A bankruptcy discharge releases an individual from their legal obligation to repay a debt. This is a permanent order that prohibits creditors from taking any more collection action against the debtor.
Though bankruptcy is often seen as a fresh start for debtors, it doesn't mean that your slate will be wiped completely clean. Both the bankruptcy itself and the discharged debt will show up on your credit report.
In this article, we'll take a closer look at everything you need to know about forgiven debt after bankruptcy and what it means for your credit file.
If a debt is discharged, it means that you aren't liable for the debt anymore. Beyond this, the lender or creditor isn't allowed to try and receive the money that is owed.
Essentially, debt discharge is the cancellation of a debt. This occurs via the process of bankruptcy.
The people that file for bankruptcy (often referred to as "debtors") will commonly go through this process to remove their obligation to pay certain kinds of debt and obtain a fresh start financially. Though not every single type of debt is dischargeable, most typical consumer debts are dischargeable.
It's possible for taxable income to result from debt discharge unless there are certain conditions met as defined by the IRS.
A person or company that has a debt discharged by a court doesn't have to pay back the debt anymore and the lenders aren't allowed to try and make attempts to collect the debt.
Unless the forgiveness is a bequest or a gift, a debt discharge is often something that results in taxable income. If the debtor meets the requirements laid out by the IRS, however, some debt discharges are exempt from paying taxes.
A person that is filing for bankruptcy is trying to eliminate as much of their debt as they can. This allows them to start over financially.
Either immediately or at the end of the bankruptcy process, a number of types of debts will be discharged. The following are some of the types of debts can be discharged:
In Chapter 13 bankruptcy, some additional types of debt are eligible for discharge, including:
Though there can be specific exceptions, there are certain types of debt that typically aren't allowed to be discharged through the bankruptcy process. These debts were deemed to be not eligible for discharge by the U.S. Congress for reasons of public policy:
Qualifying for discharges for these debts is usually very hard to do. You will need to prove that you wouldn't be able to maintain a minimal standard of living if you continued to make payments. You also usually can't discharge penalties and fines from government agencies that resulted from breaking the law, or debts resulting from a drunk driving incident that resulted in personal injury debts.
Other debts that are unlikely to be discharged include:
If you've gone through the bankruptcy process and some of your debts have been discharged, this information will typically show up on your credit report. They can stay on your reports for a long time, which can have a negative effect on how lenders view your creditworthiness.
Technically, you are not supposed to be able to remove accurate information from your credit report. For this reason, there is no guarantee that your attempts to remove correct debt discharge information will be successful.
If the debt discharge is showing up in error or the information regarding them is incorrect, you will definitely want to dispute the information. Any inaccurate information on your credit report should be disputed so that your financial opportunities aren't harmed by incorrect data.
The first step is to review each of your credit reports, which you can get for free from AnnualCreditReport.com. Take a look at your accounts and locate all of the information about the discharged debt that you believe is inaccurate.
Before you file a dispute, it's worth doing some sleuthing to make sure that the information is actually incorrect as you think it is. Take a look at your own records and compare them to what you see on your credit report.
You will want to file disputes with every credit bureau that is reporting inaccurate information. You can do this online, over the phone, or through the mail.
Unfortunately, you won't receive an answer right away-- it will usually take 30 to 45 days to hear the results of the credit bureaus' investigation. Hopefully, they will find, as you have, that the information is incorrect and should be altered or removed. If they don't rule in your favor, though, you can shift your focus toward rebuilding your credit through other means.
Cleaning up your credit report can take time, and some information you will have to wait to fall off your report if it is accurate. Make sure you check out our guides to removing collections, dispute comments, evictions, and late payments if you are ready to improve your credit.
After bankruptcy, there are a number of errors that can appear on your credit reports when it comes to discharged debts. Let's look at some of the most common errors to help you understand what steps you should take.
If you had a debt that was discharged as a result of bankruptcy, it should be noted as "discharged in bankruptcy" or something along those lines on your credit report. The balance due, regardless of how much you originally owed, should read $0.
If you go through all of the trouble to have your debts discharged and your credit report states that you still owe your creditor, it's natural to be surprised and disturbed.
It's possible that your credit report hasn't been updated yet-- if the debt discharge only recently occurred, this is likely the case. Otherwise, you can dispute the information either with the creditor or the credit bureaus to make sure that your report accurately reflects the new debt amount-- zero.
When you have a debt discharged through bankruptcy, it completely severs the relationship that you had with the creditor or lender. This party no longer has any legal right to try and recoup the money you owe and they also don't have any legal right to pull your credit every month.
When lenders do a hard inquiry into your credit, it will bring down your credit score. You'll want to dispute these inquiries in order to have them removed from your report.
Creditors can choose to charge off a credit card account for a number of reasons. However, they are not allowed to do this if you've received a debt discharge or filed for bankruptcy. When a charge-off shows up on your credit report, it will damage your credit score as well as how you appear in the eyes of a potential lender.
If your debt is listed as charged off instead of discharged, you'll want to dispute this information.
Particularly common after Chapter 13 bankruptcy, former creditors will sometimes report that you still owe them money even after your debt has been discharged. Secured creditors are most guilty of this.
For example, let's say that you had a car that you were upside down on that you surrendered to the bank. Let's say that you owed $40,000 and it was only worth $30,000.
That $10,000 is no longer secured debt-- it turns into unsecured debt. This debt either gets paid or doesn't get paid in accordance with the Chapter 13 plan that resulted from the court proceedings. If the debt is discharged, the money is not owed to the lender.
If you believe that you don't owe a creditor more money but they are still reporting that you do on your credit report, you'll want to dispute this information with the creditor, the credit bureaus that are reporting the incorrect information, or both.
In bankruptcy cases, sometimes debts will be reaffirmed rather than discharged. This occurs when a debtor wants to pay a specific debt even though it could potentially be discharged through the bankruptcy process.
For example, a debtor might choose that they want to hold on to their car and continue paying the debt on it. This debt could then be reaffirmed rather than discharged. The debtor is, therefore, still responsible for paying back the money they owe.
Sometimes, this will show up on a credit report as discharged in bankruptcy rather than reaffirmed. You can correct this information on your credit report by disputing it with the credit bureaus or the creditors themselves.
When a married couple has joint debts and one spouse files for bankruptcy while the other does not, the non-filing spouse will likely see information on those joint accounts that say something along the lines of "included in bankruptcy." This is to be expected.
However, sometimes the non-filing spouse will actually see information on their credit report that claims that they themselves filed for bankruptcy either under the public records section or attached to one of their solely-owned accounts.
Incorrect information like this on your spouse's credit report can be very damaging to their score unnecessarily. You'll want to dispute the information in order to have it corrected.
Bankruptcy can, in some ways, be a fresh start, but you don't necessarily get to begin with a completely clean slate. Discharged debts will show up on your credit report and remain there for some time, and bankruptcy will show up in your public records.
Even if you aren't able to completely remove discharged debts from your credit report, there are a number of things you can do to rebuild your credit over time. Though it can feel like an uphill battle, it's worth investing in your credit to ensure that as many financial opportunities as possible are open to you down the road.
Are you searching for more resources to help you build your credit? If so, make sure you check out our Credit Building Tips blog.
When incorrect information shows up on your credit report, the next step is to open a dispute with the credit bureau that is displaying the error. This opens an investigation, which normally takes about thirty days.
During this time, the account in question will likely show a "dispute comment." This is an indication that there is currently a dispute under investigation.
Removing dispute comments isn't always a good idea, so it's important to determine whether or not it will be advantageous to you. You can ask credit bureaus to remove dispute comments by calling them and talking to a representative or sending a letter via mail or fax.
Anytime you file a dispute regarding one of the accounts that appear on your credit report, an investigation into the claim will begin. This is the case whether you question the validity of an account or information about an account with the credit bureaus or with a debt collector.
These investigations usually take about thirty days to be completed. During this time, the account will be marked on your credit report as “disputed.”
Your right to dispute information on your credit report is outlined in the Fair Credit Reporting Act (FCRA). In this Act, companies that provide information to credit bureaus have:
“...specific legal obligations, including the duty to investigate disputed information.”
Since there will be a period of time after you file a dispute and before the investigation is over, this comment serves to indicate that there is a dispute or disagreement regarding specific information that is found on your credit report. In most cases, dispute comments are added when a consumer believes that certain information is incomplete, inaccurate, or misrepresented.
If you are looking at your credit report and you see a dispute comment, there are two primary forms it can take:
This first type of dispute comment means that there is an active investigation underway after a dispute has been filed. When applying for a home loan, lenders will usually want to see these notes removed before determining whether to approve you for a mortgage and, if so, what rates and terms to offer. This is because the account won’t be factored into your credit score via FICO credit scoring models.
