Sometimes the best credit advice is not what you should be doing but is in fact what NOT to do. We want to make sure you know how to avoid pitfalls and identify when you’ve veered into a danger zone. We will start with some important things that you SHOULD be doing and then the things NOT to do! Make sure to grab a pen and paper!
What to Do
DO pay all your bills on time.
The only positive identifier on a credit report is “pays as agreed.” There is no allowance for “pays when convenient,” “pays when available,” or “pays when I can afford it.”
Remember, your credit report is a summary of your history and lenders use it as a predictor of your future willingness and ability to pay. You either have a history of following through with the agreements you accepted, or you don’t.
There are generally two types of people who find themselves in credit distress. Maybe you’re the type who does their best to fulfill their obligations, but no matter how diligent you are, you can’t seem to get ahead. If you’re drowning in credit problems and your situation or circumstances seem hopeless, seek the help of a professional.
If, on the other hand, the red spots in your payment history are a result of bad habits, now is the time to change your behavior for the better. Otherwise, any work you do in other areas to improve your credit will be negated. The best advice is to take the guesswork out of it. Set your autopay for the day of your monthly statement. Then set a reminder for yourself for a few days ahead of time to make sure the funds are available in your account.
DO validate amounts owed on collection accounts.
Any time a collection company comes knocking, you need to be vigilant. Do some work to find out the exact balance of the account they purchased from your old creditor when they purchased it. Collection agencies are notorious for inflating actual and legitimate amounts owed. Some of them may not be licensed to collect in your state. If they’re bonded in your state, it may be the case that legally they can’t collect the debt. Don’t take them at their word. They’re most definitely not in the business of protecting you. That’s your job.
DO monitor your credit.
Check the contents of your report regularly for any changes, errors, or inaccuracies that may have occurred. Every 30 days is best, but after you’ve gotten your FICO report to the place you need it in order to reach your goals, some opt to check in on their credit reports just a few times a year. Once per quarter is a good practice. Others like to hire a credit monitoring service that will keep an eye out for red flags and send them updates if anything changes or begins to look fishy. Personally, I check in with mine monthly just for peace of mind, but I bet that doesn’t surprise you!
If you find something new on your credit report that you weren’t expecting or something you don’t understand, address it immediately. Do some research, make some calls. Ask for help if you need it. Keep in mind that no one is going to take care of you better than you take care of yourself. If you aren’t paying attention, you could be victimized. If something looks weird with one of your accounts, something is probably wrong. Just because you were approved when you applied doesn’t mean you’re getting the best rates or terms. Remember the Alamo? By that, I mean the subprime mortgage crisis of 2008. (If you missed that boat, or you’re too young to know much about it, I highly suggest you learn more. After all, you’re about to become a homeowner!)
DO get organized — and stay organized.
Find a 3-ring binder you will use for your credit game plan journey. Print out your initial three credit reports and give them each their own section. It’s also a good idea to create a page for each creditor and each account. Keep all letters and relevant documents in the same place, including copies of the letters and communications you send. Write the steps you’re taking, as you take them. At the end of each action, identify the next step (follow-up date, etc.) and set an alert in your calendar to remind you to do it.
Trust me, if you know exactly what’s going on with each of your accounts, you’ll have a leg up. It’ll be much easier for you to reach your goal and within a shorter time frame. And if it comes to it, your best offense or defense in a court of law is having all documents sent to and received from collection agencies. Cases are won and lost on evidence, which, in the case of a Fair Debt Collection Practices Act violation, boils down to documentation. So definitely set up a separate folder for each collection that you are disputing or are involved in, and put all related documents in that folder.
DO your research, then make educated financial decisions.
It doesn’t work the other way around.
Now, let’s discuss the things not to do. By doing the things listed below we have seen people waste time and money and in many cases, put themselves in a worse position than where they started. Beware!
WHAT NOT TO DO
DON’T apply for a new credit account until you know you’re ready.
If you apply prematurely, or without doing your research, you may do damage to your credit by adding a hard inquiry for no good reason. Do not apply until you both of these criteria are met: 1) you have run the numbers and are fully prepared to take on a new financial obligation, considering your current resources, and 2) you are 100% sure you will be approved for the loan or credit card.
DON’T incur debt as part of your credit game plan.
Using your credit as a tool and leveraging debt for investment purposes? Good idea. Going into debt to improve your credit scores? BAD idea. Don’t do it. It’s simply not necessary.
DON’T conduct your disputes online.
When you need to dispute an item to try to get it taken off your credit report, letters are the way to go. I’m talking about the kind you type up, print out, sign, seal in an envelope, slap on a stamp, and drop in a mailbox. Disputing electronically may seem efficient, but it is not necessarily effective. To understand why you need to know that the credit bureaus are the ones who set up online disputing.
Just to clarify, the credit bureaus don’t want you disputing negative items and getting them removed from your credit report. (Remember, that loses them money.) Although they would like to prevent you from disputing items at all, they recognize that consumers are going to find a way to do it, considering it’s their legal right and all. The bureaus’ solution to this problem is to attempt to control how you go about disputing the information and protect yourself under the pretense of helping you.
