How to Fix Negative Credit Reports

Negative information on your credit report could make it difficult for you to buy a house, a car or even take out a small loan. The negative information can remain on your credit report for at least seven years, but that may not be quite as bad as it seems. Your score is only one thing creditors review when considering you for credit. Most also will review how you have paid your bills over the past 12-24 months, and a steady string of on-time payments is the best way to improve your credit and offset any negative information.

Instructions

1

Order a free copy of your credit report. Use the website Annual Credit Report (see Resources, below), which was set up by the credit bureaus to issue free credit reports as required by federal law. Click on "Request Report" on the home page to order or call 877-322-8228.

2

Refer to your credit report as you make a list of all your negative information. Include all accounts listed as past due, charged-off or in collections. Make payments to bring open, but delinquent, accounts current. If you don't have the money, contact your creditors about so-called hardship plans that could temporarily reduce your minimum monthly payments and interest rates while you catch up.

3

Contact creditors or debt collectors about old accounts that have been charged off. Offer to settle the accounts for less than the full amount owed--a common tactic called debt settlement. Debt collectors will sometimes settle old accounts for half the original balance or even less, according to a Jan. 2, 2009 story in The New York Times. Also ask the debt collector to delete the negative information from your report as a condition of payment. The debt collector may not agree, but it won't hurt to ask.

4

Audit the rest of your credit report for inaccuracies. The Fair Credit Reporting Act gives you the right to challenge all information on your credit report--even negative information that you know is correct. This loophole could provide you with another opportunity to fix your negative information. According to the fair credit act, credit bureaus must confirm the accuracy of anything you challenge within 30 days after receiving notice from you. By law, the information must be removed if the credit bureau cannot confirm its accuracy before the deadline expires. Dispute the information by writing a letter and mailing it to the credit bureau at its address listed on your credit report. Include your name, address, and Social Security number. List the account numbers for the negative information that you are disputing and provide a reason. You can claim that you never paid the account late or provide another reason for your dispute. Ask the credit bureau to delete the negative information upon completion of its investigation. The credit bureau will send you a letter regarding its findings in about 30 days.

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About Improving Credit

Bad credit or no credit history makes it harder for you to obtain loans. And even if a lender approves your loan application, a bad credit history often results in a higher interest rate and monthly payment. But fortunately, there are ways to quickly improve a low credit score and obtain the best rate on auto loans, mortgage loans and other types of loans. Regardless of whether you've experienced a foreclosure, bankruptcy or repossession, you can increase a low score and establish a good credit history.

New Lines of Credit

If you don't have a line of credit due to bankruptcy or no credit history, opening a new line of credit can help improve your credit score. There are many ways to obtain a new line of credit. Contact your local bank and inquire about secured credit cards. These cards are purposed to help people with bad credit and no credit history and require a security deposit. Even so, approvals are guaranteed. Also, many auto lenders feature bad credit auto loans designed to help applicants with bad credit to restore their credit.

Timely Payments

Skipping a payment or making late payments reduces your credit score. Making on-time payments (every month) adds points to your FICO score, and this is a surefire way to maintain a decent credit rating. Pay attention to due dates; and if necessary, enroll in an automatic billpay program to avoid late payments.

Debt-to-Income Ratio

Regardless of whether you pay your bills on time each month, having a high debt-to-income ratio can decrease your credit score. If possible, pay off your credit card balances every month. If this isn't possible, keep credit card balances below 25% of your credit limit. Therefore, if your credit limit is $1,000, do not exceed $250. Requesting an interest rate reduction and doubling or tripling your monthly payments can help you pay off your debts sooner.

Check Your Credit Report

Order a copy of your credit report once or twice a year to check for inaccurate remarks and unfamiliar accounts. Credit report errors can reduce your FICO score and make it difficult for you to obtain a home loan or auto loan. Request a copy of your report from Annual Credit Report (see Resources), and thoroughly examine the report for errors. Contact the original creditor and the credit bureaus to report any errors.

Credit Piggybacking

Ask someone with a good credit history (spouse, sibling or parent) to put your name on one of their accounts. Often referred to as piggybacking, adding your name to someone's credit account is another way to quickly improve your credit score. In turn, you benefit every time they make a payment or pay off the account. Although you're not the primary account holder, the credit account will appear on your credit report. Your score will increase as long as this person maintains a good payment history with the creditor.

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Can Credit Checks Affect Your Credit Score?

Credit checks are inquires into a credit report by either an individual, business or employer. Individuals seeking to improve their scores will check their reports often to ensure that correct information is being recorded. Many individuals sometimes wonder if all of this checking will affect the score. This depends on who is performing the inquiry.

Types of Inquiries

Inquiries come in two forms, soft and hard. Soft inquiries do not involve requests for credit. When you check your credit report, it is a soft inquiry. Hard inquiries are done when someone is applying for a new line of credit. If you apply for a car loan, the lender performs a hard inquiry. A hard inquiry can be done only with your permission.

