using credit cards you must be able to meet at least your minimum monthly payments. If you cannot do this, the money you are spending on credit repair should be applied here. If you are not making at least your minimum monthly payments, late reports occur as rapidly as late reports can be removed – you are simply in a vicious cycle.
Since much of credit score improvement concerns settling accounts to get the “current, paid, settled” reports, let’s look at when debt settlement should and should not be done.
Let’s be clear – if an account is settled, it can and usually is listed on the report as “current, paid or settled”. Under the FCRA, that status can be reported and remain on the report for 7 years from the date of the last activity of the original creditor – NOT 7 years from the date of settlement (if that’s how it is reported that itself can be challenged).
The optimal solution is to settle the account at a discount in exchange for the account being deleted from the credit report. Creditors have the right to do that and the bureaus will listen (if you report the account as settled they will not listen to you). Some creditors will demand a premium to do this; some do not. You are trading off more dollars now for a few points later – and that may make a difference of thousands of dollars in loan interest down the road.
Before you decide to make the calls to settle your debts, be aware of the following circumstances:
First, you need to know your state’s statute of limitations for enforcing a written contract. All the debts which are subject to credit repair efforts are based on some kind of writing; you may not have it, the junk debt buyer certainly does not have it; but it exists in some form somewhere. Since this blog is written in California, we’ll save you from the Google search and tell you the statute of limitations is 4 years on a written contract. In other words, somebody has four years from the date of your last payment to sue your for the money owed. Within that four year period, the collection agency can back up their claim of suing you by actually being able to sue you; once the 4 years has passed – they cannot sue you on the account.
Second, if the creditor is the original creditor (you have a Wells Fargo Visa Card you have not made a payment on and Wells Fargo is calling you, instead of Acme Collections) they will not delete the account upon settlement. The best you can do in these situations is to settle for as low an amount as possible and accept the credit entry. For credit reporting purposes there is very little difference between a 100% payout and a discounted payout, so there is no real need to pay the full amount owed.
Post Bankruptcy Credit Repair
There are different rules for credit reporting after bankruptcy. These rules impact all the accounts listed in and discharged in the bankruptcy.
First, the fact you filed bankruptcy (even if it was dismissed before discharge) will be reported, and remain on your report for 10 years under the FCRA. This does not mean your credit score is destroyed for 10 years – this is America and the Big Banks need you to consume so they can pay for their bonuses and corporate jets! But it does mean that it takes a while to get back into the mainstream.
Second, for all the credit accounts included in the discharge – all previous derogatory information – lates, collections, non-payments, everything, must be removed from the credit report. These accounts can only be identified as “included in bankruptcy” or “discharged in bankruptcy” and with a zero balance. All other derogatory information is wiped out.
Does this happen automatically? No.
Do most bankruptcy attorneys know anything about this? No.
So is it on you to make sure your bankruptcy is reported correctly? Yes.
Is it possible to accurately report your bankruptcy status so all your prior derogatory information is removed? Yes.
If you have been discharged in bankruptcy and want to start rebuilding your credit and re-entering the mainstream in as little as 12-24 months, call or email us and we will assist you in the process.