Topic: Debtor and Creditor
Old judgments, debts in collection status, late payments, disputed debts, too much debt, too many accounts and/or identify theft. Any or all of these things can result in the denial of a job, a personal, car or home loan and/or a sought after security clearance. All very good reasons to look into and start cleaning up that credit report. Here are 12 tips to get your score up in the New Year!.
1. Obtain a Copy of Your Credit Report: The first step towards cleaning up credit is obtaining a copy of, not one, but all three credit reports. Most states allow for one (1) free annual review per year. In addition, a credit report may be obtained sooner, following a denial of credit. Visit The Kelsey Law Firm and click on “helpful links” to find a single link to all three credit reporting agencies (TransUnion, Equifax and Experian). Once at the site, follow the online instructions carefully and be sure and print or PDF a copy, of the file for future reference, as it may not be available later.
2. Spend Quality Time Reviewing the Credit Report: The information reported by each of the credit agencies may differ. Find the time to carefully review and compare each credit report for consistency and accuracy.
3. Respond to Disputed Entries: Should you find information that you do not agree with, dispute the entries on-line or by mail, being sure to attach any supporting documents. Information on exactly how this is done will be found in the final pages of the credit report. Thereafter, if a dispute is filed and not responded to, by the creditor, within 30 – 45 days, the credit reporting agencies are required to remove the negative information. Supporting documentation is always great but letters of explanation may also work.
4. Resolve Debts in Collections: Small overdue balances have a huge impact on credit scores. Some of the worse culprits are disputed and unpaid medical co-pays or patient responsibility balances. Simply put ~ Pay them! Once these small bills hit the negative reporting section, of a credit report, the score will continually decrease with each month they go unpaid. Better yet, if possible, pay these balances before they get to collections and fight the health insurance carrier later. Undoubtedly, these balances will ruin the approval of some future loan request.
5. Make Regular Payments: At the very least, send in the minimum amount due, on each bill, each and every month. Late payments reduce credit scores faster than on-time payments will repair it. Late payments also lead to an overwhelming increase in the annual percentage rate, making paying off the debt even more difficult, lengthy and painful. Check your interest rate each month to ensure notice of the increase at the earliest possible moment.
6. Pay More than the Minimum Amount Due: Better yet, pay more. Even if it’s just by a little bit, tacking on just a little extra will pay off debt at an accelerated rate. Example for a typically amortized home mortgage: A 30 year mortgage payoff is reduced to 26 years and 7 months, by simply adding an additional $100.00 to each monthly payment. In addition, thousands of dollars will be saved in interest. Not to mention the positive impact that paying more than the minimum due will have on any credit report! There is no formal contract or extra set-up required (despite what mortgage companies may say). Just add the extra amount to any regular payment amount, being sure to note that the extra payment is to go towards principal and not interest.
Of course, this works for cars, credit cards, home equity lines, overdraft protection accounts, lines of credit and other types of debt that accrue interest. There are plenty of loan amortization calculators on the web. For the above example, I used this one: http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx. Go ahead, visit the site, plug in your own numbers and see what a difference sending in a little extra can make with respect to your own debt (even if you don’t do it every month). As my grandma always said" "Pennies make Dollars!"
7. Prioritize Monthly Payments: While any late payment will negatively impact a credit report, late payments on secured debt (houses and cars) are worse than late payments on credit cards. Mortgage lenders and auto dealers look towards past performance with a critical eye when determining the success of future potential loans.
8. Resolve Existing Judgments: If payment of these debts in full is not possible, start making payments toward them. Not only do judgments negatively affect credit scores, they continue to earn post-judgment interest (in Maryland at 10% per annum). In addition, fees for additional work performed, by an attorney, attempting to actually collect on the debt will be added to the final balance. Thus, failure to make any payments, at all, towards the balance will leave a significantly larger balance due by the time it is ultimately paid off. In addition, as unfair as it may seem, it is the responsibility, of the debtor, to prove payment of a debt and not the creditor, so keep all receipts!
9. Notify the Court of Paid Judgments: All too often, creditors are quick to harass, sue, obtain a judgment, record a lien against real property and collect on a debt, but slow to notify the court when the debt is finally paid in full. Failure to notify the court of the satisfaction of a debt, will lead to continued negative monthly reporting. Additionally, any existing judgments may lead to liens that attached to real property, that was owned, by the debtor, at the time of the judgment entry and automatically to any asset obtained in the future – mostly real property. These liens may also attach to some jointly owned property as well. It should also be noted that these liens have a twelve (12) year life and are renewable for additional twelve (12) year periods at the request of the creditor. Most importantly, the negative information remains on the report for 7 or 10 years from the date of removal.
Therefore, if there is a debt that has been paid and satisfied and the creditor has not or will not file the necessary paperwork, or worse off, they are out of business or cannot be found, the debtor may independently notify the court that the debt has been paid in full. Click here and visit The Kelsey Law Firm to obtain the required “Motion for Order Declaring Judgment Satisfied" necessary for filing in the proper county District Court. If the debt is in Circuit Court, simply draft up a similar document and just change the heading, being sure to attach proof of payment.
10. Reduce the Number of Open Accounts: To many accounts and large debt to income ratios can ruin credit. Look into transferring balances, to new accounts, during an introductory 0% period. But be diligent and use those next allotted months to seriously pay down the debt. During this period, the debt will be reduced dollar for dollar and the potential to save hundreds in interest and late fees is more than beneficial. But be careful and pay attention to the fine print in order to make sure that the transfer fees don’t outweigh the potential benefit.
11. Call the Creditor: Even the best of us have a snafu every now and then. If this is ever the case, or if the interest rate is beyond your comfort level, simply call up the creditor to discuss a reduction in interest rate, waiver of a a late fee or any other concession you feel is warranted. For good customers, creditors do make concessions and you’d be surprised what creditors might do to keep your business. But, again, as grandma always said: “You don’t get what you don’t ask for!”
12. Address Possible Identify Theft: Finally, look for any unrecognized existing balances and/or accounts. Identify theft could be the culprit and will surely drag down a good credit score! Again, there is information in the final pages of the credit report on how to handle this. Be sure and get on it right away. Cleaning up behind identity theft can be a long and frustrating process.
Surely it may be difficult to address all twelve (12) tips at one time. Start with 1, 2, 3 or as many as possible, gradually addressing any or all that may apply to you. Remember, “the longest road begins with a single step” and “forests are chopped down one tree at a time”. Need more motivation? Note that information, once reported to a credit reporting agency, remains a part of your credit history for a period of 7 – 10 years – even after the debt is paid off! So get started cleaning up that credit report today. One never knows when a less than perfect credit report will affect a future request for credit, a job application or security clearance. And won’t it always be at the worse the time?
Thanks for reading. Please note that I am licensed to practice law in Maryland and the District of Columbia. This topic was based off of the laws of the State of Maryland and nothing herein is intended as specific legal advice. Please feel free to learn more about my practice at www.kelseylaw.net and to seek legal advice when you feel it necessary.
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