Who is Checking My Report?

Car dealers, banks and insurance companies do hard inquiries when you sign a credit application giving them permission to do so. Soft inquires, on the other hand, are sometimes performed by credit card companies or other potential creditors for pre-approval offers. Landlords and employers may perform soft inquiries on your credit report to determine your financial acumen. Only businesses or individuals with a specific business reason can pull a copy of your credit report. If you want to limit the number of pre-approval inquiries made to your credit report, contact the credit reporting agencies to request removal from marketing distributions.

Credit Inquiry Effect on FICO Score

The good news is that you can make as many soft inquiries as you would like without affecting your score. This means that those who are monitoring their scores on a regular basis do not have to worry. Hard inquiries are another matter. They lower the score slightly, although not by much. Inquiries only count for about 10 percent of the overall score, so an inquiry or two over the course of a year will not hurt it. If you are house hunting or car shopping, be aware that credit agencies count multiple inquiries occurring in a 14-day span as one inquiry. Though hard credit checks have a lowering effect on the score, individuals rarely are turned down for credit due to multiple inquiries on their credit report.

Your Credit Report

If you are asking yourself why hard credit checks are viewed negatively, it is because potential creditors want to make sure you are able to repay your debts. Too many credit applications in a short period of time could signal the start of some financial problems. Inquiries appear on the bottom of your credit report as a record entry. Inquiries only appear on the credit agency report that is pulled. For example, inquiries to Experian will not appear on a TransUnion credit report. Inquiries will remain on your credit report for up to two years from the time they were pulled. Soft inquiries may fall off after one year. Many creditors disregard inquiries more than six months old.

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How to Clean a Credit Report for Free After Bankruptcy

What many people do not realize is that you actually can clean your credit report after having a bankruptcy. Many times you can actually raise your score significantly even before the bankruptcy falls off of your credit report, which can take up to 10 years. It may take a little trial and error, but you can clean up your credit report after a bankruptcy and get your financial future back on track in a lot less time.

Instructions

1

Obtain a current copy of your credit report. You may not even have looked at your credit report since the bankruptcy, and there may be mistakes or errors on your credit report that you do not even know about. To get a copy of your credit reports for free every year, go online to annualcreditreport.com and request copies. You can view them online, and print them out right at home.

2

Check your current credit report for any errors. You credit report may be brought down not only from your bankruptcy, but from errors made by your creditors. If you find any errors on your credit report, you can dispute the charges with the credit reporting agency that the report came from. This can be done online by filling out an inquiry, or even mailing them a letter explaining the dispute.

3

Work with collection agencies, if any, to work out payment plans to get out of debt faster. If you have any past debt that was not declared on the bankruptcy, talk to the creditors or collection agencies and work out a payment plan that works for you to get the debt cleared. Make sure that it is something that you can afford.

4

Obtain a small loan to start rebuilding your credit. Even if it is a small auto loan or personal loan, you want to start rebuilding your credit so that your score will increase after the bankruptcy. Be prepared to expect that you will need either a co-signer or expect to pay a higher interest rate.

5

Request a secure credit card. Since you will probably not qualify for a unsecured traditional credit card, a secure card will allow you to start building your credit. Check for a company that charges low fees and reports to all three credit reporting agencies: Experian, TransUnion and Equifax. This will help your credit increase with usage.

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How to Dispute a Credit Card Opened in Your Name

When a credit card is opened in your name -- and you are not responsible for opening it -- the potential for problems can be far-reaching. Each credit card in your name goes onto your credit report. The credit report shows any payment delinquencies that an identity thief creates with the stolen information. The credit report also plays a significant role in your ability to apply for a home loan, a car loan, apply to purchase insurance, and even apply for a new job. As a result, any credit problems that you have not created, need to be addressed immediately. Disputing a credit card opened in your name requires several steps that are necessary to put your credit back on track and remove any information that is the result of identity theft.

Instructions

1

Request a free copy of your credit report. The Federal Trade Commission (FTC) recommends that consumers request their credit report from AnnualCreditReport.com. This report is entirely free and also links the credit reporting from the other three primary credit report companies in the U.S. Among these three (Equifax, Experian, and TransUnion), consumers can usually request a free copy of their credit report once in a 12-month period. Requesting a copy of the credit report from these companies more than once in a twelve-month period might incur a small fee.

2

Contact the consumer reporting company to let them know of the identity theft. The FTC advises that consumers contact the credit reporting company in writing to explain that a credit card has been opened fraudulently and request clearly that the information be corrected on the credit report. Be sure to include photocopies (but never originals) of any documentation to prove that identity theft has occurred. This might include information proving that you were not in the location where a fraudulent purchase was made. It is important keep a copy of the letter and any information that you send the credit reporting company and to send it via certified mail. By law the credit reporting company must begin the process of addressing the claim of identity theft within 30 days.

