If you’ve chosen to take action and repair your credit, it’s important to get all the facts straight. The slightest mistake can make all the difference.
Review these common mistakes and ensure they do not hinder your credit repair journey.
Mistake #1: Closing Old Credit Accounts
The mistake here is closing old credit card accounts after you pay down their balances. The logic to close an old account makes sense. You’ve finally paid off your debt and want to prevent a future spend bender. But it won’t help your credit score.
By closing old credit card accounts, you prevent yourself from taking full advantage of two metrics of your credit score: payment history and length of credit history. These two metrics account for nearly 50% of your total FICO credit score.
By closing old accounts, you lessen your length of credit history, sometimes significantly, causing your credit score to trend downward. The negative effect on your credit report will be more pronounced if you simultaneously open new credit cards after closing your old credit cards.
Once again, the logic makes sense and new credit card offers can be hard to resist, but the result will ultimately harm your credit standing.
A better strategy is to keep your old credit accounts open, use those accounts for a single small purchase each month, and pay the resulting credit balance in full each month. With this strategy, you continue to build payment history while maintaining a strong anchor for your length of credit history.
Mistake #2: Disputing Your Credit Online
The mistake here is filing a credit dispute on the internet.
Convenience can cost a lot in the credit game. You lose over 90% of your rights as a consumer by filing a dispute online.
There are over 200 areas on each credit report that must be verified for reporting accuracy. The credit bureau only considers about 10 of these areas when you file online.
As absurd as it sounds, it’s true.
When you file a dispute online, the credit bureau bypasses the process of independent verification for each vendor. Instead, they run your dispute through an automated system that broadly verifies details across the account information databases. But this system is not always accurate.
When over 80% of credit reports contain errors, mistakes are happening somewhere.
For example, it is not uncommon for a person’s credit history to become incorrectly linked to the credit history of other members of their household. Your credit report may be mixed with a stranger’s credit report; perhaps a person with a similar surname and first name.
Simple administrative errors also occur on the vendor side that could be linking your account to another person’s poor credit behavior. You would likely be unable to ascertain these circumstances if you proceeded with an online credit bureau dispute.
A paper trail is everything in credit repair. And if you think your credit repair is going to end up in court, use certified mail.
Mistake #3: Renewing Your Statute of Limitations for Debt Repayment
The mistake here is being unaware of your state’s statute of limitations on debt.
Your statute of limitations is the length of time your creditor has to legally sue you for outstanding debt.
Your outstanding debt is the money owed to the creditor.
Each state has its statute of limitations concerning a specified limit of time in which your creditor can legally sue you for unpaid debt. Once the statute of limitation for your debt has passed, you are no longer legally obligated to pay for it.
These statutes of limitations range from three years in some states, such as New Hampshire, to 10 years in Rhode Island, with the other states’ statutes of limitations within a similar range.
Knowing your state’s statute of limitations, and the length of time that has already elapsed on your debt is crucial before contacting your creditor or the debt collection agency. You can unknowingly extend your statute of limitations in your collector’s favor when you agree to a payment plan or begin making late payments on old debt.
By making a payment arrangement, and/or beginning to pay down old debt, you are acknowledging that the debt is yours, and that resets the statute of limitations concerning your responsibility to repay outstanding debt.
Mistake #4: Lack of Patience
The mistake here is being impatient.
It took years to negatively affect your credit. Why assume that it can be fixed overnight?
The credit repair process is lengthy and requires persistence. Your first letter to the credit bureau may likely be returned without action taken on their part. Most of these bureaus auto-check your information against their data and regurgitate an automated reply.
This is where it’s important to keep records and follow-up with written communication. Do not get discouraged. You may feel that you are too small to compete with this giant credit company. Do not believe that.
Persistence will pay off. It is most likely that the credit reporting bureau ran your credit report through the same databases that contained the errors. You need a more in-depth investigation.
Without documentation, there can be no validation. Thanks to important legislation like the Fair Credit Reporting Act (FCRA), it is your right as a consumer to have validation for the reporting accuracy of charges on your account.
Mistake #5: Dealing with Debt Collectors
It is a two-part mistake here. Never, never, never, answer a call from a debt collection agency. They are only on the call to make money from you. There is nothing to be gained for you by talking to debt collectors on the phone. If they want to talk to you, they can do it in writing.
Too many consumers rush to pay debts to debt collectors when they are harassed by an onslaught of daily collection calls. Send them all to voicemail. If the number is unknown and you answer on accident, do not give them any information and insist that they send you any and all information to you in writing.
You are not ignoring your debt, but you are protecting yourself. You do not know these people who are calling you, let alone if they are legally allowed to harass you for your debt. If you’re getting calls from debt collectors, be sure to check out these 8 Things You Should NEVER Reveal to Debt Collectors.
The second part of this mistake is not asking for debt validation from each debt collector.
A debt collecting agency has a legal obligation to inform you of their right to collect your debt. You need to get this in writing. Asking for verification in writing demonstrates that you know your rights as a consumer and moves your debt closer to its expiration date.
