Using credit wisely is the best way to avoid the need to “repair” credit. But for many of us, this lesson is learned the hard way long after our credit reports show a multitude of late payments and even collections. We find ourselves with an attitude of acceptance that our credit is just “ruined” and believe we can’t do anything about it.

Then we find ourselves in a bind when we face a situation that requires a “good” credit score, like renting an apartment, or in some cases, landing that job we applied for. (Yes, there are plenty of employers that will check your credit to determine if you are responsible)

I found myself in this boat early in recovery with a credit score of less than 400. My credit report was full of collections and missed or late payments. No one in their right mind would have considered me financially responsible.

It took years of hard work, dedication, and consistency to solve this problem but I am telling you from experience that it can be done. Here’s some suggestions to get you started.

Stop making it worse

The first thing we have to do is stop adding to the problem. We can’t dig ourselves out of a hole by making it deeper.

If you have credit cards that are still active, stop using them. If you’ve been taking out loans, especially “payday” ones, stop getting new ones. Take a deep dive into your budget and figure out what can be temporarily or even permanently cut out so you don’t feel the need to go this route.

If on time payments is a problem, set a reminder in your phone, make notes in your calendar, put sticky notes on your mirror, or whatever you have to do to remind yourself to make payments BEFORE the due date.

Get your credit report

We can’t fix something we are not aware of. It’s important to know what’s on your credit report. There are multiple ways you can do this.

To get a full picture of your credit report, you can go to www.annualcreditreport.com and request a copy of your credit history from each of the 3 major credit bureaus, Transunion, Equifax, and Experian.

You can request them all at once or you can request a report from one at a time throughout the year. Either way, you have a right to receive one free report from each bureau once per year.

You can also see what’s on your credit report through Credit Karma, which will show you reports from Transunion and Equifax. Credit Karma doesn’t show anything reported on Experian, so you’ll need to go there separately. But both have an app available and are fairly easy to set up an account.

Note, you do NOT need to pay for either of these. Both offer a paid subscription that offers a handful of extras but the free version will give you the information you need, as well as allow you to dispute anything that doesn’t look right.

The 7 Year Rule

Inactive items on your credit report, meaning, closed accounts, collections, paid off loans, bankruptcies (although certain types of bankruptcies will remain longer), repossessions, etc., will typically be removed from your credit history after 7 years.

There are a few exceptions to this. Student loans, child support, and certain legal things such as judgements or fines, will not be removed from your credit report until those debts are satisfied.

For collections, the 7 year period begins on the date the original account was 90 days past due. If at any time you speak with the collections agency and verify the account by confirming your name, date of birth, last four of your social, etc., the 7 years starts over so don’t talk to them at all unless you are making a payment arrangement.

Understanding collections

You may look at your credit report and find items that are in “collection” status from companies you don’t recognize or ever remember doing business with. The reason you don’t recognize them is because you actually have not done business with these companies.

If you look deeper into the details of the collections, you’ll find an original creditor, which will be a company you probably do recognize. If you’re on Credit Karma or Experian, just open the collections account for more details.

What happened is that the original creditor eventually gave up on trying to collect the money owed to them, wrote the amount off as a bad debt, and sold the debt to a collections agency for pennies on the dollar. The collections agency now owns that debt and will make attempts to collect the total amount from you, even though they paid a lot less than that amount to own the debt.

Dealing with collections

You can dispute these accounts if you choose, which may or may not remove them from your credit history. You can do this easily enough through Credit Karma and Experian but don’t call the collections agency directly if you are going to dispute the account.

Sometimes disputing the account will be sufficient to have it removed from your credit report, but if it doesn’t work, there are still things you can do.

First, figure out how old the account is. Base this timeframe on when the original account was first 90 days past due. Remember, if you haven’t been in contact with the collections agency, there is a 7 year period in which this account can be reported on your credit history.

If the account is 5 or 6 years old, you are probably better off leaving it alone. It will disappear all by itself if you just wait it out. And the older a collections account is, the less it affects your score.

If the account is only a few years old, it may be worth your while to arrange to do something about it. Having the account completely removed is ideal, since once this is done, it will be as if it was never there.

If this isn’t an option, paying the account in full or even paying the settlement amount will improve your score and repair some of the damage. If you pay it off or settle, that account will remain on your credit for another 7 years, but it will show that the debt was satisfied, which is much better than being in collections.

Paying in full

If you can pay the debt in full, call the collections agency (you’ll find the contact information in your credit report), and tell them you are willing to pay in full if they will provide something in writing that they will completely remove the debt from your credit report.

They will likely say they can’t do this, so ask for a supervisor. They absolutely can do this, they just don’t want to. Give them a headache insisting on your terms of having it removed. And don’t actually give them the money until you have it in writing that they will remove it.

Sometimes it works, sometimes it doesn’t. But the answer is already no if you don’t ask. If you can’t get them to agree to remove the account from your credit, and the debt is small, either suck it up and pay it or move on to the next step.

Settlements

Many times the collections agency will offer you a settlement, meaning, they will allow you to pay less than the full amount to consider the debt satisfied. This amount is still much more than they paid to purchase the debt, but likely to be much less than the original amount you owed.

You can barter with them on the numbers and in many cases, they will let you split the agreed upon amount into more than one payment. The older the debt is, the less they will agree to settle for.

Remember, if you agree to any type of settlement terms, it’s extremely important you honor the agreement. Don’t agree to something you can’t follow through on. If you make an arrangement and fail to complete it, you will make your credit situation much worse.

Credit Counseling

There are lots of places that call themselves credit counseling agencies or credit repair agencies but the truth is, they can’t do for you anything you can’t do for yourself. In fact, most of the time if you use these agencies, you will end up paying more than you would have if you’d have just paid the debts in the first place.

There are actually non-profit agencies that assist the public with financial issues, including credit counseling. Do some research in your area. In my area, Appalachian Opportunity Fund is a local non-profit that helps people with a multitude of financial needs, including credit coaching.

But don’t give your personal information to anyone unless you know exactly who they are and all of the facts about the situation. If they want to “pull your credit” to see what’s on it, you should probably run the other way.

There are only a few legitimate credit repair agencies out there and they can’t do anything for you that you can’t do on your own for free.

Summary

You have the power to take control of your credit situation and begin the repair and rebuilding process. Take ownership of your actions and do something about it.

• Stop making it worse
• Find out what’s on your report
• Inspect every item for accuracy
• Dispute negative items
• Look into your options for dealing with collections
• Get it in writing
• Honor any settlement agreements you make
• Avoid credit repair agencies
• If you need help, seek it from a non-profit financial coaching agency