Before your finances fall into the bankruptcy category, take steps to help turn your bad credit around. Just ask James Cheslek, dean of academic affairs at Brown Mackie College Albuquerque and retired corporate and trial law attorney, who helps college students with bad credit get back on track.
“If you want to be successful, it’s important to not let credit card debt get out of control,” said Cheslek. “Many people get frustrated because their credit is not up to par. They don’t realize how easy it is to fix. It may take some time, but it’s doable.”
Step one: Request a free copy of your credit report
All Americans are entitled to a free copy of their credit report under the Fair Credit Reporting Act (FCRA). Each of the three reporting agencies – Equifax, Experian and TransUnion – is required to provide it once every 12 months, if you ask for it. To order your free copy, visit annualcreditreport.com, or call 877-322-8228.
Step two: Read your credit report carefully for inaccuracies
“Spend some time figuring out what all the symbols mean. Learn what’s good and what’s bad,” Cheslek said. “Reporting companies get information from creditors. They simply take the information and add it to your report.”
Step three: Dispute inaccuracies
The FCRA further states that a reporting agency must correct any inaccuracies on your report. To dispute an item, notify the reporting agency of the inaccurate information. “They must investigate by forwarding your information to the company that provided the disputed item,” said Cheslek. “When any information proves incorrect, the FCRA calls for all three reporting agencies to remove it from your credit report.”
Step four: Request verification of debt
The Fair Debt Collection Practices Act (FDCPA) gives consumers rights against debt collectors. “Here’s the deal,” Cheslek said. “Debt collectors buy old debt for pennies on the dollar. They call and tell you they are collecting on behalf of another company. However, the company that originated the debt has written it off and retired the file.”
This might be the best-kept secret in America. The FDCPA entitles you to write to the original company and ask for verification of the debt. The company has 30 days to complete the process. “Usually, it can’t find the file or verify the amount,” said Cheslek. “You might need to send a follow-up letter to the credit reporting agencies to say, ‘Take this off.’”
Step five: Once your credit is fixed, keep it fixed
Cheslek offers the following rules of thumb to keep a good credit score:
- Pay bills on time. Late payments add fees to the balance owed.
- Change the payment due date if the current one is inconvenient.
- Pay more than the minimum due, even if just a little.
- Do not skip any payments. Skipped payments lead to bad credit.
- Do not close old accounts. Creditors look at how long you’ve had credit.
- Keep one account with no balance.
- Don’t apply for loans you don’t need. Every loan request shows on your credit report for two years; a denial becomes a negative mark.