How to Repair Credit in USA & Handle Debt Problem
If you find yourself with a low credit score, you will have difficulty applying for new credit, the interest rates on your current debts may increase, and even your insurance renewals may become more expensive. Also, if you apply for a new job, they can hurt you.
What action you need to take?
Get credit report: The first action you should take is to request a credit report from the credit bureaus that carry your score (Equifax, Experian, TransUnion). Remember that you are entitled, under the Fair Credit Reporting Act, to one free report annually from each of these credit bureaus. Additional reports have a cost that is not significant. You can request them at https://www.annualcreditreport.com/.
Check whether the report is correct: Once you have the report in your possession, check if all the information on your credit report is correct. They may include debts that do not belong to you (which would be the worst case scenario, as there may be a risk of identity theft) in that case, you should file a fraud presumption report and request that this information be removed if it was an error by the credit bureau.
The Federal Fair Credit Reporting Act states that credit bureaus must maintain positive information indefinitely, while negative information can only be maintained for a set period of time.
For a bankruptcy filing, it will be on your credit report for 10 years. However, on a voluntary basis, the aforementioned agencies, plus others that issue reports, have agreed that bankruptcies will only be listed for 7 years.
Negative information in your report: Almost all other negative information, such as delinquent debts, defaults for any reason will be listed for 7 years. The exception is tax liens where the time period will only begin to run upon full discharge of the debt, otherwise, they will remain indefinitely. If you find debt information that has not been eliminated after the deadlines indicated, you should contact the agency where the information appears and ask why it is still on your record.
What do when you can’t handle debt problem?
If you are not financially educated enough to know how to manage your debts that have gone beyond your ability to pay, you should contact a reputable and recognized non-profit Credit Counseling Agency. One company that has helped millions of people in financial difficulty is Consolidated Credit Counseling Services.
Don’t confuse debt management from a company like Consolidated Credit Counseling Services with “Debt Settlement”. Find out more about it, as it can cause you more problems than you already have. Check with the Federal Trade Commission’s Consumer Protection Bureau, as there are more companies than you would like that are cheating debtors by taking advantage of the lack of protection.
A credit counseling program will help your credit score. In fact, your credit score may stay the same or actually improve if you successfully meet the payment plan, for several reasons:
- Some creditors will report to the credit bureaus that accounts that were delinquent are current when a debt management agency sets up a payment plan, and it is enforced for a period of time, so those late payments can be eliminated.
- Complying with the payment plan that a credit counseling agency has negotiated for you will cause your credit score to improve as the amount of debt on your report is eliminated, raising your score to your benefit.
- By entering a credit counseling program, you can avoid further late payments, credit problems and even bankruptcy, all of which can significantly damage your credit.
- If you successfully pay off your debt in full through the counseling program, your credit score can improve, since the amount of your outstanding debt is one of the relevant factors when calculating a credit score.
The key is to choose a reputable counseling agency with a track record of timely payments to creditors.
I am Nikesh Mehta, owner and writer of this site.
I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected] or LinkedIn profile.