If the second type of dispute comment appears, it means that a resolution has been reached after the completion of the investigation. This particular type of dispute comment won’t be something that bothers lenders, as the account will once again be incorporated into your credit score calculation.
Are you ready to improve your credit score and clean up your credit report? Check out our guides to credit repair hacks, credit repair services, and repairing your credit after you're the victim identity theft.
Removing a dispute comment isn’t always necessary and isn’t always favorable. In the next section, we’ll discuss when you should and should not ask for dispute comments to be removed from your credit report. In this section, however, we’ll look at the steps you need to take to have a dispute comment removed, assuming that you have already decided that this is the right course of action.
The fastest way to have dispute comments removed from your credit report is going to be calling the credit bureaus. Though this can be frustrating as it often means sitting on hold for a while, you’ll find that it’s a much quicker way of going about it than sending a letter through the mail.
Here are the numbers and subsequent menu items to select that you’ll want to try in an effort to speak with an actual human:
If these numbers don’t work, your next best bet will be pulling your free credit report from AnnualCreditReport.com, which is a site authorized by Federal Law and put together by the three main credit bureaus. On each of your credit reports, you should be able to find a phone number that you can call in addition to a personal credit report ID number.
Once you have someone on the phone, you’ll want to tell them that you want to have a dispute comment removed from some of your accounts. If you are doing so because you are pending mortgage approval, mention that the lender has asked you to do so in order to move forward with your home loan.
If you’d prefer to write the credit bureaus rather than call them, you will want to enclose a copy of each of the following with a letter sent via certified mail or fax:
Here are the addresses you can use to mail your request to have a dispute comment removed:
The fax numbers for each credit bureau are not listed on their website, which means you might need to call and confirm the current and correct fax number to use. Given this, you might find that simply dealing with deleting the dispute comment over the phone is the quickest way to resolve the issue.
You might think that it’s always a good idea to remove dispute comments from your credit report, but this isn’t necessarily the case.
There are really only two reasons that you should go through the trouble of asking the credit bureaus to remove dispute wording from your credit report:
If you have derogatory marks on your credit report, it can really make it difficult to get approved for a loan with good rates and terms. If it's time to clean up your credit report, take a look at our guides to removing charge offs, removing collections, removing hard inquiries, removing evictions, and removing 30-day late payments from your credit report.
It isn’t always easy to know whether or not removing dispute comments will increase your credit scores. However, if you know that the account is in excellent standing, you might want to remove the dispute comment if you are currently applying for a loan or line of credit.
That being said, it’s possible that the account is increasing your score in one way and decreasing your score in another, leaving you with a net neutral result when removing the dispute comment. It can be pretty tricky to figure out whether an account is going to help or hurt your score, so you’ll want to proceed with caution.
If you’re applying for a home loan, there’s a chance that your mortgage program might require that dispute comments are removed before the process can be completed.
The four most common mortgage programs out there are:
Each of these programs is going to have its own unique underwriting rules. The underwriting rules for each respective program are going to govern things like:
In many cases, mortgage loan programs will allow some types of dispute comments to remain on a credit report. For example, FHA loans don’t require that dispute comments are removed from medical accounts and accounts with zero balances. Additionally, dispute comments don’t have to be removed for an FHA loan if the total balance of these accounts in dispute is less than $1000.
When the digital version of your credit report is run through the automated underwriting service run by your loan program, it’s possible that dispute comments won’t trigger an alert regarding a disputed account.
In some cases, you might find that it is a better option to switch loan programs rather than to remove dispute wording on your credit report. Once the account is unmasked, it's possible that it will drop your credit score enough that you will no longer qualify for the loan program you were initially approved for.
Before we sign off, let's take a closer look at the answers to some commonly asked questions about credit report dispute comments.
Credit report disputes can indirectly impact your credit score. FICO credit scoring systems will not take accounts that are actively in dispute into consideration when calculating your score. Even though the dispute comment will show up on your report, the entire account will not be used to help determine your score.
Depending on the status of the account, this could mean that your credit score is artificially lower or higher than it would be if the account was factored in. Until the comment is removed, FICO credit scoring models will not incorporate the account into their calculations.
If you are applying for a home loan, a lender will often be able to see that there is a dispute comment on your report and will know that this is impacting your true credit score. They will, therefore, likely want the comment to be removed before making a decision about your loan so that they know they are viewing an accurate credit score.
Dispute comments will usually stay on your credit report until the investigation has been completed and the dispute has been resolved. At the point that the dispute is resolved, the information on your credit report will be updated accordingly if necessary.
That being said, sometimes a credit report will indicate in a comment that there had been a dispute in the past and the dispute has been resolved. In this case, these comments won't mask the account for the purposes of calculating your FICO score.
How long it takes to remove a dispute comment from your credit report is going to vary. If you are able to talk to a representative from the credit bureaus on the phone, you might find that the dispute comment has been removed in as little as four business days. If you choose to contact the credit bureaus via fax or snail mail, it might take as long as thirty days.
Anytime you find inaccurate information on your credit report, you can dispute it with the credit bureau. All of the credit bureaus have online portals that you can use to dispute information, making the process simple and easy to get started.
It's worth noting that there are certain items on your credit report that aren't disputable. Though it is within your legal rights to dispute credit report information, some info is maintained "as a matter of factual record." Though it is possible under some circumstances, you usually cannot remove information that is factually correct.
The outcome of a dispute could impact your credit, but the dispute itself should have no effect on your credit.
For example, let's say a late payment showed up on your credit report, but you did actually pay on time. If you dispute the information and it is corrected, it will probably help your credit score.
If you are disputing personal information such as the name or address that appears, though, this won't impact your credit score.
The nature of the information that is being disputed will impact the results of the dispute. Once the dispute has been resolved, an outcome description might be added to your credit report.
If you are filing a dispute that is related to your personal information, it can result in:
If you are filing a dispute that is related to accounts, inquiries, or bankruptcy, it can result in the following:
Improving and building your credit might not sound like your idea of a good time, but you might get a bit more excited about it when you realize how much money it could save you and the financial opportunities it can open up for you.
Cleaning up your credit report and boosting your credit score can end up saving you tens of thousands of dollars in interest over your lifetime, as you'll end up receiving much more favorable rates and terms when you borrow money.
Beyond that, credit scores and reports can be taken into account when you apply for an apartment, a job, or insurance. When you consider just how impactful your credit is on the practical realities of your life, it's worth taking the time and putting in the effort to improve your credit.
Are you ready to begin the journey of cleaning up your credit report and boosting your credit score? Make sure you take a look at all of the resources on our Credit Building Tips blog.
Have you ever wondered how merchants can ensure that a credit card being used during a transaction isn't being used fraudulently? When someone enters a credit card number online or reads it over the phone, after all, the merchant has no way of knowing whether the consumer actually physically has the card in their posession.
This is where a CID number comes in-- also known as a CVV2 or CVC2.
Let's take a look at everything you need to know about CID numbers.
CID stands for "card identification number." A CID number is a security feature that is used when you are making a transaction when your card isn't physically present. This is a three or four-digit number that can be found on your credit card.
You also might hear the terms:
All of these terms of usually used interchangeably.
This three or four-digit number essentially offers a payment system a method to determine whether your card is authentic.
There are two things that a CID number helps to verify:
These verification numbers aren't contained in the magnetic stripe information of the card. Instead, they are only on the card itself.
Additionally, these numbers can't be found on credit card statements or on receipts. Using a CID helps payment processors ensure that they aren't accepting counterfeit cards.
You can find the CID number on a Visa, MasterCard, or Discover card on the back of the card. It will be located to the right of the credit card number near the signature area. CID numbers on these types of cards consist of three digits.
On American Express cards, the CID number is actually located on the front of the card. It will appear above the account number on the card's face. It usually is on the right side, but it will sometimes appear on the left side of the card.
Many people don't realize exactly what function the security code on their card offers. They sometimes give it out when they don't need to because they think it is necessary information, even in in-person transactions. Stick with us as we answer some of the most common questions about CID to help ensure your credit card info stays safe and secure.
You should never need to give your CID to another person when you are making a sales transaction in person.
In fact, most online retailers will require that you enter your CID when you are making purchases in an effort to prevent fraudulent transactions. That being said, you always want to make sure that you only give your credit card information to reputable companies.
For this reason, it's important to always be careful when entering your card information online.
Here are some steps you can take to protect your financial information online:
Did you overdraw your bank account and you're worried it's going to ding your credit? Check out this article to learn more about whether a bank overdraft affects your credit score.
You will end up with a new CID code when you get a new credit card. This is the case whether you apply for an entirely new card or if an old card expires and you need to replace your existing card.
When you use a credit or debit card in person, you can supply a signature, pin, ID, or another type of verification when making a purchase. However, if you're making an online purchase or buying something over the phone, the merchant and the card processor have no way of knowing for sure that you are actually in possession of the card. You could, instead, be someone who has the name and card number of someone else.
