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Getting Rid of Collections

April 19, 2009 by PlasticEconomy.com · Leave a Comment 

When lenders analyze your credit report, collections listed can affect you in a negative way. The older a collection is, the less it will hurt your credit score, however collections do stay on your credit report for a whole seven years. During this time anyone who pulls your credit report will see the collection account.

The recommended course of action for this common credit problem is to remove the collections from your credit report. There are several ways to do this depending on your individual financial situation and why the collections are listed in the first place.

You may notice debts that are not yours listed on your account. This happens more often than you might think and it’s possible to have these erroneous listings removed. You can file a dispute with the credit bureau and request they remove the incorrect listing from your report. Another thing you can do is ask the creditor to validate the debt, which requires them to prove the debt is owed by you. Within a certain period of time if the creditor does not respond or cannot validate your collection it must be erased.

After seven years, collections are supposed to be removed from your report. The FCRA states collection accounts can only stay on your report for this long. However, some creditors will try to keep the debt on your report longer by making it look as if the collection went on your account later than it really did. This is called re-aging an account and can keep the collection on your credit unless you dispute it with the creditor and credit bureau.

Any documentation you have proving the true age of the debt will be helpful.

Another way to have collection debt removed from your credit report is by disputing after your original collector has sold your account. Because collections are sold and transferred to other agencies, the agency on your report may not be the one trying to collect the debt. It is possible to have items that have been switched from one collector to another removed by disputing the account.

Finally, you can pay the collection accounts then write to request the paid accounts be marked paid in full or deleted from your report.

Worst Entries for a Credit Report

January 21, 2009 by Shawn · Leave a Comment 

When you check your credit report you’ll see numerous entries from your past and present:  personal loans, car loans, student loans, credit cards, etc.  Hopefully, all of your account entries are in good standing — they’ll be described on your credit report as “Current,” “Present,” “Paid as Agreed” or some variation.

Unfortunately, you may have some bad entries on your credit report as well.  Lates are bad, but they’re not nearly as bad as some of these:

If you stop paying a bill for more than 6 months (or longer), you may force your creditor to consider your account as being not collectible.  When this occurs, the creditor writes off the account as a loss and updates your credit report noting that your account has been “Written Off” or “Charged off.”  Charge-offs remain on your credit report for a period of 7 years.

Debt Collection Accounts
Once a creditor marks your account as being a charge off, they’ll normally pass you over to a debt collector to try and receive payment from you.  The creditor will also change the status of your account to “currently in collections” or some variation.  In addition, the debt collector may also place their own entry on your credit report stating that you owe $X amount.

Filing for bankruptcy allows you to legally stop paying your debts and be free of all liability of paying them, depending on the type of bankruptcy you file.  You credit report will reflect this.  And while the bankruptcy information will be reflected on your credit report for a period of 7-10 years, you should be able to restart building your credit again soon after your debts have discharged.

Tax Liens
When you fail to pay any kind of tax to the government, they have the ability to not only seize your property, but also add a tax lien on your credit report stating that you owe money.  Unpaid tax liens will remain on your credit report for 15 years, with paid tax liens staying put for 10 years.

Lawsuits and Judgments
If a creditor or debt collector has been pursuing you for years and feels that they’ll collect their money no other way, they may attempt to sue you and take you to court.  If they win and a judgment is entered against you (the court determined the debt is valid), it will remain on your credit report for 7 years.  This is regardless if you pay the judgment or not.

Keep Your Credit Cards!

December 4, 2008 by Shawn · Leave a Comment 

A sensible way to clean up your credit is to keep your credit cards.  Notice that I said keep, not use.

It’s smart to cut up a credit card or put it where it’s not easily accessible (like in a block of ice, seriously).  A person in debt may also think that’s it’s a wise decision to close the account — which is wrong! As far as your credit score is concerned, closing a credit card (balance or not) can be very detrimental.

You should not close down the following credit card accounts:

  • If your credit card has a balance, your credit report will show your available credit as 0, but your balance will remain.  Unfortunately, the ratio of how much debt you have to your available credit reflects 30% of your credit score — so when your available credit for an account is $0 and you have $2,000 worth of debt on there, it looks like you’re beyond maxed out.
  • If you close your only credit card, it may be the only revolving credit account type you have on your credit report.  Generally, a more diversified credit report with a variety of different types of accounts has a better credit score.
  • Cards that are old.  The age (the length of time you’ve had accounts) is factored into your credit score.  Lenders also look at your credit history for the ability to pay a debt for the long-term, that’s why retirees are able to get loans easier than younger adults.  It’s not because the lending institution has a biased against young folks, it’s because the older you get, the older your accounts are.