We’ll go into a bit more depth about it in the next chapter, but when credit repair companies are worth their salt, it’s because they contact your creditors directly on your behalf and ask them to remove inaccurate, unverifiable, or outdated information on your credit report. They know how to word the request, including how to invoke your rights as a consumer under the FCRA, and to submit it in writing. This is something you can do on your own.
When you initiate an online dispute, on the other hand, you’re immediately waiving your right to arbitration as part of the terms and conditions of opening a dispute through the credit bureaus’ services. Basically what that means is that if they don’t grant your request, you can’t sue them. So you’ve immediately taken all your leverage off the table. If you open an online dispute, without the threat of litigation, the credit bureaus have no incentive whatsoever to help you fix any inaccuracies on your credit report.
If you want to take your chances and dispute online anyway, know that you won’t be able to input or upload very much information or supporting documentation. You may have proof that there are inaccuracies in your credit report. But if you can’t share all that information with the credit bureaus, you’re not going to get results as effectively as you could.
Sending dispute letters through mail is an effective, smart way to get negative items removed from your credit report. It ensures your legal right to arbitration if the credit bureaus refuse to comply with your request. Just be sure to include any and all of the supporting documentation you have showing an account has been reported incorrectly, is inaccurate, is outdated, or unverifiable. This can be as simple as printing a copy of your credit report with the specific item highlighted.
DON’T blindly pay off debts.
It is unwise to pay off your collections or delinquent accounts without first auditing your report carefully and verifying that all dates and amounts owed are accurate. You could be paying off debt that is legitimately uncollectable or paying inflated or invalid fees in interest.
You have rights under the Fair Debt Collection Practices Act. A lot of time these third-party companies pass around your information because you’re just a lead to them; you’re just potential money that they can try to collect. They might not have any of the documentation that they’re required to have by law to be reporting the debt in the first place or trying to collect it. It’s your responsibility to find out whether this company has the legal right to collect the debt from you.
Validating the debt could ensure you must pay. If you must pay, make sure you’re only paying what you truly owe and nothing more. Also, realize don’t necessarily have to pay right away. Paying anything on an old collection can reset the statute of limitations and the date of last activity. This means that the item can remain on your report for a longer period and lower your score because it’s updated (hence more recent) derogatory information.
If you have a third-party collection company that’s trying to collect money from you, double-check the debt first. Make sure that they legally have the right to collect it from you before making a payment that could seriously affect your credit score — and your chances of qualifying for a great mortgage in the future.
DON’T provide collection companies with requested information.
Maintain your privacy when dealing with collection agencies. No matter what they say, don’t provide debt collectors with any information other than your current address.
Collection companies commonly try to fish information from consumers to build a complete file, which is considerably more valuable to them than one with just basic information. If you recall, when collection agencies purchase your debt from the original creditor, they must pay extra for any additional information they want on you besides the bare-bones basics. Most consumers don’t know that debt collectors need certain information in order to legally collect a debt, but creditors don’t include all of the requisite information along with your sold debt. See where I’m going with this?
When you’re talking to a collection company, keep in mind that this is not their first rodeo. They’re generally going to keep you on the phone and milk as much information out of you as they can. But if you don’t share any information with them (as is your legal right), the information they need to pursue you, then they legally can’t collect or report the debt.
If they wanted to increase their chances of collecting the debt, they could have spent the money upfront getting the information they needed. Additionally, it’s important to know that by law, they do not have the right to ask you for any documentation. Don’t give it to them!
DON’T ignore a court summons.
If this has happened to you, I’m sorry! This is major!! If you are served a legal summons from a collection company, you are being sued. Never, under any circumstances are you to ignore that fact. Do not throw the summons away. Do not ghost the court date.
Most of the time, when a collection company initiates legal proceedings, it’s because they know that you’re not going to show up for court. And when you prove them right, they automatically win. When you no-show to a court date, the debt collector receives a default judgment that enables them to take further action to collect the money from you — without your consent.
If you do not show up for court, they automatically win. It’s called a Default Judgment. They then have the right to take further action to collect the money from you. They can take your income tax, or they can garnish your wages if you’re in a wage-garnishment state. When they sue you and you don’t show up for yourself, they can forcibly collect the money from you.
Go to court. If you attend your hearing, they cannot get a default judgment. As the one who’s bringing the case against you, the burden of proof is on them. In a lot of cases, the company doesn’t have all the documentation they’re supposed to have, and the case will be thrown out.
If you don’t want to go to court, handle the matter directly. Call the company that is suing you and work out a deal. Often, they’ll settle for far less than what you actually owe, and you can work out a payment plan. Let them know that financially you’re not in a position to pay that account off in full. If you could, you already would have, but you want to work out a deal because you don’t want to go to court. They will be accommodating because they don’t want to go to court either. It’s expensive for them. And you know how much they hate spending money.
If you have a specific situation that you have questions about, feel free to submit your contact information below and one of our experts will get you the answers you need!