Mortgage, Real Estate, and Credit Blog

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Attention visitors:

I have found a volunteer to complete a tutorial. This will be a step by step PDF with screen shots showing you what to do on each credit reporting agencies site. I am working on this now. I have completed Equifax so far and am adding this below.

With lenders tightening up on credit standards and making less loans to people who have blemished credit it is essential that we all start taking charge of our credit report. Over the years I have gave hundreds of borrowers personalized plans at no cost. I have found that most of these plans take a lot of time to do and very few of the people follow them. Out of those who do follow the plan I have seen dramatic increases in credit scores and overall credit quality. So, today I am centralizing the bulk of this information into a blog post in hopes that you will benefit and save a lot of time and grief in finding resolution.

Step 1 – Pull All 3 Credit Reports

You are entitled to 1 free credit report per year. It is federal law. But there’s only one online source authorized by the FTC. That’s annualcreditreport.com. Beware of other sites that may look and sound similar. It is 100% free period. Do not pay for anything. There is no need too at this point. Also if you are asked for a credit card you clicked something wrong. All 3 credit bureaus advertise to you wanting you to purchase credit monitoring or credit scores.

In the steps below I have created a tutorial to assist you with completing this process. Click the report name below for step by step instructions with screen shots of the pages you will see.

Equifax

Trans Union

Experian

So, pull all 3 credit reports from this site. I am going to suggest you pull 1 report then proceed to step 2. When finished pull another and proceed to step 2 and repeat until all 3 are done.

Step 2 – Dispute all derogatory marks on your credit

When you pull your report online you can view it, print it, and dispute any negative marks on your credit. However, keep this rule in mind when disputing. If the bill last reported date is over 2 years old it is not affecting your credit score! If it is an unpaid collection then I suggest going ahead and disputing it. The deletion rate on collections is very high. If it is unpaid and it does not get removed then it will update which may drop your score. Keep that in mind if you are trying to increase your score immediately for a short term financing goal. If your goal is long term improvement dispute it and if it is still on there you will want to contact the company and ask for a deletion upon reciept of payment. In other words if you pay them off try to get them to agree to delete the item from your report.

Each site allows you to dispute these items online. Let me take a brief minute to explain the credit dispute process. When you dispute a negative mark the credit bureau sends a request to the creditor asking them if the negative mark occurred, if you owe the account, and they must complete other details about the account. Most of these are handled by a human and subject to human error. The creditor has 30 days to respond. No response is awarded in your favor. Sometimes creditors may have bad record keeping. The company may have been sold and so on.

Step 3 – Wait 30 to 60 days for the results

You will wait to see the results of your dispute. The credit bureau’s will email you or mail a letter showing the results. When you receive results proceed to step 4.

Step 4 – Paying off and settling accounts owed

This is the part where there are a few strategies involved. I will cover one that I feel is best suited overall. I am also going to cover 1 option that may be rare but it offers you an opportunity to resolve the account and re-build your credit at the same time. But, first let me cover some important facts. I will then go into which accounts you should pay off first.

Companies will offer you settlements for less than the full balance. It is a good option to take advantage of especially when you are operating on a limited budget. It also satisfies the account. I have not came across a lender who demanded you pay off the remaining balance of a settled account to qualify for a mortgage. However, a settled account is said to have a lower positive impact on your credit score than an account paid in full. You can always go back and pay off the remaining amount to the creditor at a later date.

Consult a tax professional about the impact of settling an account on your Federal Income Taxes.

If you have an account with a creditor (not a collection company) you may be able to work out an alternative option for resolving the account. You can ask them if they will consider re-opening a new account, closing out the old account, and giving you a fresh start on repaying the balance owed. Personally I have done this. I opened an account when I was 18 and defaulted on it for various reasons then re-opened it  in the manner described above.

If the above option fails I suggest you either start with the smallest balance and work your way up OR for a more positive impact on your credit score you can start on the most recently reported debt and work your way back to the oldest.

A tip for qualifying for a loan to purchase a home. Separate medical bills from non-medical. Pay off non-medical first.

Another tip for a low budget. Attempt to set up payment arrangements. In the end it may be more costly than settling accounts but showing you are making the effort to repay the debts may be enough to qualify for a home loan. You will need to consistently pay your agreement on time and a letter can be obtained showing you are doing so. I would say you need a minimum or 6 months paying on time or as many as 12 months.

Step 5 – Re-establishing or establishing credit

Let me start by saying that if you have less than 3 accounts open that you are making monthly payments on that are reporting to the credit bureau you may want to incorporate some of step 5 into step 1. That may give you a head start on establishing history. If your credit is undoubtedly bad or you try to apply for credit and are turned down or offered terms that are unfavorable allow me to give you a few tips.

Open a secured credit card. You send in about $200 to the company and they place it into a savings account and that account is your collateral. You receive a credit card with a credit limit typically equal to the deposit. The payments are very low even if the interest is higher. These accounts are credit builders ONLY! Charge 1 item utilizing no more than 50% of the credit limit. I suggest keeping it under 15% because it has a better impact on your credit score.

The goal is 3 open accounts minimum.

The absolute best card you can get that is available to nearly anyone is through Orchard Bank. You deposit 200 or more in an interest bearing savings account and your card comes to you with a 0 balance! No fees! The apr is about 7.9% right now for purchases made on the card. You may even qualify for an unsecured card. I still have my card from them.

Currently they will allow you to open another card after paying this one for 6 months.

Beyond that the cards offer less favorable terms. I am going to suggest you use creditcard.com to find other cards for the time being. Carefully review terms and conditions. Annual fees are expected however putting a large balance on your card for a setup fee can be avoided.

Why credit cards? You can make a charge on the account and pay it off within 30 days with little or no interest at all. I suggest you make a charge right before your cycle date which is also your billing date then pay off the balance after the billing date so they report a balance to the credit bureau. Repeat this every month and you may pay almost nothing to build your credit.