How to Clean Up Your Credit Reports: A Step by Step Guide to Repair Your Report and Increase Your Credit Scores.

August 17, 2009 · 11 comments

Here is a simple step-by-step guide to remove inaccuracies,  late payments, settle charge offs, and improve your credit scores.

Step 1: How to Get Your Credit Reports for Free
If you haven’t already, obtain your credit reports from the three major credit bureaus.   I wrote a simple guide on how to get your free credit reports last year.  Make a note of all the negative factors affecting your reports; these may include late payments, charge offs, repossessions, and inaccuracies.  If you have already pulled your free credit reports for the year, you can purchase them HERE, or directly from the 3 credit bureaus Experian, Equifax, and Transunion.

Step 2: Review Your Credit Reports
Look for any accounts you didn’t open. If you find that you have been the victim of identity theft, contact the fraud victim division of each credit bureau and demand the fraudulent activity be removed. Most likely they will require you to file a police report and sign an affidavit stating that you did not open the bogus account. Upon receiving this information, each bureau will initiate an investigation with the lender to determine whether or not you are responsible for the account. By law the Bureaus have 30 days to settle your dispute. If no response is received within this time frame the disputed data must be removed or updated. No mater what, do not pay a dime for any account on your report you didn’t sign for.

Step 3:  Correct Any Inaccuracies on Your Credit Report
This could be anything like your name being misspelled, or a wrong current address. You will need to contact each of the 3 bureaus individually and ask what information they will need from you to correct your report.

Step 4: Remove Late Payments with a Goodwill Letter
On your credit reports, find any accounts that are showing late payments. Each account will show the name and address of the lender you have the late payment with. You must now compose a friendly letter to the lender stating that you appreciate their service and kindly ask if they will remove the late payment from your account. This is called a Goodwill Letter; you are accepting responsibility for your actions and asking the lender to remove the derogatory information as a courtesy of doing business. Feel free to use this “goodwill letter” as an example, just make sure you change all of the names and accounts for your particular situations!

There is no guarantee of success with this step but persistence has been shown to work surprisingly well. Here’s how you do it.

Step 5(a): Debt Validation
Request “Validation” of your charged off accounts. Most people don’t know that under the Fair Debt Collection Practices Act, consumers may request validation of an account that shows up on their credit report. Write each collection agency a letter demanding that the account be “validated as per the FDCPA”.

The beauty of Validation is that if you send a letter Certified Mail Return Receipt Requested and the collection ageny doesn’t respond, or fails to provide adequate evidence that you are responsible for a debt, that debt must (under the law) be removed from your credit reports. If you are found liable for any account that is in collections proceed to Step 5(b).

Step 5(b) Settle Any Charge Offs
Settle charge offs. Typically, credit card companies and other credit lenders will “charge off” accounts that have gone unpaid for a certain number of months. This doesn’t mean that you no longer owe the money; it just means that they have given up hope that you will repay the balance as per your original agreement. Instead, the lender will sell the debt to a debt collection agency (CA) for a fraction of the original balance, and let the CA use their AGGRESSIVE collection tactics to pressure you into paying. These tactics often include multiple harassing phone calls at all times of the day (and sometimes night), threats of lawsuits, and withdrawing unauthorized funds from your bank accounts.

Remember, every dollar that the CA gets for an charged off account over what they paid for it is profit. Unless the charged off account is fraudulent (see Step 2) it is in your absolute best interest to settle it. A paid collection account is much better than an active account in “collection status”. Here is what you can do:

Establish contact with the CA that holds the charged off account. Let them know that you only have x amount of dollars to give them. If the balance on the account is $2000 offer them $1000 with the exception that they note on the account that it has been paid in full. They may not accept this offer, or they might counter with a higher settlement amount. Let them know AGAIN, that you only have x amount of dollars and if they don’t accept YOUR offer, you are going to move on to the next collector and see if they will accept an offer for your money.

