CREDIT REPAIR PROCESS

Negative Items on Credit Report

Credit reports include a lot of information such as your name, address, and place of employment, as well as your credit history, which is made up of credit accounts. Not all information on your credit reports is positive or even neutral. If you’re late making payments on accounts, then this has a negative impact on your credit reports and score. Lenders are less likely to approve your applications if they see late or unpaid accounts that include late payments, charge-offs, collections, foreclosures, repossessions, judgments, liens, and bankruptcies.

According to experts, negative items can have a dramatic affect on your credit score. For example:

  1. Late payments can lower your score up to 110

  2. Debt Settlement can lower your score up to 125

  3. Foreclosure can lower your score up to 160

  4. Bankruptcy can lower your score up to 240

  5. Collection can lower your score up to 110

  6. Hard Inquiries can lower your score up to 15

Late Payments

Late payments occur when you’ve been 30, 60, or 90 days late paying an account. An occasional 30 days late will not hurt your credit much but frequent late payments will. You don’t want frequent late payments and you don’t want late payments on every single account.

Payments 90 days late can really start to hurt your credit score, and consecutive late payments are even more harmful to your score.

Can I remove late payments?

Although late payments can be reported for seven years, it doesn’t have to be. What this means is that creditors have the choice to report your late payments, and other negative accounts, for less than seven years.

How Late Payments Can be Removed

When it comes to late payments, there are a few of ways that they can be removed:

  1. Goodwill Adjustment:
    A Goodwill Adjustment is something you can use for late payments. Creditors are more likely to take this type of request into consideration for a 30 or 60-day late payment than for something more severe like a 90-day late payment. In order to request this, you can write a letter to your creditor asking them to remove the line item as a gesture of goodwill. Some things you can bring up for their consideration are your longstanding relationship and the intention to continue that relationship, the intention to never repeat the error, and the fact that this is one minor infraction in an otherwise clean history with them. Remember though that these Goodwill requests carry weight only if you don’t have any previous late payments, and that the creditor is usually more willing to adjust the account if you have been a customer with them for a longer period of time.

  2. Dispute with the credit bureaus
    Under the Fair Credit Reporting Act (FCRA) you can dispute inaccurate late payments with the credit bureaus. When you file a dispute with the bureaus, the bureaus then ask your creditor to review your account. If the creditor doesn’t provide the bureaus with the information or verify the accuracy of what’s being reported, then the bureaus may choose to remove the information

  3. Set up automatic payments
    Although this doesn’t allow previous late payments from being removed, it can prevent your accounts from being paid late in the future. Setting up automatic payments is convenient for you, and you don’t have to remember every single due date for all your bills.

Charge Offs

What is a Charge Off?

Typically, when creditors haven’t been paid for over 180 days late on an account they charge the account off. Charge offs have a severely negative impact on your credit, and like most other negative items can stay on your credit reports for seven years. When an account is charged off, your creditor can sell it to collection agencies, which is even worse news for your credit. When creditors see a charge off on your credit reports, they are more likely to deny any new applications for loans or lines of credit because they see you as a financial risk. If you do qualify, this can mean higher interest rates. Current creditors can respond by raising your interest rates on your existing balances.

Will Paying a Charge Off Increase My Credit Score?

When an account is charged off, you are still financially responsible for it. If you have a charge off, and you know that it’s accurate and you owe the debt, then you may consider paying it off. If you pay a charged off account prior to the account being sold to collections, you may be able to prevent further damage to your credit because a collection won’t be reported on top of the charge off. Paying the charge off though does not usually impact your credit.

Collections

Collections are the most common types of accounts on credit reports. About one third of Americans with credit reports have at least one collection account. Over half of these accounts are due to medical bills, but other accounts like unpaid credit cards and loans, utilities, and parking tickets can be sold to collections. Collections arise from debts that are sold to third parties by the original creditor if a bill goes unpaid for too long. They have a severe negative impact on your credit and can stay on your reports for up to seven years. When potential creditors see collections on your credit reports, it can raise flags and cause them to think that you won’t pay your debts.

