Bankruptcy and Credit Repair

January 12th, 2010 | Posted in Credit Repair

Bankruptcy is a federal court process designed to help consumers and businesses eliminate their debts or repay them under the protection of the bankruptcy court. Bankruptcies can generally be described as “liquidations” or “reorganizations.”

Chapter 7 bankruptcy is the liquidation variety — property is sold (liquidated) to pay off as much of your debt as possible, while leaving you with enough property to make a fresh start. Chapter 13 is the most common type of “reorganization” bankruptcy for consumers — you repay your debts over three to five years.

Both kinds of bankruptcy have numerous rules — and exceptions to those rules — about what kinds of debts are covered, who can file, and what property you can and cannot keep.  Bankruptcies, of any kind, stay on your credit report for 10 years.  All decisions regarding bankruptcy should be considered very carefully and not taken lightly.

Liquidation (Chapter 7)

Liquidation bankruptcy is called Chapter 7, and it can be filed by individuals (a “consumer” Chapter 7 bankruptcy) or businesses (a “business” Chapter 7 bankruptcy). A Chapter 7 bankruptcy typically lasts three to six months.

In a liquidation bankruptcy, some of your property may be sold to pay down your debt. In return, most or all of your unsecured debts (that is, debts for which collateral has not been pledged) will be erased. You get to keep any property that is classified as “exempt” under the state or federal laws available to you (such as your clothes, car, and household furnishings). If you don’t own much, chances are that all of your property is exempt and you have what is known as a “no asset” case.

If you owe money on a secured debt (for example, a car loan, where the car is pledged as a guarantee of payment), you have a choice of allowing the creditor to repossess the property; continuing your payments on the property under the contract (if the lender agrees); or paying the creditor a lump sum amount equal to the current replacement value of the property. Some types of secured debts can be eliminated in Chapter 7 bankruptcy.

Not everyone can file for Chapter 7 bankruptcy. For example, if your disposable income is sufficient, after subtracting certain allowed expenses and monthly payments for certain debts (including child support and debts that secure property), to fund a Chapter 13 repayment plan, you won’t be allowed to use Chapter 7.

Bankruptcy doesn’t work on some kinds of debts. Though bankruptcy can eliminate many kinds of debts, such as credit card debt, medical bills, and unsecured loans, there are many types of debts, including child support and spousal support obligations and most tax debts that cannot be wiped out in bankruptcy.

Reorganization (Chapter 13)

Chapter 13 bankruptcy is also known as “wage earner” bankruptcy because, in order to file for Chapter 13, you must have a reliable source of income that you can use to repay some portion of your debt. And to qualify for Chapter 13, your secured debts must be less than $922,975 and your unsecured debts less than $307,675.

When you file for Chapter 13 bankruptcy you propose a repayment plan that details how you are going to pay back your debts over the next three to five years. The minimum amount you’ll have to repay depends on how much you earn, how much you owe, and how much your unsecured creditors would have received if you’d filed for Chapter 7.

If you have secured debts, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time.

Fix your credit in just 72 hours

December 3rd, 2009 | Posted in Credit Repair

Anyone whos tried to fix an error in a credit report knows that it can be a slow, tedious process. Yet some companies promise to fix credit mistakes in 72 hours or less.

And guess what? Its not a scam.

Rapid rescoring services are a legitimate and growing part of the credit industry. Usually offered by independent credit reporting agencies, these services are used by mortgage lenders or brokers who are trying to get better loan terms for their borrowers.

Removing errors can help boost a borrowers credit score in the midst of the lending process and get them a loan, or a better rate, than might have been possible otherwise.

Now, the bad news:

• You cant use these services directly.
• These services cant remove true negative entries or items that are in dispute.
• You need proof that an error was made.
• Results arent guaranteed.

Companies that offer rapid rescoring work with mortgage lenders and brokers, not with consumers. If youre being offered instant credit repair directly, its almost certainly a scam. Rapid rescoring cant help you erase the past or win your case if youre fighting with a creditor. Typically, this comes in the form of a letter from the creditor admitting the error — something along the lines of We acknowledge that the account we reported as 30 days past due was not in fact delinquent. Its best if you, as a consumer, already have such a letter in hand, although some rescoring services will contact the creditors for you and arrange to get proof. This delays the process, however. Removing the error may help your credit score, or it may not. Theres still too much thats unknown about how credit scoring works to predict with certainty how your score will react to the change.

Still, brokers who use the services say they typically get good results.