People can steal credit card numbers through a number of venues, including:
Though a CID number isn't a completely foolproof security measure-- after all, not all merchants ask for it-- it does serve as an extra layer of security against fraudulent activity.
Was your identity stolen and it took a serious toll on your credit file? This guide goes over how to repair your credit after ID theft and fraud.
Yes, a CVV, CVC, CVV2, and CVC2 are all acronyms used to describe the same security code on your credit card.
If someone has your CID without any of your other credit card information, they probably won't be able to do any damage. However, if they have your credit card number, your name, your CID, and other important info, you could become a victim of credit card fraud.
If you find yourself in this situation, follow these steps:
Credit cards allow us a tremendous amount of freedom by letting us buy things now and pay for them later. This freedom also comes with responsibility-- the responsibility to both use credit responsibly and keep our credit card information secure so it doesn't fall into the hands of identity thieves.
In order to make sure that your credit card accounts are safe, you'll want to practice the following:
Building a healthy credit score and maintaining it can seem like a big chore sometimes. After all, there are many different moving parts that go into keeping a credit score and credit report in good shape.
Your CID is one of the things that protect you from credit card fraud and therefore protects your credit report. After all, if an identity thief uses your credit card information to make purchases online or over the phone, it can end up resulting in marks on your credit report when payments aren't made on time.
Even though maintaining good credit health can feel like a lot of work, it's well worth the trouble. Having great credit can make it much easier to borrow money when you need to, as well as ensure that you get the best rates and terms when you do. Over your lifetime, having a healthy credit score versus a poor credit score can save you thousands and thousands of dollars.
If your credit score has seen better days, you might be struggling to get a loan, rent an apartment, or qualify for a credit card.
To help improve your chances as an applicant, credit repair services will often promise to help boost your credit score. These are companies that will review your credit reports and act on your behalf to address any negative items with the credit bureau.
It's important to understand that there are scammers out there masquerading as credit repair services, so you'll want to learn about the red flags to watch out for. Additionally, it's worth noting that credit repair services don't have magical abilities to clean up your credit report-- everything they do is something you can do for yourself for free.
Credit repair services help you come up with a plan you can use to repair your credit and will act on your behalf in order to dispute inaccurate information.
Essentially, these companies can help you remove errors or other incorrect marks on your credit report that are damaging your score. What they can't do, however, is remove accurate information.
Some of the types of items that a credit repair service can remove include:
You'll often find that credit repair companies will offer extra features for additional fees, such as:
In many cases, these extra services aren't worth the steep fees that are charged.
If your credit is less than ideal and you want to improve your score, the concept of credit repair services might sound too good to be true.
The truth is, though, that a credit repair company isn't going to be able to help you remove accurate information from your credit report.
For instance, if you have a high credit utilization ratio, several late payments, or other derogatory marks, credit repair services won't be able to help if the information is correct.
Did you overdraw your bank account and you're worried it's going to ding your credit? Check out this article to learn more about whether a bank overdraft affects your credit score.
When shopping around for credit repair companies, you'll find that they all tend to have their own pricing structure. Typically, though, they sell packages of services and charge fees monthly.
In addition to the monthly fee, some companies charge enrollment or set-up fees as well as fees when you cancel the service. You can find some companies that will offer a money-back guarantee, but this isn't always the case.
It's common for companies to have policies that essentially require you to stay signed up for several months.
Only you can decide whether or not it's worth the cost to hire a credit repair company, but it's important to note that pretty much anything a credit repair service can do for you, you can do for yourself.
To do so, you'll want to follow these steps:
Was your identity stolen and it took a serious toll on your credit file? This guide goes over how to repair your credit after ID theft and fraud.
The idea of paying someone to repair your credit report can seem a bit too good to be true at first, and there are certainly companies out there that make promises they simply won't be able to keep. Here are some of the most commonly asked questions about credit repair companies to help you determine whether paying for one of these services is the right choice for you.
It can take several months to start seeing results after you've signed up for a credit repair service. The length of time it takes for your credit to be fully repaired can be six months or even longer.
It's also possible that the inaccuracies you had fixed will end up showing up on your credit report again down the road, so you'll still want to keep an eye on your report.
You can find credit repair companies that operate nationally, while others only offer their services in certain states.
Depending on the package of services you purchase from a credit repair company, you also might receive credit monitoring services. This means that they will keep an eye on your credit report for any changes that could potentially stem from fraudulent activity.
Unfortunately, scammers can be attracted to the field of credit repair. There are plenty of legitimate companies out there, but you'll want to be on your toes when choosing one to make sure you aren't sending money to a party that has no interest in helping you.
There are a number of things you'll want to watch out for when seeking credit repair services.
According to the Consumer Financial Protection Bureau, some of the signs of a credit repair scam include:
It's important to understand that pretty much anything a credit repair company can do for you is going to be something you can do for yourself. They don't have magical abilities to fix your credit report, but they do have experience going through the dispute process and otherwise engaging with the credit bureaus.
Additionally, there is still some work you will have to do on your own, even if you hire credit repair services.
All that being said, some consumers find that it is worth the money to have credit repair companies take on some of the work of disputing inaccurate information on their credit reports.
While credit repair and credit counseling services might sound kind of similar, they are actually two very different services.
Credit counseling is tailored to your specific situation and consists of receiving financial advice from a credit counselor. They will also be able to offer you resources that give you the information you need to improve your financial situation. Consumers will typically seek credit counseling when they need advice on how to get themselves out of debt.
Your credit profile will not be wiped clean by a credit repair company. Legitimate negative information on your reports, such as bankruptcy, default, or late payments, will age off your reports after a certain number of years, depending on the nature of the mark.
Here is how long it takes for specific information to fall off of your report:
Credit repair services are only able to dispute incorrect information on your credit report. Some services might offer to send a goodwill letter to your creditor or debt collector on your behalf in order to ask them to remove the derogatory marks. However, creditors and debt collectors are not obligated to honor these requests.
Unfortunately, we can't just wipe the slate clean and start over with our credit reports. What we can do, though, is take actions that help to improve our credit scores.
Some of the things you can do to rebuild your credit include:
Believe it or not, it can actually hurt your score to open a new credit score-- at least immediately. It will, eventually, start to help your credit score.
This is because the credit card company will run a hard pull of your credit when you apply, which can ding your credit.
However, you'll soon start to appreciate the benefits of having a new card because your credit utilization ratio will drop, which is a metric where lower is always better. Making up roughly 30% of your FICO score, giving yourself a more advantageous credit utilization ratio can be a fairly quick way to boost your credit score.
Whether or not it's worth the cost to hire a credit repair service is something that only you can decide. It's important to be diligent when choosing a credit repair service, though, as there are definitely scammers out there that make lofty promises and don't return any results.
Beyond that, remember that credit repair companies cannot delete correct information from your credit report. They can only dispute incorrect information with the credit bureaus on your behalf. In some cases, they might also send goodwill letters to debt collectors on your behalf to attempt to have accurate negative accounts removed, but there is no guarantee that this effort will be successful.
If you don't want to take the time or deal with the headache of interacting with the credit bureaus when there's an error on your report, you might find that it's worth it to pay a credit repair company. That being said, you might find that the money is better spent going toward your debt and that you can actually handle the disputes on your own without paying start-up fees, monthly fees, and cancellation fees.
Are you ready to improve your credit score and make yourself a more appealing borrower to lenders? Make sure you check out our credit building tips blog for more resources to help you boost your credit and clean up your report.
Having a less-than-ideal credit score can have some very impactful real-life consequences. It can mean it's more difficult to be approved for a mortgage or car loan, you'll pay higher interest rates when you do borrow money, and it can ultimately affect your ability to begin building wealth.
Beyond that, a bad credit score and a credit file filled with derogatory marks can even make it difficult to rent an apartment, it can increase your insurance premiums, and it might affect your career opportunities.
Without further ado, let's jump in to help you determine the best actions you can take to improve your credit.
One of the most important things you can do to ensure that your credit score is where you want it to be is to check your credit report regularly.
There are three major credit reporting agencies-- Experian, Equifax, and TransUnion. At each bureau, you have a credit report.
It's worth checking all three credit reports because not all creditors report to all three credit bureaus.
You can receive a free credit report from all three agencies through the Federally authorized site AnnualCreditReport.com.
Your credit score is calculated using your credit report. You can find out what your credit score is through a soft inquiry using one of the major credit scoring websites. Some credit card issuers also provide credit score tools.
The Federal Trade Commission reports that 25% of people have had errors on their credit reports. You, therefore, shouldn't assume that errors and inaccurate information are in any way rare, and you should always keep an eye out for accounts or other info that isn't correct.
