Looking for ways to repair credit

10 Replies

What is your favorite way to repair credit? Have you used a certain strategy that worked really well/increased your score significantly?

I'm not looking for the credit repair equivalent of a get rich quick scheme. I'm fine with something that takes a while. I am writing about repairing your credit, and want to make recommendations that work.

I destroyed my credit when I was in college with maxed out credit cards, closed accounts and a repossession. The best thing for me was to open lines of communication with the credit card companies and pay down the balance. Now I charge everything on my credit card and pay off the balance every month and that's helped my score a lot. 

@Mindy Jensen

I've personally never had bad credit, but the advice that one of the non-profits I work with gives to many people with ruined credit is several-fold. One of the big things here is motivation. People with bad credit sometimes don't understand that the credit score has a huge impact on their lives RIGHT NOW, and is an EMERGENCY. It is directly negating their ability to do things like a) get a job, b) find housing, and c) protect themselves and their families from further financial misfortune. 

It's then important to explain that credit repair is a long process - it can be very time consuming to go from terrible to great and takes a number of years. This is by design - it wouldn't be a good barometer of your likelihood to fulfill your financial obligations if it could be fixed quickly and easily with tricks and gimmicks!

That said, it IS possible and common for folks to see substantial improvement - perhaps enough even to the point of qualifying for acceptable jobs and housing, in a matter of 6 months to one year by taking systematic steps:

1) Begin making small payments on at least a few of your outstanding debts. Credit scores are incremental and every baby step counts, even if it's just 

2) Negotiate! Lenders would rather get something back than nothing back, and the folks with terribly damaged credit often have a lot more negotiating power than they think. All it takes is some time on the phone and the determination to work out something that works for both debtor and creditor. It's relatively common, for example, to see folks get large reductions on outstanding medical debt (often a big one for the poor and homeless) with a simple phone call. Then, of course, they will need to pay off the reduced, more manageable debt. Successfully paying down these large debts can be a great boost to credit, AND to personal outlook.

3) If you have little outstanding debt, or are starting fresh, a secured credit card can be a great, low-risk way to begin building credit history without getting yourself into trouble.

4) If you've completed the steps above, start planning ahead by building an emergency fund. If you've been in trouble before, it can happen again, AND you have less access to credit in an emergency situation because of a bad score. Building a financial buffer is especially important for those looking to repair their credit score.

The answer(s) to your question are too in depth for me to want to discuss in detail. But I will say, "it depends" is the proper answer. What is the Statute of Limitations on debt in your state. How old is each of the debts you are talking about. Or is it a lack of credit that is the problem. In most cases it is a combination of factors. Medical debt is not factored into the score the same way. I used to be a mortgage broker and a wholesale account executive. I have reviewed 10's of thousands of credit reports over the last 15 years. If you have access to some funds I can tell you how to get through a BK and end up with a 650 credit score in 4-6 months after the BK is discharged. I have seen people with a $75k medical judgment against them who had a 700 credit score. Paying off collections that are more than 2-3 years old will usually hurt your credit rather than help. Don't make small payments on outstanding debts (sorry @Scott Trench  ). In most cases that will just stretch things out and make them worse. If you have funds available and the debt went to collections less than 2 years ago, then you might help things by working out a settlement with the collector. The reason to not pay partial payments or to pay on old collections is that the newer a bad debt is, the greater negative effect it has on your credit score. When you make a payment on an old debt (or even pay it off) it actually brings the DLA (date last active) to the current date and can cost you 100 points or more on your credit score. I know debt collectors will hate this response but it's the truth. If you go to a credit scoring tool such as the one that exists on myfico.com and play with the parameters you will see what I am talking about. I will agree that getting a secured card or a line of credit from someone like Fingerhut can help immensely. But only if you have the funds and the ability to make sure you make all future payments on time. Otherwise you are just making it worse. Credit repair is not rocket science but it is kind of an art. Every situation is different and it takes someone with experience to know the right answer. And sometimes what worked with one person or one debtor just won't work with another. Please keep in mind I am NOT an attorney and am not offering either legal advice nor credit counseling advice. The opinions expressed by me above are simply my opinions and observations. Please carefully choose appropriate professionals that are licensed in their fields to help you resolve any questions. 

@Bill Hamilton

You're right of course that there is a strategy involved in paying down newer debts  first because they affect your score more than old debt. Thank you for bringing that point up and adding to my comment - we always make sure to mention that when we are going more in depth with folks we work with. For some reason I just trailed off after "even if it's just...". Not sure what happened there but my mind must have wandered, so thanks for the follow up there.

Credit repair can either be mind numbingly simple, or thoroughly complex (science, or art as you describe). You can either look at it as:

"I need to be as strategic as possible with every single payment I make to maximize the rapid increase of my score by playing with a complex set of rules" 

OR

"I need to pay off my debts and build a strong financial foundation." 

The first mindset is dangerous, in my opinion, and does not solve the root of the problem with these folks in most cases. We prefer mindset number two - start today and get your mind right. Mindset number two allows for mistakes, and works towards a long-term financial foundation. 

One of the other things you mention here is that people with bad credit need to "work with a professional". Personally, I've become frustrated with this statement. Where's the "professional" at the homeless shelters or churches that I volunteer at? Not with us, that's for sure. They're stuck with me. I hope I'm better than nothing, though we do always provide documentation with professional contact info on it. Sure, the professional might help them play the game more strategically, but the reality is such that a lot of the folks we work with have bad financial habits and don't prioritize simply paying off debt, which are far more impactful to their score over the years than their ability to manipulate the system.