It has been an extremely useful tool when you run into credit challenges in the middle of trying to get home-loan financing for a client, said Ginny Ferguson, vice president of the National Association of Mortgage Brokers. Even when the rescoring takes longer than 72 hours — sometimes the process can take two weeks — its still a faster process than snail mail, Ferguson said.

A faster way to fix problems
Ferguson was among a group of NAMB members who began agitating in 1997 for a faster way to fix credit errors.

In the past, human beings made most lending decisions, which some say led to discrimination. But it also allowed loan officers to plead their borrowers cases, especially if there were special circumstances. Errors in a credit report — accounts that werent the borrowers, payments reported as late that were actually on time — might not sink a deal if the borrower had a sympathetic loan officer or underwriter.

In the days prior to the proliferation of credit scores, said 22-year mortgage veteran Dick Karth, vice president of product development for MortgageIT Inc. in New York, a good loan officer or a diligent underwriter oftentimes saved deals which might have been denied based on erroneous information.

Now most lending decisions are automated, using computers and credit scores — three-digit numbers used to judge your credit-worthiness. The opportunities to get special treatment have declined dramatically, brokers say, and errors are a more serious problem.

If someone elses bankruptcy is reported in your credit file, for instance, you can lose hundreds of points off your credit score — and your mortgage application likely would be rejected. Even minor errors can knock enough points off your score for the lender to turn you down or charge a higher interest rate.

Waiting for a mistake to be corrected through normal channels — by writing the credit bureau and waiting up to 30 days for an investigation — simply takes too long, brokers said. Home sales and refinancings can fall through in the time it takes to fix problems, and the crunch has gotten worse as interest rates have dropped and loan volumes spiked.

Sometimes problems in a credit report arent noticed until days — or even hours — before a loan is scheduled to close, said David Wolff, vice president for consumer relations at credit bureau TransUnion.

Ive seen it happen on the morning of the closing, Wolff said. Thats somewhat understandable, given the volumes of mortgage lending were seeing right now.

How it works
The rescorers — credit reporting agencies that act as middlemen between lenders and credit bureaus — have established relationships with the bureaus to speed through corrections, said Marty Flynn, president of Credit Communications, a San Ramon, Calif., company that offers rapid rescoring.

The loan officer or broker typically collects proof of the error from the borrower and passes it along to the rescorer. In some cases, the rescorer may contact a creditor directly to get a letter acknowledging the mistake.

The rescorers transmit the proof to the credit bureaus, which have created special departments to collect the information and verify it with the creditors. If the credit bureaus agree an error was made, they update the borrowers credit report to reflect the change, allowing for a new credit score to be calculated, said Christina Karpowitz, spokeswoman for credit bureau Experian.

For many credit-reporting agencies, the rapid rescoring services have become an important sideline to their other services, which include merging credit reports from all three bureaus into one easier-to-read report for brokers and loan officers. Credit Communications charges about $100 to correct one error at all three bureaus, Flynn said.

Do your own repairs
Still, even brokers who tout the services say consumers are better off not waiting to the last minute to fix any credit problems. If you dont have proof that youre right, rapid rescoring might not help you. And getting a loan can be harrowing enough without trying to hurriedly correct problems in the middle of the process.

Your best bet, they say, is to do as much credit repair yourself as possible before you begin shopping for any major loan.

Here are some steps to take:

• Review your credit report.
• Contact your creditors.
• Keep good records.

Get a copy of your credit history from each of the three major bureaus and review for errors, outdated information and accounts that arent yours. The bureaus will provide information about how to dispute these items. If the bureaus say the creditors have verified information you think is incorrect, youll need to contact the creditors directly to argue your case. If you succeed in getting the creditor to remove the item from your credit report, make sure you get a letter from the creditor acknowledging the error. Hang on to all the paperwork thats generated by these disputes and investigations. You can present it to the credit bureau, or your loan officer, if the creditor continues to report the error.

These steps are in addition to the things you should be doing to protect and improve your credit score, regardless of whether you plan to apply for a loan soon. (For more on that topic, see my column “Beef up your credit score in 5 steps.”)

Liz Pulliam Weston’s column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
Written By: Liz Pulliam Weston

Source:  www.msn.com

Credit Repair Do’s and Don’t’s

November 5th, 2009 | Posted in Credit Repair

Do not use dispute forms or file numbers provided by the bureau. This will cause fewer delays by the credit bureau asking for clarification.

Do not allow anybody to send dispute letters. The credit bureau will think you hired a credit repair company or law firm to repair your credit. This doesn’t work as well as if you sent it personally.