If you do find any errors on your credit report, you'll want to remove them right away. You can dispute errors on your credit report at all three bureaus. The easiest way to do so is by using their online platforms for disputing credit report errors.
Sometimes, there's negative information on your credit report that is accurate. Whether it's a collections account, missed payment marks, or another derogatory mark, it isn't always possible to remove negative information from your credit report. However, since this type of info can be detrimental to your credit, it's always worth giving it a shot.
Has a creditor written off your debt? Learn how to remove charge offs from your credit report in this guide.
If you have a missed payment on your credit report, you can ask your creditor for a goodwill adjustment. They aren't obligated to remove correct information from your report and will sometimes argue that they are bound to report accurate info to the credit bureaus.
Is your credit damaged because your identity was stolen? Check out our post on how to repair your credit after identity theft and fraud.
Having a collections account on your credit report can have a negative impact on your credit score. If a past debt of yours has been sent to collections, you can try and negotiate with the collections agency through what is known as a pay-for-delete agreement.
Make sure you receive their end of the bargain in writing before making a payment if you do strike a deal with them.
Your payment history is the most important component of your credit score when calculated using either of the two most popular credit scoring models-- FICO and VantageScore. In a FICO credit score, your payment history accounts for 35% of your score, and it makes up about 40% of your score in a VantageScore credit score.
Of course, never missing a payment is easier said than done. However, there are a few steps you can take to ensure that you get a derogatory mark for missed payments and to help keep your credit score as high as possible.
There are few things as frustrating as missing a bill payment simply because it slipped your mind. One of the best things you can do for your credit is to set up automatic payments. This way, you can remove human error as a factor when it comes to making payments on time.
If you do realize that you had a bill due recently and you didn't have automatic payments set up, don't panic.
If possible, make any missed payments before thirty days have gone by to ensure that it doesn't decrease your credit score.
If you missed a payment and have been charged a fee, consider calling your creditor and asking them to waive the fee.
While this fee doesn't impact your credit score, you want to make sure that you aren't paying any money unnecessarily that could otherwise be going toward paying down your debt.
Your credit utilization ratio accounts for 30% of your FICO Score calculation and 20% of your Vantage Score calculation.
When it comes to credit utilization ratios, lower is always better. Experts advise that you work to keep your credit utilization ratio below 30%.
There are a number of things you can do to make sure your credit utilization ratio is as low as possible, including paying down your debt, increasing your credit limit, timing your payments, reducing spending, and more.
Paying down your debts will mean that you are using less of the credit that has been extended to you, reducing your credit utilization ratio.
Your credit utilization is a ratio that represents the percentage of your credit limit that you're using.
If you want to increase your credit score quickly, paying down debt (and not taking on new debt) can help your score improve dramatically.
Paying off high-balance cards is one of the fastest ways to lower your credit utilization ratio.
Beyond your overall credit utilization ratio, there is also something known as a line-item utilization ratio.
For this reason, it can make sense to pay down high-balance cards first.
Another important factor when it comes to your credit utilization is the number of accounts you own that have balances. Your score will benefit from having fewer accounts with balances.
If you want to boost your credit score, consider paying down your low-balance accounts to reduce the total number of accounts that are carrying a balance.
Another way to ensure that you aren't carrying a balance on too many accounts is to consolidate your debt.
Beyond that, debt consolidation can help you pay off your debt more quickly when you snag a lower interest rate. It can also be much simpler to manage debt when you are only making one payment instead of many.
Important note: While debt consolidation can be a powerful tool to reduce debt and increase your credit score, you have to use it carefully. If you end up running up debt on your original cards again in addition to the balance transfer card debt, you can find yourself in a deeper hole than you initially started in.
Lowering your interest rates on your existing credit cards won't directly impact your credit score. However, the less interest you pay on each card every month, the faster you will be able to pay down your debt.
The worst that could happen is they say no. If they do say yes, it could save you hundreds or thousands of dollars in interest.
One of the fastest and easiest ways to boost your credit score is to increase your credit card limits. That being said, there are a few things you'll want to consider before you ask your issuers to increase your limit.
Since your credit utilization ratio is a number that relates how much credit you have available to the debt you owe, increasing your credit limit can lower your credit utilization ratio quickly and easily in a way that improves your credit score.
Once you've paid off old cards, it's best not to close the accounts in most cases.
In some cases, though, it might make sense to close old cards.
Additionally, if you have really struggled with overspending, you might find it is worth closing old accounts so that you aren't tempted to rack up more debt.
It's reasonable to assume that by simply paying off your cards each month, your credit utilization ratio should stay low. However, it's also important to consider when creditors are reporting to credit bureaus.
Creditors and lenders will run a hard inquiry every time you apply for credit or a loan.
Additionally, new card accounts can lower the average age of your accounts, which can also negatively impact your score.
Another way you can build credit is through a method called credit piggybacking. The most common way to improve your credit by associating yourself with someone else's credit is to become an authorized user, but you can also open a joint account or find a co-signer for a loan.
One of the fastest ways to build credit is to become an authorized user on a seasoned tradeline.
When you become an authorized user on someone else's account, it can quickly add years of credit history to your report.
Though there aren't many issuers that offer joint credit cards anymore, it's possible that you can benefit from your partners' good credit by opening a joint account.
If you need to take out a loan but you have less than ideal credit (or very little credit history,) finding a co-signer can be a very useful tool. Though it can be difficult to find someone to take on this role, a co-signer can help a primary borrower build credit over time so long as they make on-time payments.
If you have no credit or a very limited credit history, it can be difficult to know how to start building credit. In these instances, a credit builder loan can help individuals build credit and boost their scores when they make regular, on-time payments.
If you are what is known as "credit invisible"-- i.e., you don't have a credit score-- this is a method you can use to gain additional access to financial services and products.
Another loan you can use to help rebuild credit after it's been damaged is an installment loan. I've personally used this type of loan to improve my credit.
If you are going to shop around for a loan or a new credit card soon, you'll want to be thoughtful about adding additional hard inquiries to your credit report.
While each hard inquiry usually only takes a few points off your credit score, too many of these on your report can be a red flag to lenders.
For mortgages, auto loans, and student loans, inquiries that occur during a fourteen day window are considered one single inquiry. This is because it is understood that savvy consumers will shop around for the best rates and terms when borrowing money.
It's worth noting that FICO scores don't group together inquiries for credit cards-- each one shows up as its own separate hard pull. With the VantageScore model, however, inquiries made during a fourteen-day period are grouped together for any type of account.
If you've used some of these tips and tricks to improve your credit, it still can take some time to see the fruits of your labor show up in your credit score.
Only mortgage lenders can provide rapid rescores. If you aren't planning on applying for a home loan, this means that updating your credit report quickly will require that you manually contact each of your creditors after you've corrected errors, paid down your balances, and otherwise improved your credit profile.
When you contact your creditors, you can ask them to send a verification letter that reflects the new information on your account. This letter can then be forwarded to the credit bureau so your information will be updated.
The word "triage" is:
When you want to increase your credit score quickly, you'll want to use a similar approach. You should take a look at your credit report and find out which elements are most adversely affecting your score. You can then work to deal with these issues first before moving on to less urgent, less impactful aspects of your credit profile.
Finally, one of the most important things you can do for your credit score and your overall financial health in the long term is to ensure that you always use credit responsibly.
However, irresponsibly using credit cards can mean that you rack up more debt than you can afford, significantly damage your credit score, leave you with high-interest payments, have accounts go into collections, and so on.
No one likes spending their free time trying to improve their credit score, but it's a project well worth dedicating some time to. This is particularly true if you are expecting to apply for a loan or credit card in the near future.
There are a lot of things you can do to improve your credit, but not all actions you take in this regard are created equal. It's, therefore, a good idea to make sure you understand which elements of your credit report are most damaging so that you can focus on pursuing the most impactful factors first.
If you're motivated to improve your credit score and clean up your credit report, make sure you check out our credit-building tips blog for more useful resources!
According to the 2022 Identity Fraud Study conducted by Javelin Strategy & Reserve, 15 million consumers in the U.S. were victims of identity theft.
Identity theft isn't just scary and potentially expensive, but it can also wreak havoc on your credit for years to come if you aren't careful.
As with most things, prevention is the best cure to identity theft when it comes to your finances and your credit. However, the next best thing is to regularly monitor your credit reports, credit card statements, and bank statements so you can catch strange or unusual activity right away.
When someone uses your personal information without your permission, it's known as identity theft.
An individual can use your personal information to commit identity theft in a number of different ways, including:
Obviously, any of these occurrences is a huge problem in their own right. When you add in the fact that it can have an impact on your credit reports and credit scores, it only adds insult to injury.
Before we get into how to repair your credit after someone has stolen your identity, there are a few steps you're going to want to take to ensure that the fraudster isn't able to do any further damage.
