Tuesday, October 23, 2007

Credit Repair and Derogatory Accounts

When you start reviewing your credit reports and decide you need to clean up your credit, the derogatory accounts are what make you decide it's time to take some action. Derogatory accounts can be collection accounts, charge offs, and trade lines with late pays. Derogatory means anything that is not paid as agreed.

Derogatory many times will show open accounts with late pays and charge offs. It may have trade lines that were included in a bankruptcy. A bankruptcy will not show in this category, it will show in the "Public Records" section.

Another section of the credit report is "Collections". This section will show accounts that the original creditor has moved to collections and accounts that have been sold or assigned to a 3rd party, which means "collection agency". They are the ones that make the obnoxious, threatening, harassing calls. There is a balance due on these accounts.

When you think about repairing your credit and you see these accounts, collections, charge-offs mainly, you think that if you pay them that your credit will improve. This is not so. The only benefit to showing the collections or charge offs as "paid" is that when getting a loan, the lender won't make you pay them off, taking some of the money you are planning to borrow.

Why do I say that paying them off doesn't help? Well, it costs you points on your FICO score for each derogatory account. Once it is derogatory, it is always derogatory, so it will always cost you points. So, instead of just paying them off, you have to decide if it is worth it. You will need some strategies.

The first thing you need to do with these negative accounts, is contact the reporting party and require them to prove that it is your account. Now, you may owe some creditor something, but if it's with a collector, they have sold the account. You DO NOT have a signed contract with that collector! You should "demand validation" from the collection agency. The FDCPA is a set of rules/laws that give you the right to get validation from collectors before you pay them anything. It also requires them to prove it -- or remove it! If they cannot prove it, by law, they have to remove it since the FCRA requires only 100% accurate information on your report. If they can't prove it is 100% accurate, it must be deleted from your file.

Now if you really feel a moral obligation to pay a debt that is listed negatively on your credit report, you need to consider using a "Pay For Delete" letter. What this does is inform them that to save them from going through the hoops of validation, you are willing to pay a certain amount to settle the debt. In return for your payment, they will delete the trade line. You must get this IN WRITING - BEFOREHAND! If you don't, you will be paying money, which the amount most likely is inaccurate, to leave a negative trade-line on your credit report. Sure it will say "Paid", but it will still be derogatory, costing you points.

Truthfully, I rarely use the "Pay For Delete" letter. I prefer to use validation and state statutes of limitations against the creditors and collectors. I don't like having to correct them all the time about their ability to remove something, which when they tell you that, is a bold face lie! It's also a violation of the law with a penalty of $1000. I prefer to just force them to prove it, and when they can't, they have to remove it. They also end up sending bills with out validating, which is again, a violation with monetary penalties attached. If it comes to fighting them in court, those violations add up to some pretty pennies in your pocket!

So get started on your credit repair. Attack those negative accounts. Demand validation, require the credit bureaus to verify the truthfulness of the reporting. No doubt, you will receive an updated credit report from each with new information, including some deleted negative trade-lines, which feels fantastic and puts you on the road to cleaner credit and a higher FICO score!

Don't forget, if fixing your credit yourself seems to be a job you don't want to have to put the time or effort into, or maybe more than you can handle right now, I would love to fight for you. Just email me at the email address given in the upper right hand corner of this page, or call me at one of the phone numbers listed there, as well. I'll get started on your credit repair right away!


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