Credit Reports and Credit For additional assistance, fill in the form below.
The following lesson will cover: (Source for below information: Michael Faass, Main Street Home Loans, Alpharetta, GA)
• What items are on Credit Reports?
• Special Notes about Credit Reports and Credit
• Questions and Answers about Credit Card Debt
• How to dispute items on credit reports
• Resource to permanently remove trade lines
1. What items are on Credit Reports? Active Credit, Collection Accounts, and Public Records.
• Credit Card accounts referred to as "revolving" like Old Navy, Macy’s, Sears [best way to improve a score]
• Installment Loans such as Furniture----like Rooms to Go or Ashley Furniture.
• Auto Loans, while these are installment loans they traditionally noted as an auto loan.
• Student Loans are also considered installment loans. *NOTE: Deferred student loans (with documentation to prove deferment) are not counted as debt in loan modification requests.
• Bank Loans for a mortgage, line of credit, or second mortgages.
• Any type of mortgage that has been included in a Bankruptcy, been foreclosed on, or possibly in Foreclosure.
• Credit Cards that have been defaulted on.
• Any type of debt that has not been paid on a timely basis, usually no payment in the past 90 days.
• These types of collections include medical; pay day loans; title loans; back child support; defaulted student loans; rental/lease to own.
• Furniture such as AARON’s Rent and Leasing; collections for apartment complexes; bounced check charges never paid to a bank.
• Occasionally you can have a collection from a Medical/Flexible Spending Account where the person has charged more than the allowable and the card holder has not responded for a fairly long time to inquiries from the company making the requests.
• All Federal Tax Liens.
• All State Tax Liens.
• State Tax Liens for motor vehicle taxes and mobile homes.
• A judgment obtained by someone trying to collect a debt from you.
• All Bankruptcies---this includes Chapter 13 and Chapter 7. It also includes a bankruptcy you filed but withdrew.
2. Special Notes about Credit Reports and Credit:
1. It is recommended to owe only 1/3 of whatever the credit limit is at any given time. People should never close accounts since this can affect their scores negatively as well (affects ratio of available credit to what has been used - the smaller the ratio the better).
2. “Late Pays” will drop credit scores 30 points and take 12 months for those same 30 points to come back to the report provide the next 11 payments are on TIME. *Note: Loan modifications report the borrower as "current" on the credit report.
3. Collections: Oftentimes, irreputable credit repair companies sell themselves to people saying they can fix all their credit issues. They do this by disputing debts that are in the collection section of a report. Their hope is that collection company will not respond in the prescribed number of days and therefore the collections must be deleted from the account. However, what they do not tell people is that nothing prevents the same collection company from re-submitting the same collection 45 days later and it is back on the person’s account/credit report
4. Pay day loans, title loans, signature loans from small finance companies, and rent-to-own operations rarely report positive activity. They only show up as negative activity when the loan is in default. Why? It costs money to update a report and that is charged to the creditor. That is how the Credit Bureaus make their money. Also, even if the debt was paid off, it is not always updated and it falls back on to the consumer to prove that they paid the debt off.
5. Public Records: Many times individuals may have already paid off a tax lien; however, because neither the state nor the federal government are bound to update court records, it falls upon the tax payer 100%. They will need a document from the tax lien holder called a FiFa. Then they must go to the county court where the petition was filed to get a release from the courts showing the debt has been satisfied. After this is accomplished, they must then obtain a copy of their credit report from each of the bureaus reporting the lien and send to them a copy of the satisfaction of debt (FiFa), a copy of their driver’s license, and a letter making the request. They need to be prepared to send a second request 30 days later if they have not received an update.
6. Bankruptcies and tax judgments by the State or Federal Government will stay on your credit report forever until they are paid. Even satisfied judgments stay on their reports for 10 years. Occasionally you can get them removed sooner, but it is difficult.
7. Most non governmental judgments stay on your report for only 7 years whether they have been paid or not. However, there is nothing to prevent a creditor from updating a non- paid debt which would cause it to stay on the report for another 7 years.