There are essentially three different categories of actions you will want to take when someone has stolen your identity. These are:
This doesn't necessarily mean that you will want to go through these three stages in order, though. When you realize that your identity is stolen, you will essentially need to perform a number of important actions as quickly as possible to ensure that no further damage is done and that your personal and financial information is protected.
Here is a breakdown of the steps you'll want to take after you realize that your identity has been used for fraudulent purposes:
In the next section, we will take a closer look at the steps that involve repairing your credit after identity theft and fraud.
Now that you have seen a full list of the steps you will want to take after you realize that your identity was stolen let's take a closer look at the actions you'll need to take in order to repair your credit.
Different credit scoring models vary slightly in how they weigh factors, but in general, they place a similar amount of importance on each type of information. The primary factors credit scores take into account(presented in order of importance) are:
If hard inquiries are impacting your credit score, this guide looks at how to remove hard inquiries from your credit report.
If an identity thief steals your credit card information or opens fraudulent loans or cards, missed payments might be accruing. This could be happening on cards you opened yourself or accounts you don't even know about.
The good news is that your liability is limited for paying back fraudulent purchases so long as you catch it quickly and report it right away, thanks to Federal law. The bad news is that your credit reports will show missed payments that have a negative impact on your score and how you appear to potential lenders as a borrower.
Even if you file these disputes immediately after the fraud occurs, it can still take some time for the changes to reflect on your credit report and in your scores.
If an identity thief racks up debt in your name, it will have a negative impact on your credit utilization rate. Experts typically recommend that you keep your credit utilization rate at 30% or under. Lower is always better.
Once the problem has been remedied, your credit utilization rate will return to its normal level.
Though identity thieves likely won't have a direct impact on the length of your credit history, they can open new cards and get new loans that will wreak havoc on your credit score.
You will need to report the fraudulent activity to any lenders or creditors that allowed the thief to borrow money in your name and close the accounts. It can take time for the fraudulent accounts to be removed.
Identity theft shouldn't have an impact on your credit mix, as it is unlikely that a fraudster will close your legitimate accounts. This is one of the few factors that you don't have to worry about, but, unfortunately, it is also one of the least impactful factors on your scores.
If an identity thief has taken out a loan or opened a credit card in your name, it means that hard inquiries were made into your credit report.
Hard inquiries will remain on your credit reports even once you have closed fraudulent accounts and removed them from your credit report. You will need to dispute hard inquiries with the credit bureaus to ensure they don't impact your credit or your ability to borrow money in the future.
You will want to take action quickly when you realize that your identity might have been stolen.
Here are the steps you'll need to take:
If you suspect identity theft, take a look at both your credit card and bank statements.
On credit card statements, look for any unfamiliar charges. You don't want to ignore charges just because the amount is small-- many scammers will start with small charges to see if it works before making more expensive purchases.
Even if you don't suspect fraudulent activity, it's important to review your credit card statements regularly.
On your bank statements, keep an eye out for strange activity and contact your bank if there are any unusual charges you don't recognize.
AnnualCreditReport.com is the site authorized by Federal law where you can request a free credit report from all three of the major credit bureaus.
Did your credit score drop unexpectedly? Take a look at this post about why your credit score might have dropped by 100 points or more.
Now that you have your credit report in hand, here is what you will want to look for:
It's best to follow up on any strange activity or marks on your credit report, even if it doesn't seem like a big deal or isn't currently impacting your credit score. If someone has your personal information, there's a good chance they will continue to do further damage.
You'll also want to check public records for civil court judgments or liens in your name. An identity thief that stole your ID could be masquerading as you in a way that impacts your public record. Since civil court judgments and liens no longer appear on your credit report, you'll want to contact the recorder's office in your county to look at your public records.
There are a number of steps you'll need to take if there has been fraudulent activity in your name. Some of these were briefly touched upon in the section "What to Do If You've Been a Victim of Identity Theft."
First, you'll want to call any companies where the fraud has occurred. To stop further damage, ask credit card companies and lenders to close or freeze any and all fraudulent accounts.
You'll also want to ask for a letter confirming that:
Beyond placing a fraud alert with all three credit bureaus, you'll also want to dispute any incorrect info that can be found on your credit report. All three credit bureaus-- TransUnion, Equifax, and Experian-- have online pages where you can begin the dispute process.
You'll also want to tell them to stop reporting the debt to credit bureaus and ask them for more details about the debt.
Now that you've been through the process of dealing with identity theft, you're likely motivated to avoid this experience in the future. Once you have worked everything out with the credit card companies, lenders, credit bureaus, debt collectors, and any other involved parties, you'll want to make sure that you take any and all necessary steps to ensure your identity and credit are protected in the future.
For more info about how to protect yourself from ID theft, scroll down to the section entitled "How Can I Protect Myself From Identity Theft?"
There are a number of things you will want to always keep an eye out for when it comes to identity theft and fraud.
Some of the signs of identity theft can include:
Before we sign off, let's touch upon some other frequently asked questions about identity theft and credit.
There are a number of different ways that identity thieves can steal personal information from individuals.
Do you need to repair your credit report so you are better able to qualify for a mortgage or another loan? Make sure you check out our articles about removing collections from your credit report, removing hard inquiries from your credit report, and removing evictions from your credit report.
The thought of someone coming into possession of your personal information is truly terrifying. Luckily, there are a number of things you can do to prevent identity theft from occurring.
Here are some habits you can practice in order to avoid your private information ending up in the wrong hands:
Having your identity stolen can be an overwhelming and terrifying experience. With your personal or financial information, thieves have the ability to rack up debt, take out loans, or even masquerade as you in police interactions.
Are you on a mission to rebuild your credit and make sure that you always have the ability to borrow money and take out loans with the best terms? If so, make sure you check out our credit building blog.
If a borrower misses several months of payments, the creditor might give up on trying to collect the debt and write it off as a loss. When this happens, the account is designated as a charged-off account or simply a "charge-off."
Just because the creditor has charged off the account doesn't mean that you aren't still expected to pay back the debt, though. They might sell your debt to a third-party collections agency, which can also appear as an account in collections on your credit report.
Let's take a closer look at everything you need to know about charge-offs and what you can do to remove them from your credit report.
When you take out a loan or a line of credit, the creditor or lender is expecting that you will pay back the money that you owe based on the agreement you’ve made. However, if you are unable to keep up with your payments or completely stop paying toward your loan, it can mean your account becomes delinquent.
After a certain number of days, the creditor might choose to charge off your account. In many cases, the length of time after an account is delinquent before a creditor charges it off ranges between 120 and 180 days.
Charge-off is the term used when a creditor has closed your account to future changes and written it off as a loss.
When your account is charged-off, it means that the creditor has given up on collecting the debt from you and written it off as a loss. This doesn’t mean that you’re off the hook, though.
With your debt now in the debt collection agency's hands, the debt collector will try and get you to pay off the debt. They can send you letters, call you, email you, or text you in an attempt to collect the debt. They can even file a civil lawsuit against you in order to recoup the money that is owed.
When an account is charged off, it doesn't mean that you are no longer obligated to repay the debt.
Yes, charge-offs will appear on your account history along with other negative information, such as missed or late payments. Negative information typically stays on your credit report for seven years.
Not only will charge-offs show up on your credit report, but they can also be very damaging to your credit score.
Did you miss a payment and it showed up on your credit report? This article looks at what you can do to remove a 30-day late payment from your credit report.
You might assume that paying the debt you owe to a collector will automatically remove the mark from your credit report.
Unfortunately, this is not the case.
Negative marks such as collection accounts usually stay on your credit report for up to seven years. This is true even when you have paid them off. Paid charged-off accounts and collections accounts will still show up on your credit report rather than disappearing and will simply appear as 'paid' in their status.
What can you do when there is negative information on your credit report? This guide looks at four simple ways to remove derogatory marks on your credit.
There is a bit of good news on the collections account front, though-- the latest credit scoring models (VantageScore 3.0 and FICO 9) ignore paid collections accounts. If a creditor or lender uses one of these newer models to calculate your score and you pay off the collections account, it won't do nearly as much damage to your score as if you didn't pay the debt.
At this point, though, most creditors are still using the older FICO versions. Collections under $100 are ignored by FICO 8, but all collection accounts are considered in the version most commonly used by mortgage lenders.
If your charged-off account has been sent to collections, take a look at our guide to removing collections from your credit report.
If you’re planning on applying for a mortgage, car loan, or otherwise borrowing money in the near future, you might be motivated to clean up your credit report. Even if the negative account first went delinquent several years ago, this can still mean that it will stay on your report for a few more years.
Before we look at how to remove charge-offs from your credit report, you'll need to determine whether the information on your credit report is accurate or an error.