Of course, there are perfectly logical times when you should close your credit cards.  If it’s a newer card or you have many more, that’s fine.  Also during situations of identity theft and fraud, you may be instructed to close your accounts to limit any damaged caused.

Disputing Your Credit Report

September 21, 2008 by Shawn · Leave a Comment 

Consumer reporting agencies, better known as credit bureaus, collect financial information from you from institutions with which you have a relationship.

This information is compiled into a credit report. If you’ve had a credit card, loan, or a collection account,  chances are you have a credit report.

Creditors and lenders to whom you make an application for credit use your credit report to determine how you pay your bills. They then use this information to determine whether or not to extend credit to you. If the information contained in your credit report is incomplete or inaccurate, you could be turned down for credit.

In the case that your credit report indeed has information that is not correct, you are allowed to dispute this information. The Fair Credit Reporting Act provides you with the advantage of having the information provider confirm or update information that you deem as being incorrect.

When you find inaccurate information on your credit report, the first thing you should do is contact the credit bureau that the report came from. Write a letter to the bureau stating the information that you think is not correct. Provide copies of any documentation you have to support your claim and request that the information be removed. It is a good practice to include a copy of the credit report indicating the items that are questionable.

After receiving your letter, the credit bureau will investigate your claim, forwarding any information you provide about the claim to the creditor or lender who provided the information. The creditor then has 30 days to provide proof supporting the information on your credit report. If the creditor determines that the information disputed is indeed incorrect, it is required update the account with all three credit bureaus.

Once the investigation has been completed, the credit bureau must let you know the results. If there were any changes to your credit report as a result of the dispute, you must be provided with a free copy of your updated report. You can also request that the credit bureau send a notice of the changes to any party that has received your credit report in the last six months.

It is best to send disputes via certified postal mail so you have verification that the dispute was sent.

Included below are the addresses for each of the credit bureaus:

P.O. Box 1000
Chester, PA 19022

P.O. Box 740241
Atlanta, GA 30374-0241

P.O. Box 2104
Allen, TX 75013-2104

How Inquiries Affect Credit

September 21, 2008 by Shawn · Leave a Comment 

Ten percent of your credit score comes from applications made to your credit report. Each time a creditor or a lender takes a look at your credit report to determine whether or not to extend credit to you an additional inquiry is placed on your credit score.

If you’ve checked your credit report lately, you might have noticed that there are several inquiries from businesses you might not have heard of. Not all of these inquiries have an effect on your credit score.

The inquiries that are included in your credit score are those from your own applications for credit. When you make an application for a credit card, auto loan, or mortgage, you have given the lender permission to look at a copy of your credit report. This action places a voluntary inquiry on your credit report. Those inquiries that you initiated by applying for credit are the ones that affect your credit score.

Other inquiries that might appear on your credit report do not count towards your credit score. These inquiries include those made by prospective employers, businesses that you already have credit with, business seeking to offer goods or services to you, and your own requests for credit reports. While these inquiries do appear on your version of the credit report they aren’t included in the calculation of your credit score. If you didn’t apply for credit for an inquiry that appears on your credit report, then it’s very likely that the inquiry isn’t included in your credit score.

Shopping around for the best rates on mortgage or auto loans doesn’t hurt your credit score, if the shopping is done within 45 days. All mortgage and auto loans made within a certain span of time are treated as a single entry by the credit score calculation. Note that some lenders might choose to use an older version of the credit score calculation that reduces the shopping span to 14 days.

Depending on the information already in your credit report, your credit score might not decrease at all when you make an application for new credit. If you have a longer credit history and more accounts, your credit score usually won’t decrease all from a new application. If it does decrease, it won’t be by more than a few points. Additional inquiries have the greatest effect on people who have short credit histories and only a few accounts.

Although credit inquiries will remain on your credit report for two years, those made within the past six months have the greatest impact on your credit score. Even so, since inquiries only count for ten percent of your credit score, your

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