Do not confirm any information on an item if any of it is wrong.

Do not use letterhead. This will look as though somebody is doing this for you.

Do dispute all the negative items in question on your report. Credit bureaus must verify by law all items in dispute.

Do send all letters return receipt mail.

Do send disputes during the busiest times of the year. Send disputes from October through January. These are the busiest times for creditors and credit bureaus.

How to Dispute Credit Report Information

November 3rd, 2009 | Posted in Credit Repair

By LaToya Irby, About.com

Your credit report contains key information that identifies you and how you’ve paid your bills. Whenever you make a credit-based application, your credit report is reviewed to help make a decision. If, for some reason, your information is reported incorrectly, it could cause you to be denied for services for which you would otherwise would have been approved. That’s why it’s so important to check your credit report periodically for errors.

If you find mistakes on your credit report, the Fair Credit Reporting Act, FCRA, gives you the right to submit a credit report dispute to remove inaccurate information.

Review Your Credit Report

To find out if there is any incorrect information on your credit report, you need a copy of the report. Under federal law, you have the right to one free copy of your credit report from each of the credit bureaus annually. See How To Get A Free Credit Report for details on ordering your annual credit report.

Review your report thoroughly to make sure the information reported is correct. If your credit report has incorrect information, the Fair Credit Reporting Act (FCRA) gives you the right to dispute the information.

File A Credit Report Dispute

When you find something incorrect in your credit report, you should alert, in writing, both the credit bureau who provided the report and the information provider. This is the process to dispute credit report information.

If you have statements or cancelled checks that support your claim, include copies of them with your statement(keep the originals for records). In your statement, include your name, complete address, the information you are disputing, and the reason the information is not accurate. It will be helpful to include a copy of your credit report with the disputed information highlighted.

Send your credit report dispute via certified mail with return receipt requested. This way you not only have proof that you sent the dispute, but also that the credit bureau received your dispute. Keep a copy of the letter along with any enclosures you sent.

The Credit Bureau Responds To Your Dispute

The credit bureau has 30 days to investigate your dispute and respond to you, in writing, with the results of the investigation. Any data you provided about the inaccuracy of the information will be forwarded to the original information provider. The information provider is then required to investigate and respond back to the credit bureau.

Once the investigation is complete, the credit bureau will provide you with the results, along with a free copy of your credit report if the dispute resulted in a change. You can request that the credit bureau send a correction notice to any company that accessed your credit report within the past six months.

If there is inaccurate information in one credit bureau’s version of your credit report, it’s likely that the information will be inaccurate on the other two bureaus’ reports as well. You should check all three credit reports to be sure that the information in each is complete and accurate.

Credit Report Dispute Resources

Sample Credit Report Dispute Letter

Dispute Addresses for the Three Major Credit Reporting Agencies

Equifax
P.O. Box 7404256
Atlanta, GA 30374-0256

Experian
Dispute Department
P.O. Box 9701
Allen, TX 75013

TransUnion
Consumer Solutions
P.O. Box 2000
Chester, PA 19022-2000

How to Get Your Free Credit Reports

November 3rd, 2009 | Posted in Credit Card Debt, Credit Repair

5 steps to do-it-yourself credit repair

November 3rd, 2009 | Posted in Credit Repair

By Dani Arthur • Bankrate.com

Blotches on your credit report cost you. But, don’t despair. It’s never too late to become credit worthy — just get started, and remember that it won’t happen overnight.

Here are 5 steps for improving your credit rating:

1. Order your credit reports
Find out what the top three credit bureaus — Equifax, TransUnion and Experian — are saying about you. It’s likely that they’re all slightly different. Yes, different! Creditors don’t have to report to all three credit bureaus, so they typically report to the credit bureau to which they also subscribe.

Time and money is wasted, says Steve Rhode, president and co-founder of Myvesta.org, if you only order a report from one credit bureau. You can order a credit report from each bureau for free once a year through annualcreditreport.com.

If you’ve been denied credit, insurance or employment because of your credit report, you are entitled to a free copy of your report from the reporting agency. The company you applied to must supply the credit bureau’s name, address and telephone number. You have 60 days after receiving the denial notice to request your copy.

2. Examine your reports carefully
Nearly every consumer has an error on at least one credit report from one of the major credit bureaus, says Rhode. Credit bureaus generate your report on information they receive from your creditors; they don’t verify.