Collection agencies make their money by buying debts from creditors at a reduced amount and then collecting on them from the debtor for the full amount. Because these agencies make their money by collecting unpaid debts, they’ll sometimes go to great lengths by calling you, sending you letters, and sometimes even calling your family members or employer.

Luckily, you do have rights under the Fair Debt Collection Practices Act (FDCPA). This prevents collection agencies from making excessive phone calls, threatening you, and from calling you at unreasonable times (before 8:00 AM and after 9:00 PM). You also have the right to ask that they don’t contact you by telephone, although they still may contact you in writing, and you also have the right to dispute the debt in writing within 30 days of when they first contact you. If the agency can’t verify the validity of the debt, then they can’t continue to collect on it.

Do Medical Bills Have the Same Impact as Other Collections?

Medical bills are the most common types of accounts that are sold in collections. With most credit scoring models, they have the same impact on your credit score as other types of collections. However, recent credit scoring models are changing that because medical bills are often a poor indicator of an individual’s creditworthiness.

Medical bills are the most common types of accounts that are sold in collections. With most credit scoring models, they have the same impact on your credit score as other types of collections. However, recent credit scoring models are changing that because medical bills are often a poor indicator of an individual’s creditworthiness.

How do I Know I Have Collections Reporting and What Can I Do About It?

The best way to know whether you have an account in collections is by monitoring your credit. Many consumers are unpleasantly surprised when they’re turned down for a loan because of a collection on their credit reports that they didn’t know about. In order to keep track of what’s on your credit, you can pull your free annual credit reports, or sign up for a credit monitoring service.

Foreclosures

Failing to pay your mortgage for too long will result in foreclosure proceedings, often resulting in legal action and eviction. It also results in long-term credit damage. A foreclosure will devastate your credit score for up to seven years, and you’ll have a difficult time securing another mortgage in the meantime.

Failing to pay your mortgage for too long will result in foreclosure proceedings, often resulting in legal action and eviction. It also results in long-term credit damage. A foreclosure will devastate your credit score for up to seven years, and you’ll have a difficult time securing another mortgage in the meantime.

Repossessions

A repossession is a loss of property on a secured loan. Secured loans are where you have collateral, like a car or a house, and the loss occurs when the lender takes back the property because of the inability to pay. Usually, when this occurs, the lender will auction off the collateral to make up for the remaining balance, although it doesn’t usually cover the remaining balance.

When there is a remaining balance, the creditor may choose to sell it off to collections. Usually, a repossession follows a long line of late payments and can knock a lot of points off a credit score.

Judgments

Judgments are public records that are also referred to as civil claims. A judgment can be taken out against a debtor for an unpaid balance. A creditor or collection agency can file a suit in court. If the court rules in favor of the creditor, a judgment is taken out against the debtor, and put on their credit reports. This, like many other negative items has a severely negative impact, and like most other negative items can be reported for seven years.

Judgments are also another indication that a person won’t pay their debts. Lawsuits are time-consuming and costly, so they are something that creditors potentially want to avoid. When a judgment is filed though, it can impact more than credit. The judge may allow the creditor to garnish a debtor’s wages, which can heavily impact finances.

Liens

In most cases, liens are the result of unpaid taxes – whether it’s at the state or the federal level. For a federal tax lien, the IRS can place a lien against your property to cover the cost of unpaid taxes. Tax liens can make it difficult to get approved for new lines of credit or loans because the government has claimed to your property. What this means is that if you default on any other accounts, your creditors have to stand in line behind the IRS to collect.

Bankruptcies

Bankruptcy is extremely damaging to credit. Individuals who file for bankruptcy are those who have too much debt, and not enough money to pay it. They likely have had overdue accounts for a long period of time and in some cases loss of income that prevents them from being able to pay any of their bills. Bankruptcies can also arise from huge medical debt.

Whether or not file for bankruptcy is a difficult decision, and doing so can impact your credit from seven to ten years, depending on the type of bankruptcy you file. When a bankruptcy is filed, debts are discharged and the individuals filing are released from most of their previously incurred debts (there are some exceptions). This option can give people a “clean slate” from debt, but creditors don’t like to see it on credit reports because it can imply that an individual won’t pay their debts.

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