Understanding how your credit is scored is the first step to clearing up your credit history and improving your credit scores. The FICO scoring system takes several key aspects of your credit file in order to come up with the score that the credit bureaus use.
Because all three bureaus have their own quirks in how they rate your file, it is quite likely that your credit score will vary between Equifax, Experian, and TransUnion. This also means that any inaccurate information that is on one report may or may not be on the other two – which is why some lenders may approve you for a loan when they pull your credit report versus another lender who denies you elsewhere.
There are three areas where your credit scores may be impacted, outside of major negatives such as bankruptcies, foreclosures and judgments:
- Collection Accounts
- Charge Off Accounts
As you can see by the charts below, there is wide room for improvement by getting inaccurate and damaging information off of your credit score, and the sooner, the better:
How Do I Clear My Credit of Delinquencies?
If you’ve been 30 days or more past-due with your bills, you may find delinquencies listed on your credit report. While these delinquencies are definitely damaging, they can sometimes be easy to fix.
Start with the late payments that are the most past-due, i.e. the 90-day and 120-day debts. The reason to start here is because these are the accounts that are most damaging to your credit scores, and they are also the accounts that are most likely to be sent to collections or charged off.
If you can make a payment that will bring you current, you should call your creditor and be prepared to negotiate. If these delinquencies are for an account that is currently open, you have some leeway here.
Ask the creditor if they will be willing to re-age the account (in this instance it works in your benefit if the account is still open and you want to keep it). This will effectively let them update the account as being paid on time, rather than showing a history of past-due payments.
For the 30-day and 60-day accounts, if you have any paperwork that shows you made or mailed the payment within that 30-day window, you should call up the creditor and dispute the derogatory listing. Many times, creditors are willing to work with a good customer who is only rarely late with payments.
Otherwise, you will have to make your complaint in writing with the credit bureau and your creditor in order to get the inaccurate information updated.
How Do I Clear My Credit of Charge Offs?
Debt that has been charged off has a greater negative impact than late payments. Creditors don’t like to see debts that haven’t been repaid, and are much less likely to extend credit to you while charge offs are on your report.
Some loans, such as mortgages, require that all charged-off debt be settled or paid off before you can qualify, no matter what your credit score happens to be. Getting your credit clear of a charge off will take more work, but it is possible.
You will need to:
- Contact the creditor and ask if they are willing to settle – this can be done by phone or by letter, but the most effective way to have proof of the settlement is to get everything in writing.
- Make the payment in certified funds – so you have proof the debt is paid.
- File a dispute with the credit reporting agency, and use your proof of payment to support having the disputed charge-off removed.
Sometimes you’ll luck out, and a creditor that has been paid won’t bother to respond to the dispute because they have payment in hand. This will get the item deleted from your report entirely.
Other times, the creditor will update your account to say ‘Settled’ which is still better than having an unsettled charge off on your credit report, but it won’t help your scores as much as the deletion.
How Do I Clear My Credit of Collections?
Collection accounts are usually the most complicated issue on anyone’s credit report. These are the collection accounts that have been sold to debt collection agencies – sometimes multiple times. The collection agencies have zero interest in helping you. They only care about being paid as much as possible.
However, there are some bright spots when it comes to getting your credit clear of collections:
1. If the debt is past the reporting limit (generally more than 7 years old) then the collection agency cannot list it, and you can dispute the information to have it removed.
2. If the collection agency has reported the wrong date, the wrong amount, or other erroneous information, you can dispute that as well and have the negative listing deleted.
3. You have 30 days to request validation from the time the creditor first contacts you. In this time, they cannot perform any collection activities and they cannot add the debt to your credit report while the investigation is ongoing.
For older debts especially, collection agencies are often unable to come up with accurate information that proves they own the debt and that you owe it – so it pays to dispute any inaccurate information, more often than not.
Understanding these basics to clear up your credit will put you on the right path, but it’s only the first step. The sooner you get actually get started repairing your credit, the better off you’ll be, both financially and emotionally in the future.