Any time I see @Scott Trench 's baby face on the forums, I feel compelled to comment...just can't help myself.

Now, Scott - look at Mindy's question, and then look at your answers - does anything strike you in particular? Has anyone ever said to you - brevity is a virtue...?! lol

Scott - lean from Mindy!

That's all I got :)

Oh, and this - get smart and good, and work on bigger deals using OPM and portfolio financing whereby your credit almost doesn't matter. It does, a bit, but in this space you can circumvent it. Problem solved.

Unless you are a jerk and don't pay your bills, in which case we don't want you on BP anyhow :)

I'm bored. Is it obvious, guys? All that damn cash flow...

@Ben Leybovich , I'd love more info about the portfolio financing. I've never used it before, and an odd job situation has left my husband and I without enough work history to qualify for a traditional loan at this time. 

Originally posted by @Mindy Jensen :

@Ben Leybovich, I'd love more info about the portfolio financing. I've never used it before, and an odd job situation has left my husband and I without enough work history to qualify for a traditional loan at this time. 

 Call me

Wasn't going to comment on a credit repair thread till I saw Mindy and Scott!  Hi @Mindy Jensen and @Scott Trench !

If I had bad credit and was looking to change things, I would first do a CSI on my mistakes or situation.  I would obtain 1 free credit report from one provider to see where I was at and who was reporting on me, then get another free report from another provider each quarter or so to check my progress.

My basic premise would be to keep paying minimums on active/current accounts and scratch some money together.  When I have about $.20/dollar, wake-up an old un-secured creditor that I haven't paid on in a while and offer a settlement in full.  Do as many times as necessary.  It will take work and arguing, but most will settle depending on how old and how secured or unsecured the debt is.

Get the settlement terms in writing before you send money by e-mail even).  Don't EVER give them access to your checking acct.  Cheers!

Because 30% of a credit score is derived from credit utilization, I quickly increased both my FICO and Vantage scores around 50 points each by using a trick to change the timing of my payments.  I normally sell this information for a small fee, but I'd be glad to make it available for free to members of this forum.

"I came into this world with nothing, and I still have most of it"

Originally posted by @Mindy Jensen :

What is your favorite way to repair credit? Have you used a certain strategy that worked really well/increased your score significantly?

I'm not looking for the credit repair equivalent of a get rich quick scheme. I'm fine with something that takes a while. I am writing about repairing your credit, and want to make recommendations that work.

Mindy,

I am glad that you are willing to study long on this one.  Failure often offers the best opportunities for acquiring wisdom.  I've found that quick fixes are generally less rewarding than jumping into the bones of the monster and owning him with your victory.

A broker recently told me " troy, in this life we have all been reduced to a set of numbers". I completely agree with him. 

 It is important to know this.  Face the facts and take onus.  I hope this help and motivates you.  Please bear in mind that my credit is still not perfect and is now as it will always be, a work in process.  Perfection robs you of the ability to improve.

I got the great idea to begin investing in 2007.  You will see in my profile that this venture ended in foreclosure and total financial collapse.  I thought my life was over.  There was a tremendous feeling of failure, depression.  I wish I was aware of BP back then. 

Then I took action.  I took up station in Bahrain.  thought the change of scenery would do me good.  I purchased six credit repair books from amazon.  I even purchased a book on how to open a debt collection business.  I wanted to know how they(it) earned.

Your credit score is not only a refection of who you are; it attempts to be a snap-shot of financial health. the metric seems to calculate how well you commit to past debts.  How stable you are in your job.  What kind of debt one is carrying and are you are in constant search for new debt.  It tries to place a number on how dependable a person each person is(a risk calculator).  Try to view this risk from the eyes of the investor.

First, I check a the largest percentage of you score is payment history -37 percent.  Second is available credit; this the amount of credit granted in total vs. how much is being used.  smaller percentages are inquiries - are you in a financial pinch and seeking to use new debt to cover it.  And last not sure of the percentage is length of average accounts.  The latter of these are harder to manipulate.  Never close accounts in the attempt to improve credit.  It will cause the inverse affect.

By the percentages listed above it is not hard to see that making your payments on time is one of the biggest things the consumer can do to improve the score.  This is no accident.  Your credit score reflects the risks a lender/ investor associates with granting you new debt, be conscious of this.  The basics of financial sense applies here.  do not take on new debt with having a real reason for it (depends on financial IQ level).  In our case we would want the debt to repay itself while putting cash in your pockets, an asset.  The system can be manipulated, but only with intricate knowledge of its inner processes.

Now, on to the debt collectors.  debt collection in America is a multi-billion dollar business.  From what I took of it, there is no really big start ups funds necessary.  I say that to say, there are a lot of unscrupulous agencies out there. These guys by buy bank losses for pennies on the dollar.  They hit the jack pot when you pay them in full.  I negotiate all debt that are in this status.

 Fortunately, our great country has laws.  These laws were created for the specific reason of keep these vultures off you.  The Fair Credit Reporting act are one of these.   There are entire forums  dedicated to just this propose.  Finding like minded people, this is the key to winning.  They will show you how to write proof of debt documents, or even pay for deletion.  If that does not work then we settle.  Remember always have them verify the debt.  If they cant keep perfect records you win.

Last, it is imperative that once you start this process you keep a professional view point (as if you were you own client).  Confronting ones credit is confronting ones past.  To do so effectively the emotions must be tamed.  Debtors will play off your sense of right and wrong.  Go by that statue to law, know them well.  A positive attitude goes a long way.

Hope this is helpful. Good Hunting!

Troy,

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