8. Foreclosures and Deed-in-Lieu of Foreclosure. How do each show up on credit reports? Foreclosures show up literally as a “Foreclosure” and it is stated as such, but also, they can show as “150-F days late”. Deed-in-lieu can show up as "Foreclosure" or "150-F days late". “In lieu of” has always been treated as a foreclosure by most lenders, and especially now in today’s market. Foreclosure and Deed-in-Lieu of Foreclosure can reduce credit scores by 250-300 points, but this answer varies widely depending how someone is handling other credit, especially revolving credit.
Currently you cannot get a loan for another home for a minimum of 3 years from the date of the foreclosure deed. Caution: Some banks will not issue the foreclosure deed until they are about to re-sell the property. According to Michael Faass, " I believe they do this in an effort to ‘have the general appearance’ of a healthier ledger." Could this mean that the family that was foreclosed on and possibly has been out of the house for a year or more, would have to wait another full year before they can even consider buying another house! Yes. The foreclosure 3-year mark starts on the foreclosure deed date. That doesn’t mean that you cannot get it changed but it is time consuming and can cost some money as well.
Also, the “150-F day late” notation on a credit report does not necessarily mean the people were actually foreclosed on either. They could have been behind, and until they caught up the mortgage payments and penalties it was considered 150 late. However, when a lender sees that they always assume the worse, and it takes a lot of work to get over that hurdle too.
3. Questions and Answers about Credit Card Debt:
• When a credit card debt is sold to a collection agency, how many cents per dollar does the creditor receive? Wouldn’t the creditor receive more from the card holder if the creditor negotiated directly with the card holder? This is tricky for 2 reasons: 1. If the debt has already been sold off to a collection company then the credit card company has already written the debt off. 2. General rule of thumb: this may be considered when negotiating with the collection company: If the debt is under 12 months old the creditor will accept 90-100%; 1-2 years old - 70-80%; 2-4 years old 40-50%; over 4 years, 20%.
Most of the time the credit card companies sell off the debts to collection companies for between 25% to as low as 10%; with medical collections usually at 10%. Medical debts are very tough to collect, and often the collector has minimum information and back up documentation.
Note! Be aware that the credit card company may have a subsidiary of itself that it ‘sells’ the debts to (on paper), thus it is more difficult to get a reduction.
Recommendation! An individual can settle directly with a credit card company but insist on written proof or provide a cancelled check so that the collection company will have documentation and will discontinue collection efforts.
Important: Removal of a trade line permanently:
Removing a trade line permanently require the person to have a credit report for each of the credit bureaus. They will need written proof that the trade line is being deleting by the creditor/collections operation. Many people think that if a creditor/collections operation does not respond to a dispute with the bureau within the prescribed time of 30-45 days, then the debt/trade line is permanently removed. This is false---nothing prevents a creditor from putting the trade line back on the credit report 60 days later. This is a loophole in the law.
• What are the criteria to decide to raise someone’s credit card interest rate and lower their credit limit? Usually late pays are the first criteria -- until the new law went into effect. If you were late on one credit but on time with another, credit card companies could raise your rates. Lower credit limits can be from inactivity, late pays, bankruptcy, etc. Cards may be cancelled due to inactivity or because the issuing bank is taken over by FDIC and it is in receivership with FDIC.
• How has your criteria changed in issuing credit cards? It is increasingly difficult to obtain any type of credit unless a credit score is over 640. Sometimes the only option is to go to a ‘secured’ credit card in an effort to boost scores.
• What is the “collection cost” fee added to a debt when it is sold to a collection agency? From observation only -- as much as they can. With smaller collections (under $200), the source of these answers (see above) has seen as much as a 50% fee, similar in point to NSF charge from your bank. You overdraft by $2.00 but the overdraft fee is $37.
• Is it true, credit card companies will only work with the consumer after missing 3 months payments? For the most part that is true with the new laws in effect However, if the Borrower is current, credit card companies do have authority to drop interest rates - to a point.
• How long will closing a credit card account lower one’s score and by how much? This goes back to credit scores in general---if a person has a 780 credit score and no real issues, and has 4 to 8 trade lines and a mortgage and car loan, the odds are that closing an account will hit it about 5-10 points for about 30 days. However, the person who has a 620 score, has maybe had a late or 2 over the past 12 months, has only 3 trade lines, they could lose as much as 25 points and it take about 6 months to bring it back.
Here’s the AXIOM---lower scores take longer to recover that good scores.