We'll take a look at the details of how to do this in the next section.
On the other hand, accurate negative information can be very difficult to remove from your credit report. Technically, creditors have an obligation to report accurate information to the credit bureaus, and they will sometimes be unwilling to cooperate when you ask to have negative information removed. That being said, there are some steps you can take that could help improve your credit files, which we'll discuss in the section entitled "Negotiating With the Creditor When a Charge-Off Is Accurate."
The first thing you'll want to do if you know that the charge-off on your credit report is an error is to gather all of the information you have about the debt.
Suppose you find that there is an inaccuracy in the information showing up on your report. In that case, you'll want to file a dispute with the credit bureau that is reporting the incorrect information.
You can file disputes online with all three major credit bureaus. In many cases, this is the fastest way to have the error in your credit report addressed and resolved.
You are allowed to initiate disputes with credit reporting agencies under Federal law when you believe the information is inaccurate. The credit bureaus will then have to look into your claim and either fix or remove any errors from your report.
After you've gathered all of the information about your debt, you might find that the information showing up on your report is, in fact, accurate.
If you find yourself in this situation, you can try and negotiate with the debt collector or the creditor. Basically, you can offer to pay off the debt in full or in part in exchange for having the charge-off account updated or removed from your report.
You do not necessarily have to pay the full balance in order for a debt collector or creditor to accept this deal. This is particularly true if the account has been delinquent for a substantial amount of time or it has been passed on to another entity, who likely bought it at a discount.
Striking this type of deal with a creditor or debt collector is known as pay-for-delete.
Basically, this means:
Important: Though pay for delete arrangements are technically legal, creditors are not obligated to agree to a pay for delete deal or remove charge-offs from your credit. If a creditor or debt collector agrees to a pay for delete agreement, make sure you receive written confirmation that they will remove the charge-off before making your payment.
Another way you can deal with negative information like charge-offs on your credit report is by hiring a legitimate credit repair company. It's important to understand that there are a lot of scammers out there in the credit repair industry.
Watch out for credit repair companies that are thinly veiled scams: You should be particularly skeptical of any debt relief or credit repair companies that promise results that appear too good to be true or ask for money upfront.
Hiring a legitimate and reputable credit repair company can help save you the time of dealing with credit bureaus, debt collectors, and creditors. However, in most cases, these companies aren't able to make any changes to your credit report that you don't have the power to make on your own. Additionally, there is almost always an additional fee when you use these services.
Are you worried that a past or upcoming eviction is going to have a negative impact on your credit file? Check out this post about how to get an eviction removed from your credit report.
In some cases, you might do everything you can to get a charge-off account removed from your credit report to no avail. This can be incredibly frustrating, particularly if you are relying on an impeccable credit file to help you secure a loan with the best rates and terms.
The good news is that the account will fall off your credit report eventually-- negative information typically stays on your credit report for seven years from the date of first delinquency. Once this happens, it won't have any impact on your credit score.
Is your credit score suffering because of too many hard inquiries? This guide goes over how to remove hard inquiries from your credit report.
That being said, you will still be legally obligated to pay the debt even once it falls off your credit report. It is possible, though, that the statute of limitations on the debt could eventually expire. The statute of limitations for each kind of debt is different from state to state, so you'll want to take a look at the laws in your state.
In the meantime, you can work on rebuilding your credit. As the charge-off accounts get older, they won't always have as much of an impact on your score. The fact that the overall impact of negative information lessens as it ages and a dedicated effort to rebuild a positive credit history can help you bring your score back up and make you appear a better borrower to lenders and creditors.
If you fell behind on your payments due to a hardship, you can send your creditor what is known as a "hardship letter." This is a letter that explains your circumstances and the action that you're asking the creditor to take to help you repay what you owe. If you incurred late payments during COVID, take a look at this post to learn how to remove them.
If you have a charge-off account on your credit report that you simply can't remove, don't despair.
You can work to rebuild a positive credit history by taking actions such as:
It can feel like a huge weight off your shoulders to pay off old debts and get on top of your personal financial and credit situation. At the same time, be very careful in how you deal with old debts. A number of things can reset the statute of limitations timeline on your debt-- such as promising over the phone to pay the money you owe.
Are you struggling to build credit because you don't have any credit history? You can learn more about how to establish credit from the ground up in this article.
Another way you can rebuild your credit is by using installment loans. You can learn more about installment loans and how they can improve your credit in my recent post on the topic. I've personally used this type of loan to improve my own credit score in the past.
Before I sign off, let's answer some of the most commonly asked questions about charge-offs.
If you're researching what to do about your charged-off account, you might also be bumping into the term "write-off." A write-off and a charge-off are the same things, and the two terms are used interchangeably.
When this happens, it can have a negative impact on your credit. However, it can also be moved or sold to a different creditor. Depending on the circumstances, the transferred account can be listed as a charge-off or in good standing.
In order for a creditor to decide that it's not worth trying to collect on your debt, you typically have to miss quite a few payments.
If the account is finally listed as a charge-off, though, your scores will likely further decrease.
Your credit can continue to take a beating if you don't pay the debt collector, as they can report missed payments to the credit reporting agencies.
On the bright side, even though derogatory marks typically don't fall off your reports for seven years, their negative effects usually diminish after two years, so long as you are able to show that you are using credit responsibly from now on.
Whether or not you should pay a charged-off account depends on a few different factors. You will want to verify the information before you make a decision, as it's possible that the charged-off account is an error that should be disputed with the credit bureau.
If you determine that the charge-off is accurate, you will typically want to pay it off. However, it's worth trying to negotiate a pay-for-delete agreement in the hopes that the mark will also be removed from your report. Making payments toward old debts can also re-start the clock on the statute of limitations for the debt as well, so you'll want to think about what makes the most sense in your situation.
You can pay charged-off accounts in three different ways:
If you realize that the charge-off is an error, don't pay it. Instead, file a dispute with the credit bureau that is reporting the erroneous charge-off.
Looking at your credit report and finding that there is a charge-off is a very unpleasant experience. Not only can it reduce your credit score, but potential lenders might offer you worse terms or deny your applications as a borrower when there is a charge-off on your credit report.
Resist the urge to ignore this problem when it happens to you-- there are steps you can take to try and remedy the situation.
Even if you are unable to remove the mark from your credit report, dealing with the debt can help ensure that it doesn't do further damage to your credit score. In the meantime, you can work to rebuild a positive credit history by making payments on time, keeping your credit utilization ratio low, limiting how often you apply for new credit, and using other credit building tactics.
When a collections account appears on your credit report, it generally stays there for seven years starting from the date the account first went delinquent. This is true even if you end up paying off the account in full.
Having collections accounts on your credit report can make you seem like a risky borrower to lenders and creditors, so you might be wondering how you can remove collections from your report before the seven year period is over.
Having a collections account on your credit report can reflect negatively on you when lenders or creditors pull your credit report. The newest versions of VantageScore and FICO credit scoring models now ignore paid collections, but a lot of lenders still use the older models that do incorporate paid collections when calculating your score.
For this reason, many people want to remove collections accounts from their credit reports before the seven year period is over. Here are the steps you’ll want to take in the effort to clean up your credit file.
The first thing you’ll want to do is gather information about the debt in question. There are two places you’ll want to look for this information:
Collect all of the documents you have on the account that is in collections, including your payment history as well as the age of the debt. If possible, it can be useful to also find a personal banking statement that displays the date that you made your last payment toward the debt.
Look at each individual credit report and highly any difference you find between them. These reports aren’t always precisely identical, as a lot of lendors and creditors only report to one or two bureaus rather than all three.
Are you wondering how to get your credit reports? You can have free access to your credit reports under Federal Law. The quickest way to get your report is to use AnnualCreditReport.com, which is offering free weekly online credit reports for the rest of 2023. This site is authorized by Federal law.
Once you have your credit reports in hand, verify the following details:
Once you have looked at your own records and your credit reports, you might find that the collections account shouldn’t be on your reports. Maybe it is completely incorrect, or perhaps it has been seven years since it went delinquent and it therefore should no longer be on your report.
There are two primary parties that could have made an error: the credit bureaus or the debt collector.
If there is a collections account on your report that is older than seven years since the delinquency date, you’ll want to file a dispute with any credit bureau that is still listing the account on your report.
Other mistakes that credit bureaus can make include showing a paid account as unpaid or listing an account that you don’t recognize.
You’ll then need to gather documentation that supports your case and file a dispute with the credit bureaus that have made the error. You can do this by phone, by mail, or online, and the bureau must respond to you within thirty days.
Disputing credit report errors won’t harm your score and filing a dispute is free. You can file a dispute through the mail, by phone, or online.
If you believe that the debt collector has made the error rather than the credit bureau, the first thing you’ll want to do is to ask the debt collector to validate the debt. They should then send you a debt validation letter, which includes information about the original creditor, the amount you owe, and more.