3

Contact the credit card company to let them know of the identity theft. Check to see if the credit card company provides a specific address for directing disputes (many do), and send another letter explaining what has occurred and requesting that the credit card be closed or your name be removed in connection with it. Again, be sure to include photocopies (not originals) of any documentation to support your dispute, and send the information via certified mail. The credit card company is also responsible for reporting the dispute to the consumer reporting company.

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Free Credit Score Analysis

The responsibility of analyzing your credit report falls largely on your shoulders, but you can seek credit counseling to help you manage your debts. However, don't wait for a loan denial to know your credit score. Federal law entitles you to a free copy of your credit report every 12 months. Credit scores range from 300 to 850. Generally, if your credit is below 600, you are considered a higher credit risk.

Credit Report

Your credit report chronicles all aspects of your financial history beginning with your very first credit account. It also includes places you've lived, jobs that you held, names or aliases that you might have used and any public records, such as judgments and liens. When analyzing your credit report, it is important to take note of all negative items that are dragging down your credit score. Delinquencies, defaults, judgments and bankruptcies can kill your score. As you go line-by-line, identify any items that are false, inaccurate or incomplete which you can later dispute.

Getting Your Credit Report

Following the enactment of the Fair and Accurate Credit Transactions Act, the credit rating agencies created a website, annualcreditreport.com, so that consumers can have access their credit reports each year. Visitors to the website create an account and answer several security questions before gaining access to their credit report from Equifax, Experian and TransUnion. You are also entitled to a free copy of your credit report if a lender denies you credit. The lender must notify you regarding which credit rating agency it used to make its decision.

Correcting Errors

The Fair Credit Reporting Act promotes accuracy and privacy of information contained in consumer credit reports. According to the FRCA, the credit reporting agencies and the company or organization that provided credit information about you are responsible for correcting any errors in your credit report. If you find inaccuracies in your credit report, contact the CRA and the lender that supplied the information in writing. Your dispute letter should include copies of supporting documentation. The CRA has 30 days to investigate and must forward any information provided by you to the lender that supplied the information. You are entitled to a free copy of your credit report if your dispute results in a change. And, upon your request, the CRA must send notice of corrections to anyone who received your report within the last six months.

Rebuilding Credit

Take a proactive approach to rebuild your credit. Paying off debts, paying on time and using credit wisely are all actions that improve your credit score. According to FICO, creator of the widely-used FICO score, payment history and outstanding debts account for 65 percent of your total credit score. If you take on new credit such as a credit card, make small purchases than can be paid off quickly. If you want to avoid traditional credit cards, you can apply for a secured credit card that basically ties your credit limit to a cash account. If you are eliminating debts, start off with higher interest rate accounts.

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Do All Bankruptcies Affect Your Credit?

Declaring bankruptcy always affects your credit, even if your withdraw your case, but not all bankruptcies affect your credit in the same way. Although bankruptcy is the worst item you can have on your credit report, it may not affect your credit rating much. In some cases, a bankruptcy can boost your credit rating -- at least temporarily.

Identification

Whether you file Chapter 7 or 13, a bankruptcy case always affects your credit rating because the credit reporting bureaus search public records for bankruptcies. Voluntarily dismissing your bankruptcy case affects your credit rating too because you had to consider filing in the first place. Chapter 13 bankruptcy only stays on your report seven years after you complete your payment plan and Chapter 7 cases always stay for 10 years. Chapter 13 cases tend to stay the full 10 years because most cases take three to five years to complete.

Effect

Bankruptcy usually lowers your credit rating, but some consumers see a boost to their score because of a bankruptcy case. This occurs because bankruptcy eliminates the history and balances on included accounts -- except for secured debts -- so a single bankruptcy might impact your rating less than years of missed payments and delinquent debt. At the very least, bankruptcy may not lower your score by the 240 points or more damage it does to elite scores, because you already likely have a terrible rating before you file bankruptcy, according to Aleksandra Todorova of Smart Money.

Avoiding Bankruptcy

Go to a credit counselor from one of the major nonprofit credit counseling organizations, such as the National Foundation for Credit Counseling. You have to attend credit counseling to file bankruptcy anyway. The counselor may have options for you to avoid a bankruptcy. For example, the counselor may suggest you settle debts with creditors for a fraction of the balance or the counselor may try to negotiate a single payment to all creditors.

Tip

Once you complete your bankruptcy case, start rebuilding your credit. Begin by assessing your budget and whether it can meet your debt obligations and monthly expenses. If you do not have a savings account, try to put at least $500 in an emergency fund, suggests Liz Weston of MSN Money Central. You need to use credit again to build a good credit rating. You can almost always acquire a secured credit card by putting a security deposit on the credit limit, and the bank may offer an unsecured line after a year or so of no missed payments.

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