Recommendation: If you pay off a card, let it stay open, and perhaps use it every so often so that the credit card company willl not close it for inactivity. If the card company closes it due to inactivity, it is better than the card holder closing it after paying it off.
Here is an example:
You get a Lowes Credit card when they first open their store across the street from Home Depot. The promotion is that you will get the same interest rate, same credit limit and same terms as Home Depot. You sign up and buy a lawn mower, plus Lowes was offering 20% off the purchase price for it being over $399 and interest free for 12 months.
This is the only item you purchase from Lowes using their credit card. Fast forward 8 years. Your mower dies, and Lowes is offering a deal on mowers again,. You present your card but it has been closed due to inactivity over 3 years ago.
You pull your credit and Lowes is still showing the account is active, not closed. And the credit limit is now $21,000, the same as Home Depot's, and the credit limit is now $21,000 -- the same as Home Depot’s with a zero balance and all on time payments as if you just made one!
4. How to dispute items on your credit report.
Negotiating Charge Offs and Collections
If you have a charge off or collection account that shows as unpaid, don’t just send them a check and pay it off. Call the creditor on the phone, explain that you have the funds to pay a partial balance. Start by requesting that they take 30% of the balance as payment in full. If they refuse, tell them you have limited funds and cannot pay the full amount. Try to get them to accept no more than 70% (but negotiate upward slowly). Once you reach an agreement, ask them to fax you a letter on their letterhead with the following wording. Use this chart as a guide. Caution: be careful about giving a collection company your social security number. Why? Many times the collection companies do not have it, so when you call them they want you to verify it, "so they know that they are dealing with the right person." Here is the method you can use: “Sir (collection agent), I don’t know you. I have never had correspondence from you, and well, how do I know who your really are? So I tell you what, give me the last 4 digits of the social you have on the file and I’ll confirm it if it is mine." If the collector refuses then there is at least 80% chance they do not have it. With the refusal, then ask them to send you the documentation they have about this debt to you. Make sure you get their name, and direct number, and even an e-mail address. Then you need to confirm the conversation you have had with them. If they refuse any of this it will mean they have nothing on you. And this makes it very easy to then negotiate with them. In these situations, a borrower may only end up paying 5-10% of a collection but the collection company may really have nothing on them!
Insist on something in writing:
To (Your Name):
BEST CASE SCENARIO
Reference: Name Item
This account is paid in full. This item will be removed from reports of (Name credit bureaus company reports to). (Tell them to request the trade line be completely deleted from ALL Bureaus).
NEXT BEST SCENARIO
Reference: Name item
This account is paid in full and will be reported as such to (Name credit bureaus company reports to). The date of last payment will not be changed.**
**Note: The older credit is, the less impact it has on one’s credit score. Paying off an old debt without requesting that last reporting date remain the same will result in a negative impact on one’s score. Maintain the last reporting date!
If they refuse to fax a letter on the spot, ask if you can fax them a letter for their signature and also ask them to fax back this letter back to you.
If they cannot fax, ask them to send you a letter in the mail, at which time you will send the negotiated payment as payment in full.
Remember, be sure to document all of your telephone contact and always keep a nice pleasant tone in your voice.
When you send a check to the company with whom you have negotiated a payment, WRITE ON THE MEMO LINE AND ON THE BACK, “Payment in Full”. If the credit bureau cashes the check, if there is ever any question, you can obtain a copy of the front and back of the check as proof of your agreement.
Writing the Credit Bureaus to Dispute Mistakes
Write the credit bureaus informing them you are disputing the data as it appears on your credit report. (See sample letter below). Please be sure to include the following information:
- Your full name, including your first, middle, last and any applicable suffixes (Jr., Sr., II, etc.)
- Your complete mailing address
- Your date of birth
- Your Social Security number (this is necessary to access your credit report)
- The name(s) and account number(s) of the creditor(s) and item(s) in question
- The specific reason for your disagreement with the disputed item(s)
Almost every item on your credit report will have some mistake, even if is only a small one. Do not acknowledge any of the accuracies. However note ALL inaccuracies.
Write next to each item something like, "not mine, not accurate, mistaken item, complete error," or whatever is most appropriate. Request a copy of the corrected report within thirty days.
Recommendation: Color coding the errors on the credit report (s) is more efficient and effective. It allows for the processing to be done more quickly. Have a copy of each credit reports from each credit bureau: Equifax, Experien, and TransUnion.