If the debt collector is unable to validate the debt, it should be removed from your credit reports.
If the account listed on your credit report is legitimate and it is accurately reported as a paid account, there are still some steps you can take to have it removed.
You can contact the original creditor or the collections agency that is handling debt collection to ask them for a “goodwill deletion.”
You can send creditors and/or debt collectors a “goodwill letter” that explains why you were unable to repay the debt on time and requests that the negative mark is removed from your credit reports.
In your goodwill letter, you can explain why you would like the debt removed and the circumstances that led to your debt being paid late. For example, you might tell them that you are going to apply for a mortgage and that you would like the mark removed from your credit report.
It’s worth understanding that neither creditors nor debt collectors are obligated to remove an account from your credit report. That being said, it doesn’t hurt to ask. You will be in a much better position to make your case if you have had a strong payment history since you paid off the debt.
If you remove the account from your credit report through a goodwill letter, any late payments on your reports that preceded the debt going to collections will still appear.
Did you experience an event or circumstance that had an impact on your ability to repay a debt you owed? This article goes over what you need to know about sending a hardship letter to creditors.
If all of your efforts still haven’t resulted in the account being removed from your credit reports, the only thing you can do is wait for it to fall off. Most negative information is removed after seven years have passed starting from the first date of delinquency.
The first date of delinquency refers to the first date that your delinquent accounts are reported to the bureaus. This means that the information will be removed from the first reporting date, not the date the debt went into collections.
It’s worth noting that an account falling off your credit report doesn’t necessarily mean that you don’t need to pay the debt. A creditor can still pursue payment if the statute of limitations hasn’t passed and can even take you to court in an effort to receive the payment.
Laws governing the statute of limitations on debt are found at the state level, meaning that how long a creditor has to pursue an unpaid debt varies between states. It’s important that you learn what your responsibility is under the law of your state.
Pay-for-delete is an agreement that you can sometimes strike with creditors or debt collectors where you agree to pay a portion of the debt or the debt in full in exchange for the account being removed from your credit report.
There is no guarantee that sending a pay-for-delete letter will result in the outcome you’re looking for, but it can be worth a shot. It’s important to proceed with caution– make sure you receive something in writing from the debt collector and make sure that they agree to remove both the account and late payment information.
Creditors are technically not supposed to remove accurate information from credit reports, but it isn’t exactly illegal for them to do so either. Pay-for-delete agreements exist in a legal gray area.
Your claim must be addressed within thirty days when you dispute an error with a credit bureau or request that a debt collector remove a paid account from your report. If the credit bureau, debt collector, or creditor agreed to remove the mark from your reports, it’s generally a good practice to look at your credit reports after thirty days have gone by to verify that the changes you requested were made.
Are you looking for more information about improving your credit? Check out our guides to hiding credit card utilization, removing evictions from your credit report, opening a new credit card, and removing late payments incurred during the pandemic.
When you don’t pay a debt that is due for a period of time, it can be sent to collections.
Thirty days after a debt is due and unpaid, it can be reported as delinquent to the credit bureaus. You will receive notices about the unpaid debt and potentially even phone calls from the creditor in an effort to collect payment.
The creditor will give up on trying to collect the debt after a period of time without payment– usually 120 or 180 days. This doesn’t mean you’re off the hook, though.
At this point, they might choose to sell your debt to a debt collection agency. This is when you start receiving notices from collection agencies– through the mail, over the phone, via text, or through email. Essentially, a third party has purchased the right to collect your debt and you are still responsible for paying it.
Collections accounts will usually stay on your credit reports for seven years after the date that the account first went delinquent. This is true even if you have already paid the account in full. At this point, the account will show us with a “paid” status.
Since there are a number of different factors that influence your credit scores, there isn’t a simple answer to this question. Unfortunately, your score won’t change much even if you pay off the debt in order for the status to move from “unpaid” to “paid.”
Somewhat counterintuitively, paying off an old collections account can actually further impact your score by activating the accounts again. It’s a good idea to check with your lender to figure out what the best course of action is for you if you’re considering paying off the debt in order to take out a loan.
How your score is impacted is also influenced by the type of debt in collections. For example, medical collections aren’t given as much weight in the most recent iteration of the FICO scoring model.
It’s worth understanding that the newest FICO and VantageScore models don’t take paid collection accounts into consideration when calculating your score. At the same time, many lenders still use old models that do factor in paid collections accounts.
When there is a collections account on your credit report, it can be quite distressing. This can be the case whether the information reported is accurate or if you believe that it is an error.
If you know that the collection account on your credit report is legitimate, it's understandable to want to have it removed. After all, it can have a negative impact on your credit score and make you seem like a risky borrower to potential lenders. The truly frustrating thing is that this can be the case even if you've paid the debt off in full.
For collections accounts that you've already paid, you can try sending a goodwill letter to the debt collector and see if they will be willing to remove it from your account. If the account hasn't been paid yet, you can try and negotiate for a pay-for-delete agreement. They aren't obligated to work with you in these ways, but it doesn't hurt to ask.
If the collections account is inaccurate, you will want to dispute the claims with the credit bureaus that reported them. You can do this online, over the phone, or through the mail.
Fixing bad credit and rebuilding your credit can feel overwhelming, but it doesn't have to be. For more information about improving your credit files, check out our credit building blog.
A lender will check one or more of your credit reports when you apply for a new line of credit or loan, which is known as a hard inquiry or a hard pull.
If a creditor sees too many hard inquiries on your file, they can view it as a red flag. The more hard pulls on your credit report, the more they are likely to assume that you are trying to borrow money you can't afford to pay back.
When you apply for a new line of credit, such as a credit card or a loan, a hard inquiry occurs. Also referred to as a “hard pull” or a “hard credit check,” this means that the lender has requested to look at one or more of your credit reports.
Creditors and lenders want to look at your credit file before extending credit or lending money to you because it allows them to assess how much risk you pose as a borrower.
When a hard inquiry occurs, it shows up on your credit report and can have an impact on your score.
Hard inquiries usually stay on your credit report before they naturally fall off.
What happens when an account is closed when you still owe money? Take a look at this post about what happens if a credit card is closed with a balance.
Lenders and creditors can also do something known as a “soft pull” or a soft inquiry. Here are the major differences between hard and soft pulls:
Are you motivated to improve your credit score and reports? Check out our guides to removing evictions from your credit report, opening a new credit card, removing late payments incurred during the pandemic, and hiding credit card utilization.
Hard inquiries usually only impact your credit for a few months, but during this time they will have a negative impact on your score. Though they stop having an influence on your actual score after a few months in most cases, they will remain listed on your credit report for two years until they fall off.
If your credit report shows that you applied for a number of loans and credit cards during a short period of time, this can have a negative impact on your credit and signal to potential lenders and creditors that you might be seeking loans and lines of credit that you might not have the ability to repay.
You can’t always avoid hard inquiries– they are a necessary part of the process of applying for an auto or home loan.
In these scenarios, credit bureaus are aware that consumers will frequently apply to a number of lenders in order to compare rates. This means that several inquiries made within a 14-45 day period for one type of loan won’t penalize your score and are often treated as one inquiry.
On the other hand, if you apply for a number of personal loans and credit cards during the same short period of time, they won’t be treated as one inquiry and is often viewed as a red flag that you’re applying for credit you can’t actually afford.
In most cases, you can only remove hard inquiries on your credit report if they are a result of fraud. For example, if a person opens a new account in your name using personally identifiable information like your Social Security number, you can dispute the hard pull and have it removed.
There are two reasons you can request to have hard pulls removed from your credit reports:
Hard inquiries that you approved or that resulted from an application you submitted, you can’t remove them.
Improving your credit has many benefits, including making it easier to borrow money and give you access to better interest rates on loans. For this reason, it can be quite tempting to try and remove hard inquiries from your credit report to try and boost your score a bit.
The reality is, though, that you can only really dispute hard pulls that result from fraud or an error. If a hard inquiry is legitimate, you will need to wait for it to fall off naturally after two years.
Hard pulls usually only drop your score by a few points and only for a short period of time– so you typically don’t have to worry too much about them. In most cases, hard inquiries will only have an impact on your credit score for a few months.
If there are a lot of hard inquiries on your report, though, one new inquiry could have a negative impact on your ability to be granted a new line or credit or loan, or it could impact the terms you are offered. Similarly, one new hard pull can have an unfavorable effect on your credit if there are other, more serious issues that are hurting your score.
If there are illegitimate hard inquiries on your report, you will absolutely want to get them removed. In the next section, we’ll look at the steps you’ll want to take.
Checking your credit report regularly is important in order to ensure that there aren’t any errors. If you notice a hard pull that you didn’t approve, you can file a dispute with Equifax, Experian, and TransUnion– the three credit reporting agencies.
