All You Need to Know
About Repairing Bad Credit
You do not need to hire a professional to repair your credit. They can’t do anything you can’t do yourself. There are a lot of disreputable companies out there that advertise a lot. They will cost you more money than you will ever realize, because they count on your ignorance.

What you do need to repair your bad credit is a source of income. You cannot repair your bad credit for free, because you are going to have to pay back some, if not all, of the money you owe. Deal with it.

So we will assume that the bad times are over, you now have a decent job, and you are making a fair salary. Good. With a little effort, you can make this happen.

First, get your credit reports from the three agencies and correct any misinformation.

Two, identify any accounts that are

a. Past due

b.Charged off

c.Sent to collections

Let’s deal with these one at a time.

Past Due

Payment history makes up a large part of your credit score. Past due accounts drag you down big time. Your goal is to have all your past due accounts reported as “current” or “paid.”

Contact the organizations that show past due and explain that you are trying to repair your credit. Ask them what type of program they have for someone who has experienced a financial hardship and would like to get current. Most lenders will make you an offer, which normally involves lowering the amount of debt, and accepting lower monthly payments. You will not be able to use the card, but over time, your credit report will not have any past due accounts.

Pay off charge-offs.

Contact any lenders that show as charged off accounts and tell them the same thing. Ask them what it will take to make good on your debt. They are usually willing to negotiate a lower amount and monthly payments, because something is better than nothing. The charge offs will eventually disappear.

Sent to Collections

If you have accounts showing in collections, it can be a more difficult to remove, depending on the company. Some will accept a partial payment in return for deleting the account from your credit reports. Write to them and wait for a written response before taking any action. You are probably better off not calling them, because they may try to trick you into saying the wrong thing. They may not accept a partial payment. They may not agree to work with you. In that case you have two choices: either pay off the full amout (after all, you do owe it), or accept a blemish on your credit that will eventually disappear anyway. Some debts, when they become too old, are not legally collectible. That varies by state, so check it out.

Now here’s a weird thing: Paying an old collection can lower your credit score in the short term. This happens because the older they get, the less affect collection accounts have on your credit score. When you pay on an old collection account, it renews the date of last activity. So, your credit score could drop when you first pay an old collection. Fortunately, you’ll see your credit score come back up as time passes.

The credit reporting time limit is the max amount of time credit bureaus can report delinquent debts on your credit report. For most types of accounts, it's seven years from the date of delinquency. However, bankruptcies are reported for 10 years and tax liens can be reported for up to 15 years. 

That should give you an idea of how much time it will take to repair your credit.

The statute of limitations for collecting a debt is the period of time that a creditor or collector can use the court to force you to pay for a debt. The time period starts on the account’s last date of activity and varies by state.

Even if the statute of limitations has expired, some debt collectors will continue to attempt to collect. They're hoping you don't know about the statute of limitations and you'll pay up if they threaten you enough. They may even file a lawsuit against you. If you are certain the statute of limitations has expired, you can use that fact as justification that you do not have to pay the debt.

Be careful not to restart the statute of limitations. Anytime you take an action with an account, the statute of limitations is restarted. Making a payment, making a promise of payment, entering a payment agreement, or making a charge using the account can restart the statute of limitations on an account. When the clock restarts, it restarts at zero, no matter how much time had elapsed before the activity.

The statute of limitations is usually between three and six years, but is as high as 15 years in some states. 

Some debts don't have a statute of limitations. This includes federal student loans, child support in some states, and income taxes.

Quick Tips

  • You can repair your credit yourself.

  • Create a budget so you know how much you need to live on, and how much you afford to pay your creditors.

  • Look for ways to cut expenses. A little sacrifice now goes a long way to getting out of debt.

  • Be patient. It will take you longer to pay off your debt than it took you to run it up.
  • If your debtors believe you are sincere about paying your debt, they will be happy to work with you.

For Your Information
If the account is scheduled to fall off your credit report in the next few months, you might put off paying it until that happens. That way, you can save the money and avoid the initial drop in your credit score.
The statute of limitations will not:

Keep a collector from filing a lawsuit against you. It can keep them from winning if you use it against them in court.
Erase the debt. If the debt is legitimately yours, you still owe it.
Prevent the debt from being reported on your credit report. The debt can be reported as long as the credit reporting time limit allows.

Consumer Credit Counseling

Consumer credit counseling provides you with financial education and debt counseling according to your situation. The counselor will assess your debt and ability to repay and work out a payment plan for you. Some credit counselors can negotiate lower interest rates on your loans and set up a debt management plan (DMP) with your creditors. Once this is done, you begin making payments to the credit counseling agency, which then disburses your payment to each of your creditors in accordance with the DMP. A lot of credit counseling agencies claim to be non-profit. Even if the credit counseling agency says it’s non-profit, that doesn’t mean the services provided to you are free. In most cases you have to pay a fee. Some agencies use your first payment to cover their fees, while others deduct a percentage of your monthly payment. As we mentioned, there is nothing they can do that you can’t do by yourself, but many people who enjoy the convenience of the services provided by credit counselors, and don’t mind paying the fee. There are some potential advantages.

Some credit counselors have experience in working with creditors, so they might be able to negotiate better payment terms than you could on your own. Or not.
If you don’t think you will be disciplined enough to pay each of your creditors each month, you may prefer to make one monthly payment to the credit counseling agency, and let them disperse your money according to the plan. 
There are a few downsides, however, such as:

If the debt settlement company successfully settles with your creditors, the delinquent information isn't erased from your credit report. Instead, your account is updated as "Charged-Off Settled" Or "Paid-Settled", neither of which is as good as a "Paid in Full" account.

You could owe taxes on settled debts. The Internal Revenue Service (IRS) treats forgiven debts as income and expect you to pay income taxes on it. Creditors are supposed to send you a Form 1099-C for reporting cancelled debts, but you're supposed to include the debt in your tax return even if you don't receive the form.

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