Correcting and Re-building Credit
Welcome to The Knucklehead’s Guide of how to correct and re-build your credit. This blog is designed to help you get back on your feet. No strings attached. Really. Read on for stuff you can really use.
Got Credit Issues? Need to re-build your credit fast?
Had a foreclosure? Short Sale? Deed in Lieu? Bankruptcy? Job Loss? Health issues?
How long before your credit will be OK again?
A lot of people have credit issues these days. No matter how bad yours are... some knucklehead has worse credit than you do. I'm going to tell you how to get your credit back. I'm a mortgage banker who helps people rebuild credit every day; I've done it for over 10 years.
What I am going to share with you is probably worth thousands of dollars, and many before you have paid thousands of dollars for exactly what I am going to give you for free. Why am I providing this advice for free?
I’m a mortgage banker….just think of me when you can get your next home loan (I'll tell you how), and send everyone you know to me (http://www.mijoymortgage.com/) for any kind of real estate loan. Tell everyone you know about this blog and if it helped you. I lend in 50 States so no excuses...fair enough?
First, if you have family members, friends, relatives or other misinformed Knuckleheads grinding on you about how dumb you were to get into this position tell them I said to shut up and leave you alone.
Hardly anyone saw this "perfect storm" of economic catastrophe's that have never before occurred over the last few years. Warren Buffett recently said that if he didn't see it coming then it wasn't fair to expect that anyone else should have either.
No matter how bad your credit is it can be better, but only if you decide to do something. You can pay to have this stuff done, or you can do it yourself for free. There is a lot of free credit help available; be sure and stick to credible resources like what HUD offers: http://portal.hud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor.
A little background on credit reports: most credit reports are accessed directly from the credit bureaus (there are 3 main bureaus, more later on these), or through a credit agency. Agencies compile a “merged” report into a logical (well, mostly) and readable (somewhat) format. They often have a toll free number you can call to get information if you don’t have account info otherwise (old bills, statements, etc). You may need to be a detective to track down credit account info but you must have the accurate info in order to permanently fix erroneous items.
Get a copy of your credit report (keep reading) and make sure it has the scores with it. You will have 3 scores, one from each of the 3 major credit bureaus. Mortgage lenders will use your middle score for qualifying.
While there is a free report you can get annually, it doesn’t provide your scores; there is no sense in trying to fix credit if you don’t know your scores. You can get a copy of your report and get the scores if you have been denied credit (ask the creditor who denied you), or you can do it on-line. The on-line method will cost a few bucks…it’s worth it! Nothing is more important than getting your scores back so think of this as an investment. To get your scores, you might try a site such as http://www.myfico.com/. There are others so find one you like. On many sites you can even run "what-if" scenarios that will show you what your scores will do by paying/not paying delinquent accounts. This can be very helpful.
OK, so you’ve got your report in hand. What is it you’re looking at? What are you looking for? You are looking at your credit scores, and your credit account history as reported by your creditors. You can pretty much ignore the language on the report for now as to why your scores aren’t perfect; the scores are more important at this stage. More about creditors later, but let’s talk scores. What is a good score? For a mortgage/home loan you generally need a minimum score of 620. You might/will pay a bit higher rate of interest for anything less than a 740 score (your middle score).
Got some stuff on there that you need to fix? Let’s fix stuff first, and then talk about re-building your credit (below). Here we go:
Correcting the Credit Report – Time to read VERY carefully
1. Verify your name, social security numbers are correct. If not, contact the issuing agency/bureau and correct the info (more on this later….don’t worry…I’ll tell you how to do this).
2. Verify that credit accounts listed on the report are your accounts. If not, contact the issuing agency/bureau and advise them they aren’t yours. Be certain of this; if you’re wrong all you’ll do is cost yourself time and grief. Ask that any duplicate accounts be removed and any old accounts you know are closed be reported as closed (instruction on this to follow).
3. Verify that what is reported is accurate. If it isn’t, you must prove what is being reported is wrong and you better have ironclad documentation that proves you are right. It doesn’t matter what you think, it matters what you can prove.
4. If there are old accounts or collection accounts and they have been written off you may be better off not to contact those creditors. Any recent activity reported by a creditor usually means you will need to deal with it. However, collections and other accounts can be sold and "re-upped" so you may have to pay these regardless. Negotiate them to the lowest balance the creditor will agree to (pay monthly if you have to; the lowest amount the creditor will accept...you can always pay more if you want to). Make sure that based on what you agree to, the creditor will report to the bureau's and will provide you with a "paid in full/zero balance" letter. To be certain of a clean report, pay them if you can. Talk to a HUD credit counselor about which items to pay attention to (did you forget the HUD link above? Use it to talk with a HUD counselor…be persistent!). Run your "what-if" scenarios on these.
5. OK, you’ve determined what needs to be fixed and what to ignore. How do you fix erroneous reporting? There is no short cut and it may take repeated attempts...stay after it! Write a letter to each/any creditor that outlines exactly what is being reported erroneously, include your ironclad documentation, and a copy of the credit report (see step by step in items 7, 8, 9, & 10 below).
6. Do not call the credit bureaus unless you enjoy pain and hold times that last longer than your last root canal. Don’t be a Knucklehead.
7. You will send a cover letter (examples below; yes, you can copy and use them if you want to), the credit report, and all ironclad documentation to each creditor. You will then send all of this same information to each bureau; add a cover letter to the bureau, as outlined in items 8, 9 & 10:
8. Address a cover letter to each creditor; include a copy of the credit report and all of your ironclad documentation.
9. Address a cover letter to each credit bureau (find current addresses on-line for: Equifax, Experian, and Trans Union).