Because collection agencies only pay a fraction of the original balance for the default account, there is a good chance that they will accept your offer eventually. Most importantly with this settlement technique, always get the settlement terms in writing before you send them a dime. Also, NEVER give a collection agency access to your checking account. They will CLEAN YOU OUT. The can do this because you owe them the money and most courts will favor on their behalf.

Know your rights as a borrower under the Federal Fair Debt Collection Practices Act, if a CA breaks any of these rules call your states attorney generals office and Better Business Bureau.

Step 6: Protect Yourself
Make a promise to yourself and your family to stay on top of your credit file going forward. Always pay your bills on time. Though it is not perfect, your credit score is a reflection of your potential credit worthiness, the better you stay on top of your payments, the higher your score will be.

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{ 9 comments… read them below or add one }

Anonymous February 29, 2008 at 11:01 pm

Only pay if they delete! Don’t pay if they won’t delete the account let it age off.

Anonymous March 3, 2008 at 12:32 pm

You should still pay it if you owe the $$, but your right after 7 years its gone

Anonymous May 2, 2008 at 9:49 pm

Know one is liable to a collection agency for any funds. You did not have a contract with that company. If you feel that you morally owe someone, then contact the original debtor and make an offer of payment. Negotiate a deal with them. Never pay a collection agency. You are only encouraging them to harass others and continue this illegal practice. They can only stay in business if the uneducated (in credit terms) fall victim to their lies and harassment.

Michael Lach October 9, 2009 at 12:20 am

For a cheap way to complete removal of inquiries I suggest RemoveMyCreditInquiries.org. They are a non profit group that charges $15 to remove credit report inquiries. They also remove derogatory comments too. Same price.

Nate May 6, 2010 at 4:10 am

The absolute most important thing to do is never ignore the calls. Believe me the creditors will not stop calling you. You have to deal with your problems because they will only get worse as time goes on.

Scott May 20, 2010 at 5:53 pm

Credit repair can be a do-it-yourself task if you have the patience and perseverance to do it. However, it is such a repetitive process that sometimes it can really get on your nerves.

It is critical that you keep a close watch on all three credit reports from the three different bureaus, which would allow you to stop fraud from going overboard; it would also enable you to notice errors and do something about it at an earlier time. If you are going through an identity theft crisis, you write about it to the credit bureaus so they can activate a fraud alert, which is basically a ninety day period; otherwise, you can request for seven-year duration.

If you know what is going on with your credit reports and has enough patience then cleaning up your report is a breeze. This is definitely worth the time and effort, as reality dictates that your buying power is dependent on what kind of credit score you have.

Rick November 24, 2012 at 12:50 pm

Write each collection agency a letter demanding that the account be “validated as per the FDCPA”. is one of the best tactics. Especially with a lot of little blemishes many of them will disappear.

Rick

Tyson February 4, 2013 at 5:54 pm

You could definitely see your skills within the article you write.
The world hopes for even more passionate
writers such as you who are not afraid to mention how
they believe. At all times follow your heart.

Kim March 23, 2013 at 7:36 pm

Fantastic article and site – I have a question. I had serious financial issues when I was naive and had this “financial whiz” help with my money and finances (I wanted to consolidate my debt and then save for a baby). Anyway, he took anearly $3K cash from me and did not pay any accounts for over a year — yes I am an idiot and whatever — anyway, I have spent the last year cleaning myself up starting with 7 credit cards, 2 personal loans to pay off and a mortagage. I did a short sale on the house, settled on 6 of the 5 of the cc’s and 1 loan. I am down to a payment plan with BoA on last CC, and midland credit has the other CC (originally chse). MC will not negiogiate a lower settle, lierally said to pay $6K of the $7K, so I said no dice. I have not made a payment in 2 years – question is: is it too late to send a validation letter to them? As there is a 3 yr SOL in NC and i am nearly there … or will sending the letter start the SOL up again? Also, for one of the Citi accounts i had it went to court, they had a year to sue me and never did. In NC the SOL is up — how can i have that updated on the credit report as it is still showing as unpaid/charge off? (I had a lawyer help me with most of my pay offs/hegioations — for the larger amouts). Any help is appreciated as I am a mess on my credit report. Kim*

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