Today, I would like to have a quick chat about credit repair. We are coming into a recession, which means that credit is going to become more available in the form of loosening of credit assessment and serviceability. This means that new house or business loan might be achievable very soon. So that being said, it is time to get proactive and do a little credit maintenance.
Improving your credit score or rating is not limited to people with bad credit or bad habits. We take our cars to the mechanics for check-ups, go to the dentist to make sure our teeth aren’t falling out. Our credit ratings are just as important. Doing a regular tune-up or maintenance of your file can help even the most fastidious of bill payers achieve greater discounts on their cost of funds, such as lower interest rates on home loans, car loans and credit cards, and can increase your ability to access leasing and overdrafts facilities for growing your business.
The problem is we only think about our credit file when we need to use it. Good housekeeping includes checking your file regularly. It is important to understand that your credit file is a direct extension of your life. In fact, it is actually the resume to your life. Just like your tax file number, your credit file is a constant in your life from the day you come into this world until the day you leave it.
So, we have spoken about the people who should tune in to tune up their file. There is another class of people who think that their credit file is so irretrievably damaged that they just do not look at it, the ostrich it if you will. This is about the worst thing you can do. Firstly, because it is not going anywhere, your credit file is like your shadow and like your shadow, every time you stand in the light it is going to be right there behind you.
So how do we fix our file and have it work for us? Here are some simple steps to take.
- Review your reports
Get a copy of all of your files. There are three files you need to get and all of them are free. You can find them at:
In my experience, people are afraid of the unknown and build up a scenario in their mind of how bad it could be, which makes them not want to look at the facts in case their worst fears are confirmed. My advice, stop being a puss and just get your reports. Firstly, you are the only person who will see it so you do not need to be embarrassed and secondly, generally it is never as bad as you think it is.
- Dispute negative marks
You can go to a credit repair company to have them assist you and negotiate on your behalf to remove negative marks and defaults on your file. My advice is to attempt this yourself first.
You will see on the credit reporting sites that there is an option to be able to click a button to dispute claims on your file. The first things you want to dispute are any derogatory remarks, such as collection accounts and judgements. Click on the “dispute” button, then on “the creditor agreed to remove my liability on this account.” If you have the same listing on different reporting agencies, follow the same process on each file.
Now, here is a little trick that credit fix agencies use: dispute all of these types of listings. The credit reporting agency has to respond back to the request for additional information from the credit reporting agency. If they are a smaller company, they probably will not be bothered putting in the time to find the old file information, and sometimes the larger companies may just overlook it. At the end of the day, you do not know unless you try.
- Overdue accounts and owed money
This one is a little different. Do not dispute this through the credit reporting agencies. If you owe this money, then you need to negotiate with the company that owns this debt now. Generally, the company that now owns the debt is a debt collector and they have purchased this debt at a discount so they will be willing to make a deal with you.
You can get a credit repair company to negotiate for you; however; they generally take about 30 days and will charge you 30% of the discount rate on top of their flat fee.
My suggestion is to call them directly. These companies want to settle out these debts and are willing to work with you. And if you are proactively calling them, you are more likely to get a better reaction than if they are calling you.
The most important part of this process is no to be rude. You are trying to get the person on the other end of the phone to help you so be bubbly and pleasant. Tell them at the beginning of the call that this is new to you and ask for their help through the process. It is a fact that people want to help those who are lovely. If you are naturally a grump, then just fake it.
A good strategy to use is ask them what sort of discount they can give you to pay the debt off. You can usually get between 30% and 50% discount, but this depends on how long the default has been listed for. It is important to understand the process. A default can only be listed for five years. At the end of this term, it must be removed and cannot be relisted. So, if you are negotiating at the start of the five years, you will get a smaller discount while negotiating towards the end of the five years should yield a greater discount. Let your inner horse trader run free.
Make sure you are negotiating to have the listing completely removed and not listed as a paid default. Some of the people you speak to will say this can’t happen. Simply ask them to lodge a request with management and get back to you. 100% of the time, they will agree to remove the listing. You will need to be prepared to pay the whole account in one payment for the type of big discounts I mentioned earlier. If you cannot afford one big payment, just come to a payment arrangement. The discount will be reduced, but it will enable you to make sure the listing is removed.
- Myths busted
A couple of quick myths and misunderstandings.
- I missed one payment this month, but it is no big deal. Not true. Any missed or late payments affect your credit score; however, you need to be 14 days overdue before they list you, so you can dispute this.
- The payment I missed was small that future creditors will not take this into account. Not true. The amount of payment is not listed on your file, only that you missed a payment.
- If I pay my utility bills on time, I will increase my credit profile. Not true. Utility, phone and internet bills, and road and transport fines will not show up in your credit report as late payments; however, if you do not pay your utility, phone and internet bills, they will be listed defaults. Never leave these accounts unclosed if you are not using them or if you move house.
In addition to the above ways to fix your file, you can also increase your credit profile through the following tips.
- Open a credit account
Having some credit bank or credit union accounts can be good for your profile. A credit card, if used appropriately, will have a positive impact on your credit worthiness. Using your credit card for regular payments and then topping it back up will increase your profile with that lending institution and is a great way to lay some ground work if you are looking to get a home or business loan in the future.
However, if you have a shopping addiction, don’t understand interest rates and see credit as free money, then skip this step as I do not want to be your enabler.
- Reduce balances and close credit accounts
I know this is the opposite of the last suggestion. It is important to understand that your credit file is like your resume when applying for a new job. You list the most relevant work history at the front. So, if you are trying to get a car or home loan, your credit cards may be affecting your servicing. Consider reducing your cumulative credit card limit down to $1,000 so you still have access to credit, but are reducing the liability and increasing your servicing (servicing is the amount of available credit compared to your income).
- Pay off high interest and old accounts
Age of credit matters. If you have some long-term loans or accounts, try and get these paid out. Seeing long-term debt on your file is not attractive to lenders.
Another tip is to use new credit facilities that have a lower interest rate to pay down older higher interest loans or credit cards. You can do a rollover from an old credit card to a newer one very easily and there are always great incentives from providers to switch to them. You should look into this every two years.
- Pay everything on time
This seems like a simple one; however, it is easy to get complacent and miss a payment if other things are happening in your life. A great strategy is to set up one credit card or account that all of your bills and direct debits come out of. Set everything up to be paid automatically so the only manual payment you need to do is to pay the balance of your credit card once a month. Doing this manually will also allow you to do a quick assessment of your statement to make sure you were not overcharged and, if you are particularly clever, you will link this card to a good rewards scheme.
And that is it folks. Only you have the power to effect change in your own lives. Just remember, with great credit comes great responsibility ?
Good luck on your adventures and use your new power for good.
I love you all,