How to repair your credit
WHAT DO LENDERS LOOK FOR?
Your credit history is what the lender looks at to determine your “character” or your ability to repay the loan. Underwriters (the decision makers) look carefully at your past payment record as shown on your credit report(s). Basically, the underwriter is looking for the intent to have excellent credit. A minor instance of poor credit or late payment can usually be explained as long as there are plenty of other accounts that have good standing payment records.
What they don’t like are patterns of poor payments that are later or delinquent. For example, if you purchased a motorcycle and had late payments consistently over the last three years or had late payments after a bankruptcy, your loan may not be look at favorably. In situations like this, it is extremely important to repair the credit to ensure that the report looks as good as possible.
Below are items that may appear on your credit report, and if they are – further explanation will be required:
The creditor will need a letter of explanation from you describing the inquiry. If you did obtain credit, they will need the paperwork in order to determine the monthly payment balances.
Any and all derogatory items that appear on your credit report will require a letter of written explanation from you.
Judgements, Liens and Collection Accounts
A written explanation is required and the judgement, lien or collection account will have to be paid off prior to mortgage closing.
Bankruptcies must be discharged for a minimum of two years. They wiill need a letter of explanation and complete paperwork including the schedule of creditors and the discharge. You must also have re-established good credit since that time. So, you see bankruptcy is one the worst credit mistakes.
What if your credit report has errors?
If you find mistakes on your report, you must contact the creditors in writing with proof of the mistake. Usually creditors will respond promptly and remove any mistake from your record. If for some reason you don’t get results, you can write a 100-word description of your side of the story and send it to the credit-reporting bureau. It then becomes a permanent part of your credit report.
Removing “Derogatories”: Derogatories are the negative items on your credit report. Depending on what they are they will stay on your credit report anywhere from 1 to 10 years. Examples:
Late payments – 2 years
Nonpayment for non-filing of taxes – 10 years
Bankruptcy – 7 to 10 years depending on which chapter you file
Charge offs, Repos, and Foreclosures – 7 years
Judgements – “Unsatisfied” until paid.
The byword when it comes to derogatories on your report is PROVE OR REMOVE! When you dispute a derogatory item, the creditor has 30 days to respond by either providing proof or removing the derogatory status. For instance, your creditors must be able to prove that you had a late payment.
One of the best used practices of improving your credit score is to make sure all mistakes on your creidt report are cleared up such as any late payments or old balances that would clear up some of your old debt.
Once you receive all of your credit reports, carefully analyze each and every entry. Record every piece of information you might think is wrong or even slightly untrue. These records will become your disputes.
Carefully read and refer to the back of each credit report for in depth explanation of symbols and terminology of your credit report.
In the following sequence, take these steps to clean up your credit file:
- Make a list of inaccurate entries recorded on your credit file.
- Call the credit bureaus and ask for dispute forms – most credit bureaus send these necessary forms with your credit report.
- Fill these out mentioning the findings of #1.
- After you properly complete the form, MAKE SURE YOU SEND IT CERTIFIED MAIL!
- When the credit bureau receives the dispute form, they will then attempt to contact the bank or credit institution responsible for reporting the derogatory information on our credit file.
- After 30-40 days you should be notified of the results of the credit bureau’s investigation, the resolution of your dispute and an updated credit file.
- If each creditor did not notify you of the results within 30 days, please then send a follow up letter through Certified Mail. (I will show you an example follow up letter at the end of this)
Files may be totally wiped clean for the following reasons:
- Creditors did not keep proper records to verify their entry on the reports.
- They did not respond within their allotted time period of 30 days (see why it’s important to send certified mail?)
- The debts were not significant enough for them to waste their time disputing them.
It’s very important to be persistent when dealing with these credit bureaus. Assure them you know your rights and the law – they have 45 days to answer your disputes, so make sure they do!
SAMPLE DISPUTE LETTER:
City, State, and Zip Code
Name of Credit Reporting Agency
City, State, and Zip Code
Dear Sir or Madam:
I am writing to dispute the following information on my file.
The items(s) I dispute are also circled on the attached copy
of the report I received.
This item (Identify item(s) disputed by name of source, such
as credit account, judgement, etc) is (inaccurate or incomplete)
because (describe what is wrong and why). I am requesting
that the item be deleted (or request another change) to correct
Enclosed are copies of the (use this sentence if applicable and
describe any enclosed documentation, such as payment records,
court documents, etc.) supporting my position. Please
re investigate this (these) matter(s) and delete or correct the
disputed item(s) as soon as possible.