10. Mail the cover letter to each bureau, and include everything you mailed to each creditor. Do this for each creditor issue. Yes, I know that’s a lot of stuff. Do it. It’s the only sure-fire way I have found that has the best chance of permanently fixing the error. Now, if this doesn’t fix the error you will need to know exactly why and the bureaus will tell you that; they are required by law to do so. Make sure you provide an accurate return address for them.
11. Be persistent. And be persistent again. It’s your future and you’ve got to do it right. Did I say be persistent?
Re-building Credit
What is the ideal credit mix? There are plenty of credit help sites on the net where you can research this. More or less, you won’t go wrong with one mortgage, one installment account, and 2-3 revolving accounts. Get those, make on-time payments, and eventually you’re golden. More credit is not necessarily better credit, but done properly won’t hurt you.
You will want re-established credit as soon as you can get it. Don't start applying for credit until you've gone as far as you can fixing the bad stuff; credit inquiries can hurt your scores. Don’t miss a single payment after you start building credit accounts. Here’s what you can do to build accounts:
1. Obtain a secured credit card. These cards provide credit based on savings you deposit. Check with local banks/credit unions or search the net for secured credit cards; there are many. Use the card; pay the balance each month.
2. Obtain 2-3 revolving accounts with local Department or Home Improvement stores, maybe a gas card. Make certain they report to all 3 credit bureaus. Use these cards; pay the balance each month.
3. Make certain you are not late on any account that reports to the bureaus.
How long before your credit is re-established?
Your scores will start recovering pretty quickly; usually within a few months depending on your individual circumstances.
After certain events, it may take awhile before you can get a good auto loan or any type of mortgage loan. Since I know mortgage loans I can tell you that right now here’s how long it takes to re-qualify after an event:
Conventional Credit Requirements
Time frames to re-establish credit to obtain conventional/conforming mortgage financing, after event:
BANKRUPTCY
CHAPTER 7 OR 11: 4 YEARS FROM DISCHARGE OR DISMISSAL DATE.
CHAPTER 13: 2 YEARS FROM DISCHARGE OR 4 YEARS FROM DISMISSAL.
MULTIPLE BK’S: 5 YEARS FROM MOST RECENT BK IF FILED WITHIN 7 YEARS.
REAL ESTATE
SHORT SALE/PRE-FORECLOSURE SALE: 2 YEARS FROM COMPLETION DATE IN ALL CASES.
DEED-IN-LIEU: 7 YEARS FROM COMPLETION DATE OR:
4 YEARS IF:
OWNER OCCUPIED, SECOND/VACATION HOME, OR NON-OWNER WITH
MINIMUM 10% DOWN PAYMENT ON PURCHASE. RATE/TERM OR CASH-OUT REFI OK.
FORECLOSURE: 7 YEARS FROM COMPLETION DATE OR:
5 YEARS IF:
OWNER OCCUPIED PURCHASE OR R/T REFI,
10% OR MORE DOWN PAYMENT, 680 MINIMUM CREDIT SCORE.
FHA Credit Requirements
For FHA loans, after any negative credit event you may qualify as soon as 2 or 3 years for a new FHA loan. You will need re-established credit; no late payments since the negative event, a good explanation for the negative event other than you were just a Knucklehead, and a minimum score of 620. A good explanation would be related to job loss, divorce or other family emergency, or poor health. Don’t forget that any/all events must be documented.
Credit Building Tips
1. Don’t close accounts that are active and reporting OK; you’ll hurt your scores.
2. Don’t’ close accounts because you’re mad you knucklehead.
3. Pay small balances that creditors say you owe even if you want to fight about it. Trust me, you’ll lose this battle. You may protect your honor but you darn sure won’t protect your credit. Don’t be a Knucklehead; you’re in this for the long haul.
Cover letter examples:
Letter to creditor:
Date
Creditor
Creditor Address
Regarding: Name of Account, Account # 999 999 999.
Jim & Sally Knucklehead
Current Address
Current Phone #
Current e-mail address
To Whom It May Concern:
The above referenced account is not being reported correctly on my credit report. It should be reported as: (provide the correct account status).
I am enclosing a copy of the credit report, and supporting documentation. Please correct my report and advise me per consumer credit laws.
I am available via (e-mail, phone, etc – your choice) to answer any questions.
Thank you,
Jim and Mary Knucklehead
Encl: credit report, cancelled check, invoice, statement, letter, etc ----give ‘em all you’ve got!
Cc: Equifax, Experian, TransUnion
Letter to Bureau(s):
Date
Credit Bureau
Bureau Address
Regarding: Name of Account, Account # 999 999 999.
Jim & Sally Knucklehead
Current Address
Current Phone #
Current e-mail address
To Whom It May Concern:
The above referenced account is not being reported correctly on my credit report. It should be reported as: (provide the correct account status).
I am enclosing a copy of the cover letter, credit report, and supporting documentation that I provided to the creditor. Please correct my report and advise me per consumer credit laws.
I am available via (e-mail, phone, etc.) to answer any questions.
Thank you,
Jim and Mary Knucklehead
Encl: credit report, cancelled check, invoice, statement, letter, etc ----give ‘em all you’ve got!
Cc: Creditor
Final Words
I advise mailing these certified with return receipt. Yes, it will cost more to do that…I know. Do it. Don't be a knucklehead. It will pay off for you in the event there is a dispute about notification.
Finally, keep really really good records. Outline your course of action for each creditor and bureau. Track all communication/correspondence by date. Track who you talked to (always get a name), what time, what was discussed, and what the next step is. Then follow up and follow up some more.
Yeah, I know this is a pain in the backside. What’s worse though? Spending the time to fix your credit, or putting up with the nastiness of bad credit?
Don’t be a knucklehead. Get if fixed.
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