SAMPLE LETTER TO THE CREDIT BUREAU(S):
September 1, 2010
Equifax Information Services
P.O. Box 740241
Atlanta, GA 30374-0241
Reference: Request to Remove Inaccurate Information on Credit Report
To Whom It May Concern:
I recently received my credit report and located the following incorrect information. A copy of the report is attached with the inaccurate items highlighted.
Under the provisions of 15 U.S.C.§ 1681I of the Fair Credit Reporting Act, I request that these items be deleted from my record. Please send me names, addresses and telephone numbers of the businesses you contacted during your investigation.
I understand that you are required to complete your investigation of these entries within 30 days of the receipt of this request. I further understand that failure to re-verify these items within 30 days constitutes reason to promptly drop the information from my file according to Section 1681 (a).
Also pursuant to 15 U.S.C. § 1681i (d) of the Fair Credit Reporting Act, please notify me when items have been deleted. You may send an updated copy of my credit report to me at the below address in accordance with the provisions of 15 U.S.C. § 1681j.
Account & number xxxxxxxxx
Not my account
Account & number xxxxxxxxx
Not correct. Paid in full.
Account & number xxxxxxxxx
Account & number xxxxxxxx
Account & number xxxxxxxxx
Account should be shown “closed”
Account & number xxxxxxxxx
Not correct. Discharged in bankruptcy.
Account & number xxxxxxxxx
Account paid before it went to collection.
Account & number xxxxxxxx
Never paid late.
(Your FULL Name)
Social Security Number
Date of Birth
Enclosed: Copy of Utility Bill and copy of Social Security Card (if you have it)
If they do not respond within 30 days, send another letter. In this letter you will include a copy of your dated original letter and a new letter firmly requesting they remove the disputed information. Include a cc: to the Federal Trade Commission. Recommendation from MIchael Faass: Tell people to carbon copy Barney Frank in DC. Many collectors know him and they would prefer not to have a representative from his office calling them or having a reporter show up from CNN.
Because it is always busier at the end of the month, the end of the month is a good to time to send your letters to the credit bureaus because there is a possibility that they will remove items in the interest of TIME.
Don’t Call the Credit Bureaus - Write Letters
The credit bureau may write a letter asking you to call. Do not call under any circumstances. Your phone call will be recorded and a log will be made of the conversation. Simply write back with copies of your original letters, telling them of the original date you submitted your request. Keep a file of all correspondence to and from the credit bureau and follow through continually. Do not get discouraged, as this exercise will be worthwhile.
What happens is that the credit bureaus forward your dispute to the individual creditors who have forty-five (45) days to respond. If they do not respond within the allotted time the item must be removed. However, if they do respond at a later date with information that documents the credit report is correct, the item will be placed back on your credit report.
For those of you who have filed bankruptcy in the past, the items that were discharged will normally show up as a charge-off or uncollected debt. You will want to write to the credit bureaus, providing a copy of your complete bankruptcy papers and request that they show the debt as "discharged in bankruptcy." This looks better and raises your FICO score. FICO sores above 680 make it easier to obtain mortgage loans. (If the bankruptcy file date is 10 years old, but the close date is not, and it is a Chapter 13, one can usually get the bankruptcy removed from the credit report based on the open date. This tends to depend on who looks over the request.
Recommendation: Leave medical collections alone, even if they are new. Sometimes these can be eliminated with a phone call, but you never want to simply settle with them,. There is always room for massive negotiations. EXAMPLE: Case in point, a friend’s husband died and he had no insurance and really no estate. The $42,000 hospital bill was reduced to $6,600 that the wife paid over a 30 month period. Why did the hospital accept this? There was no estate nor did she ever sign any documents saying she would assume the liabilities of her husband. The husband never signed anything either since he was deceased by the time he arrived at the hospital. The hospital was advised that the wife would go to court and let a jury of our peers consider all of the facts, and forgo all the business with a collection company which would get absolutely nothing from her since it was not her debt. Bottomline, there is usually a lot of room with hospitals and doctors. They really only just want their money. They don’t want to go to court. They really don’t want to send it to a collections company because most only will offer at most 10 cents on the dollar.
You may not be able to clean up every item on your credit report using these methods, but you will certainly be able to improve the way it looks to potential creditors.