There are a few reasons a hard inquiry might show up on your credit report even if you didn’t authorize it:
If you believe that someone has stolen your identity and that is why the inquiry is on your report, there are a number of steps you can take to protect yourself:
If an unauthorized inquiry showed up on your account, here’s what you’ll need to do:
You can file a dispute with the appropriate credit bureau by using their online system, disputing the inquiry over the phone, or mailing a letter. The Federal Trade Commission offers a sample dispute letter that you can use if you are going to be sending the dispute through the mail.
Your dispute letter should include:
You’ll want to send this letter by certified mail and select the option “return receipt requested.” This way, you know that they receive the letter and it didn’t get lost in the mail.
Seeing a hard inquiry that you don’t recognize on your credit report can be a truly distressing experience. The last thing anyone wants to deal with is identity theft. That being said, there are a number of reasons why a hard inquiry might show up on your report that weren’t caused by fraudulent activity.
Here are some examples of reasons why a hard pull might be on your report that you don’t recognize:
If you see a hard pull on your report with a company name you don’t recognize, contact them. They will be able to provide you with more information.
Are you motivated to fix your credit? Check out our recent posts about whether installment loans can help rebuild bad credit.
When you are preparing to apply for a loan or a credit card, it can be distressing to look at your credit report and see marks that you know a creditor will see as negative. At the same time, a lot of recent hard inquiries can have a notable impact on your credit score in a way that can affect your ability to borrow money or the terms you are offered.
If you see a hard inquiry on your credit report that you believe is an error or the result of identity theft, you can connect with the credit bureaus in order to have the problem fixed. If it was the result of fraud, you'll also want to take additional steps to ensure that your identify and private information is protected.
There are three national credit reporting agencies-- Equifax, Experian, and TransUnion. You can get a free copy of your credit report from each credit bureau from AnnualCreditReport.com, a site authorized by Federal law.
Unfortunately, it is difficult if not impossible to remove hard inquiries when they are accurate. The good news, though, is that they usually only remain on your credit report for two years and their impact on your score decreases over time.
If you have an extra hard inquiry or two on your credit report, most lenders aren't going to turn you away. Lots of hard inquiries or other more serious issues that are harming your credit, however, can be a red flag to creditors.
For more information about how to improve your credit file and rebuild your credit, make sure you check out our credit building blog.
Having a debt in collections can wreak havoc on your credit scores.
In some cases, it is possible to delete a collection from your credit report in exchange for payment.
Though this type of action is discouraged by credit bureaus, it is possible in some cases to have this type of derogatory mark removed from your report in some cases.
If you are interested in a pay-for-delete arrangement with a debt collector, the first thing you will want to do is contact them via the phone or through a pay for delete letter.
Opinions regarding whether it's a good idea to attempt to pay to delete a collection vary widely, which we'll get into later. The steps you will want to take if you want to take this course, though, are as follows:
In exchange for full or partial payment, debt collectors will sometimes promise to change the classification of your account on your credit reports.
If a debt collector does agree to remove the marks from your credit report, you will want to request a letter for them stating that they will adjust your credit report. Collections agencies are primarily focused on collecting the debt they are owed, and have been known to say whatever they need to in order to receive payment.
For more information about improving your credit score, take a look at these four simple ways you can remove derogatory marks from your credit report.
If you have a debt in collections and you want it taken off of your credit report, you can propose a deal with the debt collector: you’ll pay off the account if they will update your credit report to remove the account.
This is known as ‘pay for delete.’
Before you get excited about having this negative mark taken off your credit report, it’s worth understanding that these agreements are quite rare. Credit reporting bureaus go out of their way to discourage attempts to take information off of reports that is accurate.
The reason for this is that creditors and lenders are legally obligated to report information that is both accurate and complete to the credit agencies.
That being said, creditors do have some leeway to choose to not report information. Beyond that, the Fair Credit Reporting Act doesn’t explicitly prohibit pay for delete. This means that there’s a chance a debt collector will be willing to strike a pay for delete deal.
When an account is sent to collections, it usually stays on your credit report for seven years. Accounts get less harmful to your credit the older they get, but they will still be present on your report for seven years until they “drop off.”
If you want to propose a pay for delete arrangement with a debt collector, the first thing you’ll want to do is either give the collection agency a call or submit a pay for delete letter, which is a formal request letter.
If you write a letter rather than calling, you’ll want to clearly state your offer– that you want to pay off either all or part of the debt in question and, in return, you’d like the debt collector to delete the account from your report.
At this point, you’ll have to wait to see whether the collection agency is willing to take the deal. If they do agree, it’s a good idea to ask for written confirmation of the agreement before making the payment. Since the pay for delete letter doesn’t really hold any weight legally, you could otherwise end up in a situation where you make the payment but still have the account on your credit report.
Though pay for delete is a tempting solution to a frustrating problem, there are some reasons you might not want to go this route. Here are some things to consider before calling the collections agency and trying to broker a deal:
Even if you aren't able to get the mark removed from your credit report, there are still steps you can take to increase your credit score. Check out these articles about opening a new credit card, using second chance credit unions, credit repair software programs, and getting a secured credit card to boost your credit score. Before hiring a credit repair agency, make sure you read the pros and cons of credit repair services.
If you have a debt in collections that showed up on your credit report and you pay it off, it will stay on your credit report but be recorded as a paid collection.
Many people mistakenly believe that if they pay their debt in full, the mark will be removed from their credit report automatically.
Unless the collections agency agrees to fully delete the account rather than update the status to 'paid,' it will remain on your credit report for seven years.
Even if they do agree to these terms, it can be difficult to actually enforce a pay for delete agreement, as a pay for delete letter isn't legally binding.
If you're on a mission to achieve the highest credit score you can, check out this post about the maximum possible score.
If you are late making payments to creditors, it can have a negative impact on your credit score. If an account is so delinquent that it was sent to a debt collector, though, it can have much larger repercussions for your credit score.
By some accounts, having a debt sent to collections can mean your credit score dropping around 110 points. How many points you’ll lose depends on a number of different factors, but you’ll lose more points the higher your score was to begin with.
Your overall credit profile will have an impact on how much a pay for delete will help your score. If you only have one debt in collections and they are willing to delete it from your credit report in exchange for payment, you might see your score increase once it is removed. However, if you get one derogatory mark removed but you have several other debts in collection, it probably won’t make much of a difference for your score.
Some experts have been sounding the alarm recently, spreading the word that pay for delete is becoming outdated as a method of dealing with a collection account on your credit report.
What this means is that, while the account still appears on your credit report, it doesn't have nearly as much of a negative impact as it would using older models or if you hadn't paid off the debt.
However, not all creditors use these new scoring models. For example, most mortgage lenders use a model that considers all collections accounts.
At both the federal and state level, credit bureaus, debt collectors, and lenders are all highly regulated. What this means is that you are granted certain rights as a consumer.
If you and the collections agency are negotiating a payment plan for your outstanding debt, make sure you take a look at this guide to installment plans and payment plans.
Understandably, consumers that are interested in a pay for delete arrangement typically have a lot of unanswered questions. Let's look at some of the most commonly asked questions about this method of credit repair to help you make the right decision.
In some cases, it can be difficult to determine who exactly owns your debt. You’ll want to try the following tactics if you need to track down the right collections agency:
If the original creditor hasn’t yet sold the debt to a collections agency, you’ll want to contact the creditor to try and arrange a ‘pay for delete’ deal. If they have already sold it, you might find that the original creditor is willing to reclaim the debts. They aren’t obligated to do this, though, so there’s no certainty that they will agree.
It is not illegal to send a pay for delete letter. That being said, the concept of pay for delete does exist in a legal gray area, as debt collectors often have contracts with the credit bureaus that explicitly prohibit them from deleting information from a credit report that is accurate.
Collection agencies do not have any legal obligation to remove information from your credit report. They also cannot remove information that was entered by the original creditor.
There are mixed perspectives about whether it is a good idea to try and and broker a deal with a collections agency to have your derogatory mark deleted in exchange for payment.
On the one hand, it's possible that the debt collector will agree to this and follow through on their end of the deal.
On the other, though, they might not actually remove the debt once they receive payment, and there is little recourse consumers have in this situation because pay-for-delete letters aren't enforceable.
Additional considerations include the fact that newer credit scoring models don't even take paid collections account into consideration when calculating your score and that a debt collector might not have the power to fully remove an account from your credit report if it was submitted by the original creditor.
Let's break down the possible outcomes in a slightly simpler way:
If you can't get the collections account deleted from your credit report even once its paid off, all hope is not lost. Instead, you'll want to focus your energy toward rebuilding your credit. For more information about how to improve your credit score, check out our credit building blog.