It is quite difficult to restore your credit without somehow satisfying your outstanding debts. However, the act of paying off a debt can actually hurt your credit. Negative credit is allowed to stay on the credit report for a maximum of seven years, except for bankruptcy which may remain on the credit report for ten years. This seven year clock begins ticking on "the date of last activity" or, in other words, when the last action took place on the account. By paying an outstanding, delinquent debt you will change the account status to "paid collection," "paid was late," or "paid was charged off" - which will still stand out as a very negative listing. Furthermore, you will create a new date of last activity on the day you settle the account. The seven year clock will reset and begin all over again. When you have outstanding debt, it is almost always prudent to seek professional help so that you may settle your debts without further damaging your credit.
The credit bureaus have cleverly spread this myth through the news media and government agencies. In truth, the credit bureaus will often temporarily delete a negative listing if they haven't heard from the credit granter after approximately thirty days. If the credit granter reports late, say after six weeks, and then verify the negative listing, the credit bureau will often reinsert the negative listing on the credit report. This is often known as a "soft delete." Usually, though, the creditor simply fails to respond and the negative listing is permanently deleted. If the item is verified by the credit granter, either before thirty days or after, the account may still be challenged at some future time.
There is no type of negative listing that hasn't been removed from a credit report thousands of times. Negative items, such as bankruptcy or unpaid debts, are certainly more difficult to remove from the credit report, but this has more to do with the operational systems of the credit bureaus than with the severity of the bad credit item. For example, judgments and tax liens are severely negative listings, yet are easier to remove.
Disputing the credit report is easy. Getting results from the credit bureaus is amazingly difficult, complex, and infuriating. It is not a coincidence that the Federal Trade Commission receives more complaints against credit bureaus than any other type of business. Remember, the credit bureaus are primarily interested in protecting their profits. Investigating your challenge consumes these profits. Short of sparking a mass number of lawsuits, the credit bureaus seem to do everything in their power to discourage consumers from making progress with their credit restoration. Restoring your own credit is like repairing your own transmission or representing yourself in court; it is possible, but you must decide if your are willing to take the time and assume the risks of doing it yourself.
Many bankruptcy attorneys do not adequately understand or explain the effects of bankruptcy to their clients. Stated simply, bankruptcy is to the credit rating what the nuclear bomb is to war. When you file for bankruptcy, every credit account that you decide to include in bankruptcy will become an "included in bankruptcy" account. Additionally, a bankruptcy filing and bankruptcy discharge listing will appear in the court records section of your credit report. Because so many negative items are attached to the bankruptcy, it becomes very difficult to remove all trace of the bad credit. If at all possible, you should avoid bankruptcy.
If you are not satisfied with the results of your credit bureau challenge, you may file a "100-word statement" on your credit report explaining your side of the story. Creditors will read your statement and will take it into consideration.
No known creditor considers information given in a 100-word statement. The statement only serves to verify some of the negative listings on the credit report. Make 100-word statements the first things you delete from your credit file.
This scheme has proven to be complex, difficult, and illegal. Lying about any personal information on a credit application is usually a criminal offense. Using these "file segregation" schemes requires an enormous amount of coordination, not to mention personal risk.
Any amount of bad credit is devastating to your chances of being approved by a credit granter. Most credit granters never actually look at your credit report. A computer pulls your credit report, rates your credit standing, income, indebtedness, and stability, then spits out an acceptance or denial. Even one or two slow pays will usually trigger a credit card or personal loan denial. The slightest amount of negative credit will cause the interest on an auto loan to skyrocket. You will probably find that even a little bad credit, regardless of how much good credit you have, is an unacceptable barrier to credit approval.
Consumer Credit Counseling Service or CCCS is a nonprofit debt counseling service that assists consumers who are over their heads in debt. CCCS is funded and controlled by the credit granters and the credit bureaus. Often, CCCS provides a beneficial service to the consumer. Because of the obvious allegiance between CCCS and the credit bureaus, you cannot reasonably expect CCCS to do anything that the credit bureaus would frown upon, such as help you restore your credit. In fact, if you decide to leave CCCS before you have finished their program, they can list your failure to complete the process as a negative listing on your credit report. When you are participating in the CCCS program, your creditors will often note it on your credit report. The fact that you resorted to a debt counseling program is a huge red flag for prospective credit granters. Remember, paying off your debts is a step in the right direction, but it does not restore your credit.
When you speak with credit granters, collection agencies, or credit bureaus, their typically under-educated staff may tell you all manner of such pseudo-legal nonsense. The law demands that negative listings appear on your credit report for no longer than seven years. The credit granter or the credit bureau can choose to delete the negative credit listing whenever they see fit.