Helping people improve their financial lives is a core function of this blog. I share the tools that will help you on this blog, but I leave it to you to implement the changes. Over the past few months, I’ve been taking my advice offline and putting them into practice with friends and family.
My realtor is a nice guy, but he is horrible with managing his money. He had tried buying a car multiple times, only to be declined because of his credit profile. I felt bad for him, so I decided to help him out. After only two months his credit score has increased by 110 points dragging him out of the low 500’s and into the respectable 600 level. How did I do it? Time to share.
Pull Your Credit Report & Credit Score
He has never actually looked at his credit report. You have to know what’s on there before you can fix it. You should know by now that you can get your credit report for free once per year from annualcreditreport.com. While this will give you a credit report, it will not give you your credit score. You can purchase this as an add-on when you get your free report. If you do not have the means to pay for your score, I suggest signing up for Credit Karma. This is a free service that will give you a score, but it might not be your actual score seen by the creditors.
By the way, every time you are rejected for credit, you are entitled to a copy of the credit report that was used to make the determination. In this case he could have requested a copy from the car sales company for free.
Check Your Credit Report For Errors
Sometimes the reporting companies get things wrong. In my case, part of my name has been wrong and an address was on my file that did not belong to me. You might notice errors with your Social Security number, collections accounts that are paid, credit cards did not belong to you, or hard pull inquiries. Pay close attention to everything on your report because correcting these errors can significantly improve your score.
In my realtor’s case he didn’t really have any errors on his report. What he did have were a bunch of inquiries, over 50 in total, from him trying to buy a car. He went to a car company that professed to guarantee approval regardless of your credit profile. What he didn’t realize was that the car sales company farmed his information out to about 30 different second rate lenders. Every time he went to one of these kinds of car sales companies, they were sending his information to multiple lenders at a time.
The more inquiries you have on your report, the more it can impact your score. With over 50 inquiries in less than two years, his score was being dragged down unnecessarily. Just shopping around to multiple lenders within a short period won’t necessarily kill your score, his problem was that he did this over a period of two years. Nothing he could do here but wait until they fell off after two to three years but I told him to do the following:
If your credit score is bad, stop applying for credit. I told him to stop trying to buy a car unless he had cash. The more you apply, the more you are rejected, the more you dig a hole for your credit profile. Stop applying for anything else until your get your credit under control. It really is the best thing that you can do for yourself.
Pay On Time
If you’ve had a spotty payment history, let’s leave that in the past and begin anew. Begin paying everything on time every time. It doesn’t matter if you’re only paying the minimum, just make sure that you pay it. Your current history has a stronger impact that your older history. The more your mistake ages, the less of an impact it has on your current score.
Give It Time
Time is your friend. In my realtor’s case he had gone through a nasty divorce almost six years earlier that pretty much killed his entire credit profile. According to him, his wife maxed out all of their credit cards and took new loans out in his name as they were going through their divorce. Unable to keep up with his bills, he lost his home and stopped paying his credit cards. His credit profile had more than 15 charged off items. He currently has no credit cards and dealt entirely in case. From looking at the age of the charged off items, I could see that they were nearly six years old. He wanted to know if he should pay them. I told him that in no circumstance was he to call these companies and try to pay anything. All he had to do was wait out another year or so before they started dropping off his report. The debt that has been sold and showed as collections items we would handle separately, but he was not to pay them either.
Did you think that I would have told him to pay them? Sometimes, not paying is actually better for you than paying. His debt has long been charged off meaning that the creditors had sold the debt years ago and took the loss. Paying the original creditors would have had no impact and paying or even acknowledging the collections accounts from those debt might trigger the zombie debt effect. Read that article for how to handle those.
By the way, if someone else gets credit in your name without your permission, that is fraud. Add a fraud alert to your credit profile and freeze your credit. Then get in contact with the creditors directly to alert them to the fraud. Finally, report this to the police.
This is where some debt and credit experts might say that I was somewhat unethical, but it works and some companies that you pay use this same tactic: I told him to dispute everything. What did he have to lose? Remember, some of the debt was incurred by the wife who took things out in his name as he was divorcing her. Why should he be responsible for the debt if they belonged to her? I had him dispute all of the charged off items and the collections items as not belonging to him or being erroneous.
Once you dispute an item on your report, the creditor has 30 days to respond. Things that you can dispute include the amount of the debt, missed payments, duplicate items on the report, collections inquiries being listed as hard pulls as if you applied for credit (saw this an another person’s report who I helped), or whatever else you think might be wrong. You might need to have some documentation on hand to support your claim, but so far, I haven’t seen anything requested.
After 30 days, if the original credit issuer can not verify your information they must remove it from your credit report. This can be a gold mine if negative things are coming off.
Monitor Your Report
After your thirty days are up, begin monitoring your report. Be aware that with three different credit agencies (Equifax, Experian, TransUnion) you will have to monitor all three scores. While you won’t be able to get another free report from the same company, you can pay to receive another copy of your report or you can use a free company like Credit Karma to monitor changes with your report. Credit Karma only gives you TransUnion information. Credit Sesame, another free service, gives you your Experian Score. Credit.com‘s free Credit Report Card gives your Experian score and is updated monthly. Hey, it’s free and free is good.
My realtor called me quite giddy about his result. His score improved by almost 120 points with Experian in only two months. Why? His creditors were not able to verify 7 negative items within the allotted time, so, they were removed. A duplicate account with a negative history was also removed. Finally some of the hard pulls on his profile were removed.
Can you do this too? Absolutely. I have now successfully helped a few people improve their scores. As you can see, there is no rocket science to this, and it can cost you absolutely nothing to get it done.