This strategy increases your negotiating power with the credit bureaus and debt collectors.
Mistake #6: Paying Debt Collectors
The mistake here is paying debt collectors as a priority.
A paid debt collection is as bad as an unpaid debt collection. Here’s why.
Let’s say you owe $1,000 in outstanding credit card debt and the collection agency has bought the outstanding amount and is willing to settle for $600. Great, you think. Let’s do this. After payment of the $600, the outstanding debt for this account on your credit report is reduced from $1,000 to zero.
That’s good, right? Yes, but… the collection account and late payments on the account will continue to show on your credit report for up to 7 years from the date of the last payment to the original creditor.
Will paying that collector help your credit score? Only marginally. And maybe not at all.
But paying a collector may be the only way to avoid being sued and having wages garnished when you lose that lawsuit. That is the razors-edge collection agencies want you to feel. And it can be scary. Visit our Community Forum to get insights from people just like you that have some really good insights about how to navigate the collection agency scare tactics.
You have more options than you think.
Mistake #7: Paying Old Debts Without Negotiating for A Deletion in Writing
The mistake here is not getting promises of deletion in writing for a paper trail to protect yourself.
Creditors and debt collectors account for a certain percentage of outstanding debt to be uncollectible. A partial repayment is better for your creditor than a total non-payment. Coincidentally, a partial repayment is also better for you than total repayment.
This creates an opportunity for you to ask for a credit deletion. A credit deletion is an agreement between you and your creditor/collector to lower the total amount owed in exchange for a payment today.
Have patience here. You must have any promise of deletion in writing. Without knowing who you are talking to on the phone, and with the foreknowledge that the person on the other end of the phone only has one job, to get money from you, their spoken promise may not carry a long way. There are many cases where it has not.
It is all too common for people amid credit repair to verbally agree to a credit deletion on the phone, only to pay their agreed-upon amount and see no change in their credit score.
The creditor has no obligation to alert the credit reporting bureaus of your payment. You need the credit deletion in writing to ensure your payment and subsequent deletion of the negative account will be reflected on your credit report.
Mistake #8: Not Using a Credit Card to Rebuild Your Credit Scores
The mistake here is not believing in the power of credit cards.
You do not need to enter into deep debt to benefit from a credit card. An optimal credit utilization rate is 10-20% of your credit limit. Have a $2,000 credit limit? The maximum amount you want to be carrying over month-to-month is $400. That doesn’t mean you can’t use all of the $2,000 in a given month. Just make sure you’re in a position to pay down at least $1,600 of that total IN THE SAME MONTH THE CHARGE HIT YOUR ACCOUNT.
In terms of rebuilding credit, a $1 balance is enough! A single purchase at the Dollar Store on a credit card each month, that you routinely pay before the due date, will do wonders in raising your credit rating.
How can you increase your credibility if you do not have something adding credit to your credit report?
Your credit report is a conglomeration of data that is sourced from how you handle debt. You need to demonstrate that you can borrow money and repay the borrowed money.
Your credit report does not care about the type of credit card in your pocket. Retail credit cards are a great way to build your credit score.
Mistake #9: Credit Sweeps
The mistake here is trusting someone to fix your credit by doing a credit sweep. It is a big no-no.
Except in highly situational, 1% of credit repair cases, it is never advisable to sweep your credit.
A credit sweep is a deletion of all accounts on your credit report. This includes the good credit accounts you built over time. A credit sweep is a credit start-over that could have credit consequences. The only way to perform a “credit sweep” is if you have a police report indicating you were a victim of identity theft, and in fact, every single item on your credit report is fraudulent.
But in truth, you are the only one committing fraud.
Some click-bait credit sweep advertisers claim to wipe away all your debt. Many accomplish this by malicious means. They instruct you to contact the credit bureaus and claim that ALL the accounts in your name are fraudulent.
The credit bureaus are improving their preventative methods for this, but either way, a cleared credit report does not communicate credit trustworthiness. A credit sweep takes away the information creditors have about how you manage money. You will have to start over from scratch.
If you are in a crunch, contact one of the free credit counseling agencies in the non-profit sector for help removing negative information on your credit report.
Also, credit bureaus do sue people, and they do win. The person who credit sweeps your account is not liable. You are.
Mistake #10: Going Back Into Debt
The mistake here is working hard to get out of debt… and then going back into debt.
Once you repair your credit, do everything in your power to maintain it.
Albert Einstein’s quote fits well here: “Insanity is doing the same thing over and over again and expecting different results”.
Do not repeat your mistakes. Make sure that your credit behavior will be different this time around. Embrace positive credit maintenance.
Review and keep these 10 common mistakes in the back of your mind as you proceed on your credit repair journey. They may do you wonders.
Always remember that credit repair is not like a 100-meter sprint to the finish. It is more like a marathon. It may feel exhausting at times, but keep going. We’re rooting for you!