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I just ran a search on Google.com for "How To Repair Credit." The search returned 25,600,000 hits! Think about that. In 2003, the number was 408,316!
Now, recall the Federal Trade Commission, see article on "Credit Counselor, Bankers, Sharks, and other Vampires," advises consumers that: Credit Repair: Self Help May Be the Best." In the FTC article, we are told: "The truth is, they (repair agencies) can't deliver." Mull this over before wasting time and precious money.
The next article quoted in "Vampire" was "FTC Cracks Down On Crooked Credit Repair Sites." People are so panicked over debt problems that 25 million sites exist and the government is warning consumers away from repair scams. What to do? What to do?
Do not fret, it is not all that complicated to improve your credit rating (repair). Let me walk you through it. Forget about the other 25 million sources. I will tell you the simple truth.
Before going about the tedious work of "repairing" credit, you must first understand "repair" does not mean there are magic tricks which make debts vanish from the records. Also, "repair" is not where you should be working, if you are living in a "survival" mode.
Do not waste time, energy, and money chasing down schemes to cure a bad situation. Before "repairing" yourself, make sure you still exist, so to speak. You first need to address the basics of life, food, shelter, medicine, before dealing with "repair."
..........First Need: Survival
If you cannot pay anything to a credit card company or bank, then what is the point of "repair?" If you can pay $10 a month, fine, go ahead, do so, and read on.
First, let us start with what your credit rating really is.
Equifax is the major credit bureau. (There are two other major companies, as well). After establishing a data base to support the lending community, Equifax, and others, became essential to the lending process. For many years, bankers called up your bureau data and compared it against your income, assets, and liability information and made a human judgment as to whether to lend you money.
Since MBA's are not humans, they quickly accepted any new bureau products which automated the lending process. It costs too much to actually investigate people and to have smart employees, so banks adopted a system which was "numbers driven." This was about the same time the MBAs did number crunching to win the Viet Nam War.
No bank cares about you or any borrower personally. Rather, you are rated or scored according to criteria, which is supposed to match your credit worthiness. Its like a computer picking a baseball team by analyzing statistics. Would it work? Well, probably, sort of. You can see a player is often much more than his numbers.
To be honest, I have to admit that on a macro-scale, the non-thinking, number-crunching analysis provides some reliable results - not good, just reliable. Banks can always make a profit by raising interest rates, so the key to their planning is - no surprises! In this new world order, people get fired for unexpected blips in spreadsheets.
Anyway, outside vendors like Equifax kept up a steady stream of products for use by bank androids. Any product which eliminated human thought was welcomed. In this way, banks could hire low-cost employees, rather than pay real bankers. Credit scoring became popular. Here is Equifax's view on scoring:
Equifax demystified credit scores by being the first credit reporting agency to provide consumers access to their FICO� credit score - the credit score used by the vast majority of lenders to determine a consumer's credit rating. The FICO� score, developed by Fair, Isaac (the pioneer in credit scoring) is a number between 300 and 850 that lenders use to determine your credit rating. A FICO� score is a snapshot of your credit rating at a particular point in time. The higher your credit score the more likely you are to be approved for loans and receive favorable rates. More than 70% of the 100 largest financial institutions use FICO� scores to make billions of credit decisions each year, including more than 75 percent of mortgage loan originations. Go To Equifax,
I recall in the mid 1980s working through new marketing approaches at First Interstate. Fair, Isaacs was very "in" at the time as we had a terrible portfolio and needed to introduce robot systems. (A human marketed to the wrong list, the reject list, so we had an amazing set of numbers.) I was taken by the notion that one could predict a person who watched PBS was a great credit risk!
The use of scoring is universal. Equifax states that its system, which includes Fair, Isaac systems, is used in 75% of the mortgage loan originations! This is important to understand that any credit repair you intend to attempt should start right here!
..........Getting Back On Your Feet
STEP ONE: Find out what Equifax has to say about you.
I mentioned Equifax makes money on both ends of the lending equation. They sell information to the banks and, then, they sell it to you, since their information is now critical. They will sell you exactly what it is you need to know about your file.
Here is what to do. Do not go to one of the 25 million entities who offer "free debt consolidation analysis" (note the analysis is "free" - not their services) or "credit repair tools" where you are sold books, software, debt counseling, and steered away from bankruptcy. (For a joke, go to this site and click on "Free Bankruptcy" - you get steered to a counseling page. Do come back!)
NOW, GO DIRECTLY TO EQUIFAX and plunk down your $14.95 for the product: Score Power. There are ways to get free reports, see the above site, but if you are serious and have a life, just invest the $14.95 and get the full score. If this is a major burden, then you probably are not a candidate for "repair" as you are in the midst of "survival." Don't waste time and money trying to repair sails while under water. (Look for an article on "Decisions" if you want to look more closely at what your options may be. Sometimes, you do nothing!)
STEP TWO: Dealing with the information.
Now, when you get your results, have a nice meal and two glasses of red wine. After chocolate cake, sit down and read through the report. It is a hard thing to do, if you have some negatives, but you gotta do it.
Your task is simple in design, now. Objectively, look at the information.
First, is there something there which is completely wrong? If so, sit down and write a letter - online now - to Equifax to challenge the information. They will investigate it and it will go away if they cannot support it. Of course, these things have a way of returning as the agencies trade bad information back and forth. Thus, you must also write to the other agencies and demand the removal of the items. Then, keep checking back!Second, is there something very old? Ask to have that item removed. The rule used to be things dropped off data bases after seven years. I will double check this and get back to you (right here) in the future.
Third, is there something that sounds familiar, but you thought it was taken care of? OK, write another letter demanding "support" for the debt. Accountants love this stuff. Companies will look kindly upon anyone who demands "support" as it indicates professionalism. They will set their minions to the task of finding the support. Once in that game, they will gladly admit defeat if there is no support.
Fourth, is someone claiming a debt older than the statute of limitations? In a contract action, there is usually a seven year limitation. If you see an old debt, demand the lender have it removed; send a copy to Equifax and others. Demand its removal. , always question anything you do not understand.
Fifth, to stop the months against you, make minimal payments on your accounts, even if they are closed. Trust me, the bank will accept the $12 check every month while demanding $400 per month. It is critical to show continued payments � AS THAT IS THE MOST IMPORTANT ELEMENT.
Finally, make a list of who you owe money to, as indicated by the report. Sit with a pencil and paper and see if there is anyway you can pay off the debt under normal circumstances.
If you cannot pay off your debt in three years while struggling to eat and keep your old car, you probably should consider bankruptcy. Or, at least, become resigned to its possibility. Being prepared to file may well motivate your creditors to work with you. The last thing they want is an instant, total write off.
I am going to stop here. The next article, "Negotiating," will involve dealing with lenders once you have decided to avoid bankruptcy. Another aspect to consider, now, is stopping the bleeding. Stop spending money on stupid things. A future article will appear on that, as well.
