In my experience there are two types of people with bad credit: (1) people who never learned to deal with credit effectively and (2) people who had something that happened to them that caused them to fall down financially.

Sometimes it's difficult to tell the difference because once you fall down, it can be very difficult to get back up.  Something that happened to these people years ago can snow ball into a pattern that looks like they are simply irresponsible.

So, the first thing that I, as a loan officer, need to determine is which one of these groups do these particular people fall into.  If they are simply not responsible people, then, to me, it doesn't make much sense spending the time and effort to help them dig out of their hole if they are simply going to go about digging themselves a new one.

Once I've determined, hopefully correctly, that they are truly responsible people who just need my help, then I can go to work getting them ready to buy a home.

It's not a quick or easy task.  The current credit reporting system is flawed to the point of being broken.  It's not unusual at all to see inaccurate information on a credit report.  It's also not unusual for creditors to use the credit reporting system as a means of exhorting money from people.  This being the case, it's still the system that we have, so it's the one that we have to deal with!

The first step if you are one of these people and want to get your credit fixed is to find a good loan officer who is familiar with the credit reporting system and who will be willing to help you with this project.  I'm not talking about some guy with a headset on or some company that offers to do this for you for a fee.  I'm talking about a working loan officer, a professional.  You'll need a professional because if you attempt to do this yourself, you're going to get chewed up and spit out.   

Sit down with him or her and your a tri-merged credit report with public records checked.  Go over each trade line on the credit report and determine who you actually owe and how much you actually owe them.

Chances are that some of the trade lines that show up on your report are going to be inaccurate.  Maybe you already paid them and they simply never reported this fact out.  Maybe it's not even your debt.  Maybe the debt is so old that they no longer have the right to report the debt out on you.  

It's also not unusual for a creditor to hire a collection agency or to sell your account to a collection agency and to keep reporting the trade line as if they still owned the account.  For each debt, there will only be one rightful owner who has a right to report this debt out on you!  I've seen credit reports that have had 5 or 6 different companies reporting the same debt. 

Once you've determined who is a legitimate creditor and which trade lines are legitimate, it's time to start disputing the duplicates, the inaccurate and the fraudulent ones. 

Disputing Trade Lines

The easiest way to dispute a trade line and to have a reasonable chance that it will come off in a timely fashion is to do so with a letter from that creditor acknowledging that the way that they are reporting the debt is in error.

In order to get a letter from the creditor stating this, you need to get your ducks in a roll.  Call each of the creditors, some will have their phone numbers listed on the credit report and other ones you'll have to dig for (your loan officer can call his credit reporting company and get almost all of the phone numbers of the various creditors).  Determine who is the legitimate creditor and get a letter from them stating this.  

With this letter in hand, call the other companies reporting this debt out on you and point out to them that they are still reporting this debt on you, though they don't own the account.  If they question you, fax the letter from the creditor claiming ownership of the account.  It's also not a bad idea to have a copy of the Fair Debt Collections Act (FDCA) and the Fair Credit Reporting Act (FCRA)handy.  Most creditors when faced with the fact that you are prepared, will fold.  Ask them to fax or mail you a letter stating that what they were reporting was in error and that they are going to notify the credit bureaus of this fact.  It is a federal crime to knowingly report out information on a credit report that is inaccurate.

Get the name and/or operator number of who you talked with.  Make notes to yourself as to what they promised you and when they promised it to you.  When you get the letter and it states what it needs to state, it's not a bad idea to call the person back and to let them know that you got it and to express your appreciation.

If you don't get the letter or they refuse to send it to you, ask to speak with their legal department.  Most will balk at this.  If they won't let you talk with their legal department then ask them for the name and mailing address of the president of their company so that you can have the summons delivered to the right person.  Offer to fax them the penalty portions of the Fair Debt Collections Act.  At this point, most collection people will pass you up the line.  When this happens, start over.  Explain your situation and again ask that they fax or mail you a letter acknowledging that  don't own the debt or that the information was being inaccurately reported.  If they send you the letter at this point, then great!  If not....

Write the president of the company a certified letter requesting that they adhere to the FDCA.  Include a copy of the act with your letter.  Most times this will be sufficient to cause the creditor to back down.  If not, you may have to pay an attorney to write a more threatening letter.

With the letters in hand, you then write all three credit bureaus (don't even try calling them - it's very difficult to get through to them and they will buffalo you anyway) disputing the accounts, providing them with a copy of the letter regarding that particular trade line and asking that they delete the trade line. Keep copies of all correspondence. 

Negotiating Legitimate Debts

Now that you've addressed the trade lines that are inaccurate or shouldn't be there, you can move on to the legitimate debts.  Most times the amounts owed listed on the credit reports will be a lot more than you actually borrowered from that creditor.  This is because most credit card agreements provide for them to charge you all kinds of fees and additional interest, etc..  In most cases the amount listed as owed on the credit report is simply the jumping off point for negotiations.

The fact of the matter is that most of these debts are never going to be collected and the creditor know this.  While they may attempt to play hard ball with you, most will negotiate to some extent.  How much will they negotiate?  I don't know.  Each creditor is different.  There are some important things to remember before you even make the telephone call to begin negotiations.  They are;

1)  He/she who cares least always wins!  - Don't tell them that you are doing this in order to buy a home.  That only strengthens their position because now they know that you care.

2)  Cash Talks and BS Walks! - Before you call them, have a lump sum of money available to pay them quickly if they agree to a settlement.  Have at least an amount equal to what you hope to settle the debt for available to you.  

3)  Get It In Writing! - Before you send them any money, get your agreement in writing!  Don't trust them in the least!

4)  Have An Ace In The Hole - Consult with a bankruptcy attorney and have their name and number handy.  Know what your options are in this regard.  Not that you intend to go this route, but if the creditor knows that they stand to lose out on the entire debt, they may be more willing to negotiate with you.

Conclusions

As mentioned above, while you can do this on your own, it definately helps to have a professional on your side to act as an intermediary.  One, it helps to have multiple phones lines with the ability to conference people on and separate fax lines where you can immediate fax documents to the people without having to hang up.  Two, the mortgage professional can act as a buffer between you and the creditor.  They are a lot less likely to be rude to the loan officer if he's simply trying to help.

Don't be surprised that you run into difficulties.  This process is not easy!  You can do everything right and still have the inaccurate information show up again the next time you pull your report.  If this happens, go back to square one and keep up the pressure on them.  Worse case scenario, be prepared to hired an attorney to file a suit against the creditor.

Don't get frustrated!  This is part of what the creditors are banking on.  That you'll just get frustrated and go away.  Better yet, pay them some money and then go away.  It's not unusual for this sort of thing to take months to fix.  That said and as the title of this post points out, time heals all wounds. The sooner you start to deal with these issues, the sooner you'll have your good name back!

Once you find a loan officer to help you, help them!  Pass out their business card.  Talk them up to your friends, family and coworkers.  When you get your credit fixed, reward them with your business.  Don't forget who got you the point where you could become a home owner! 

Bob Mitchell

ValueList Real Estate Services, Inc.