Keeping your credit report a true reflection of you is — like it or not — your job. Get ready to clean and polish. Carefully look for everything from typing errors, outdated and incomplete information to inaccurate account histories. You’ll want to make a thorough list of items you dispute and why. Be meticulous.

Here’s how to read and understand your credit report.

If the negative information in your report is true, only time and improved habits can change that. Late payments, such as credit cards, and charged-off accounts remain on your report for seven years; bankruptcies for 10. Most creditors, however, look for a pattern of payment rather than focusing on one-time or rare occurrences; so consistent on-time bill payments will improve those blemishes.

3. Double-D strategy — dispute and document
Remember, a bad report costs you money. So, it pays to be thorough! You can either complete the dispute form provided with your credit report or write a letter. Clearly identify each mistake and state why it’s wrong. A recommendation is to send a photocopy of your credit report with the mistakes circled to the reporting credit bureau. Include copies of supporting documents.

Document, document, document. Keep copies and records of all the forms, letters and documentation that you send the credit bureaus, plus dates sent. The credit bureau must investigate any relevant dispute within 30 days of receiving your letter. Any item that is not verified as accurate by a creditor is removed.

Sometimes it’s necessary to contact your creditors to resolve mistakes. Bankrate’s 7 steps to fixing your credit report will help you tackle the serious errors.

If the credit bureau makes any changes to your credit file, it will send you the results and a free, updated copy of your credit report. Once a negative item is removed from your report, the credit bureau cannot put it back on unless a creditor verifies its accuracy and completeness — and sends you written notice.

4. Solve and dissolve debt
Now’s the time to devise a spending plan that reduces your debt and sets you up to pay on time, every time.

If you’re having difficulty making payments, be proactive. Call your creditors and negotiate to keep your accounts current and from being reported as delinquent or “bad debt.” You can ask for reduced monthly payments, or even change due dates to balance out your monthly bills.

The same strategy can be used for fixed-loan payments. Remember, though, that this is a short-term strategy. You’ll pay more interest to extend the repayment schedule, but it allows you to stay current and save your credit rating. Use the extra money to pay off debts one at a time, gradually increasing payments to other debts.

Check out Bankrate’s 10 steps to paying off credit cards for more ideas.

Deal with any collection accounts. Unpaid collections are worse than paid collections. You can negotiate a pay-off settlement that reduces your bill, plus demand that all derogatory remarks are removed from your credit report or at least reported as paid in full. Be sure to get verbal agreements in writing before sending off your payment.

Slowly close out unneeded or unused credit accounts. Most experts recommend carrying between two and four credit cards. But, be cautious when canceling because closing accounts can negatively impact your credit score, commonly called a FICO score. FICO considers the ratio of total debts to total available credit. A good rule of thumb is to keep your revolving debt to 50 percent of your available credit.

Remember that cutting up the card doesn’t close out the account. Here’s a step-by-step guide to smartly close out your account.

Other tips:

• Close out your newest accounts so that you don’t lose your longer credit history.
• Close out accounts slowly over several months.
• Verify that all accounts you’ve closed are reported as “closed by consumer” for the best report.
• Even if creditors offer to raise credit limits, allow yourself only moderate credit limits.
• Keep your balances low and avoid revolving balances.

5. Add stability to your credit file
You can also work to add positive information and show stability in your credit file.

You may have been denied credit because of an insufficient credit file, yet you have credit. Some creditors — such as, travel, entertainment, gasoline card companies, local banks and credit unions — may not report your credit history to the credit bureaus. You can try asking the credit grantors to report your account information and monthly payment history to a credit-reporting agency. Not all will do that. So, in the future, before opening a new account, ask if your on-time payments will be reported monthly to a credit-reporting agency, recommends Myvesta.org.

If you have really bad credit — perhaps even filed bankruptcy — don’t let your credit status go dormant. “The faster you begin to re-establish good credit, where you pay on time, every time,” says Craig Watts, consumer affairs manager of the Fair Isaac Corp., “the faster you’ll improve your credit score.”

Build a solid credit history. Secured credit cards offer people with no credit and those repairing their credit this opportunity. Shop around for the best deal available, but limit your applications. Credit bureaus look at how many new accounts you’ve opened, and the number of “inquiries” for new accounts that are listed. A sudden flurry of “inquiries” results in a lower score, because many times consumers anticipating money problems increase their credit lines. Inquiries made by creditors wanting to make “prescreened” credit offers are not counted.

Lastly, open a savings account at your bank. This shows creditors that you are working to save and that you have reserves to repay debts.