How do I repair my credit so that I can buy a house?

A Short Course on Credit Repair

Please note that this is exactly what the title says it is: a short course. It does not cover all aspects of this complex subject not does it cover specific circumstances.

Credit RepairStep 1: How bad is your credit?

The first step obviously is to obtain copies of your credit reports and see exactly what needs to be repaired. You do this by contacting the 2 major bureaus and ordering a copy of your report and credit score. You can do this by going to their websites. (When you pull your own credit, it does not count as an enquiry against your score.  Later, you may want to order free copies by mail – but you don’t get your score -  to check on progress as you move through the steps.)

www.equifax.com

www.transunion.com

Follow the directions and order your reports online. Don’t forget to order your credit score. Order directly from the bureaus. Don’t waste your time dealing with one of those companies offering you a free report. Those services aren’t worth what they charge.

Once you have your reports, treat each separately. Examine the first to see what accounts you have open, closed, and anything else you want to know.

Our main purpose here is to remove all inaccurate information.

Any item that is listed as a public record or that has a late payment is considered derogatory, or bad.

  • How many do your have?
  • How many of these are accurate?
  • Which ones are not?

The inaccuracies are what we work on here. Let say for example, that you have a Sears account that has late payments. And that you have never had a Sears account in your life. Our next step is to dispute this account.

Step 2: Dispute

Do not use the dispute forms that came with your report. There is a specific reason why that I explain, but for right now just trust me.

Write your own letter in your own words. Tell the bureau that the Sears account is not yours and that you have never had one. We don’t want to lie to the bureaus. Include the account number of the Sears account as well. Tell the bureau in your letter that you want them to investigate and to remove this item.

 

Equifax Canada
Telephone

1-800-465-7166
8:00 AM until 5:00 PM ET,
Monday to Friday
 

Address
Equifax Canada Inc.
Consumer Relations Department
Box 190 Jean Talon Station
Montreal, Quebec
H1S 2Z2

Trans Union of Canada
(For all provinces except Quebec)
Telephone
1-800-663-9980 or (905) 525-0262
7:00 AM until 8:00 PM ET
Monday to Friday
 

Address
Trans Union of Canada Inc.
Consumer Relations Center
PO Box 338, LCD 1
Hamilton, Ontario
L8L 7W2

Then you need to check your other credit report to see if this Sears account is also listed with them. If it is, you have three options.

  1. Wait for the first bureau to confirm that it is not your account. They should share this info with the other bureaus. At least that is the way it is supposed to work.
  2. Write the other bureau a letter the same as the one you sent to the first one.
  3. Contact Sears directly and get them to confirm to you that it is not your account. Once they do this, they are now responsible for telling all bureaus. Sear’s phone number should be listed on your credit reports.

If all goes well, your reports (order them free by mail this time) will come back without this account.

You can do the same thing if the account is yours but there is negative inaccurate information listed on your account.  If the account is still open, you have a better chance just contacting the creditor directly to fix the problem.  Because we are dealing with inaccuracies, you may want to threaten to cancel your account if they don’t fix it. But don’t mention that until they tell you that they will not fix it.

Do this with all inaccurate information on your report. It requires patience but is not very hard to do, until you run into the bureau roadblocks. And by that I mean when they write back and say, “No, the information is valid and will stay on your report.”

Step 3: Wait it out

NOTE: If you have accounts that are accurate and negative disputing them will not work.

The first thing to know is that most negative information will be deleted you’re your reports automatically after 6 years. If you have an account that is close to that 6 year time limit, just ignore it. It will be gone by itself.

Note that the 6 years starts after the account has been closed or after the last activity on that account. But if the account is turned over to a collection agency, they can list a collection on your report whenever they want to and the 6 years starts after they list it. So what could happen is after a company writes off your account as a bad debt, your six years start. But if they sell that account to a collection agency and 3 years later the agency decides to post it on your report, that same account will not be listed twice. And the collection will have another 6 years before it drops off.

Step 4: Pay it off

If you don’t feel like waiting years to improve your credit, the next thing you can do is pay off your outstanding balances. Paying down your current balances on both you positive and negative accounts will improve your score. If you decide to pay off your negative accounts, make sure you close those accounts and that those accounts show up as “closed by consumer” on your report.

Remember to negotiate such that these accounts are taken off your report entirely. You may even be able to convince them that you only have a certain amount of money to go around and to accept a partial payment.  Once you have an agreement, review the whole deal once again so that all parties are clear. Then ensure they will provide you a letter confirming the transaction once you have done your part.  When done, make sure to get the letter because you may need it to prove to the bureau that the account has been dealt with.

Step 5: Balance it out

Once you have disputed all inaccurate information, paid down your balances as much as possible, and got tired of waiting, you may be able to improve your credit by adding new credit. But please use credit wisely.  This is exactly what lenders are looking for – a demonstration that you use credit wisely and pay as agreed!

New accounts that are in good standing (the key!) can help improve your score. Keep in mind that your credit score gives more weight to recent developments. What I mean is that a new account in good standing is more important that a negative account that is 5 years old.

If it was my report, I would try to have at least 2 good accounts for every one severely bad one. And note that higher balance accounts carry more weight as well. A car loan for example is more important than a credit card with a $500 credit limit.  If you are considering purchasing something with an installment loan, please consult with us first, however, as it will likely impact your ability to get a mortgage in other ways.

Summary

By following these simple steps you can be on your way to great credit and financial security. Fixing your credit is simple, but not an easy task. It takes time and some effort. But it is possible. And you can do a better job for yourself than anyone else. Don’t give up and don’t get talked into credit repair doctors and attorneys who charge an arm and a leg to do the same things I outlined for you here for free.

If you want the insider knowledge, I have further information and resources that will help you to do it yourself.

Good luck!