Credit Repair for Real Estate Investors. Post 232

Coach Mitch’s REFLECTIONS™

 

Credit Repair

Many wanna-be real estate investors see credit repair as a way to solve their credit issues because bad credit interferes with their ability to get regular loans, hard money loans or private financing.

There are very real things we can do to demand that our credit report is accurate. Now, let us be very clear. We do not mean accurate as in a moral sense, rather, accurate in this case means in the legalistic sense, i.e. what can we do as a sneaky lawyer-like consumer to use the law and the system to our benefit, just like the miscreant politicians and monopoly corporate types use the system to entrap and betray US.

Read every word of this report and follow the ideas carefully.

Credit Reports

We can get one free credit report every year from each of the credit reporting agencies by going to www.annualcreditreport.com 1-877-322-8228. What I suggest to my clients is to get one credit report  from only one credit bureau. In this manner you can get a report every four months.

The FCRA, Fair Credit Reporting Act, requires that only accurate information be on a credit report. You can dispute negative credit information and show that the information is not accurate. Thus, you have a legal basis to demand the credit bureau remove that negative credit item.

The credit report is created with several parts which are relatively standardized.

Personal Info: Name variations

There could be a variety of names listed on your credit reports. They will be variations on your name or AKA’s, Also Known As. The more name variations you have, the lower your credit score. The computer model used with name variations actually increases your risk. With several different spellings of your name, in the experience of credit granters, the risk is a little bit higher, lowering your score. It’s not going to be 50 points, it may be 5 points or 10 points, but it counts.

Similarly, the more addresses you have the riskier you appear to be. Credit granters will wonder how they are going to get in touch with this person – if they need too. They will wonder which address will be a good address. So, the more addresses you have the more points you are likely to lose from your credit score.
Best is if you should have just one name and two addresses. The first thing you should clear up is the number of names and addresses.

Clearing names and addresses

When you dispute the information on your credit report, such as a closed account, paid collections, charge offs, the credit bureau is going to link that account with one of your addresses. The credit bureau will then maintain that because the Social Security number and the old address matches, that this account is correct and you’re not going to delete it.

If you have disputed the old addresses, and the credit bureau was forced to removed them, because there is no way to verify that you lived at 123 Broadway, then, when you later dispute the accuracy of any negative credit item associated with that address, the credit bureau will see that their address information is not accurate and be forced to remove the negative credit item. If they do not, then you have a legally enforceable reason ask them to remove the negative item.

Consumer statement:

Consumers have the legal right to include a 100 word explanation regarding any particular credit item. There is no need to avail yourself of this right. It will usually hurt you.
If you explain how a collection account occurred – you are admitting that the collection account is yours. You can no longer assert that the negative item is not accurate. Any judge will look askance were you to ask that the accurate statement should be removed.

The way creditors look at this issue is: You entered into a legal agreement; they upheld their end, you should uphold your end. You should have prepared better for any potential mishap in your life. That is why disability, accident, medical and life insurances are available. High cost is your problem to solve. That is why savings is important. You are responsible for your life. No excuses!

Account history:

The account history shows all open and closed accounts in your credit report. Your account history shows important information about your account. Among the items: the date the account was opened, the last time the account was reported to the credit-reporting agencies, the credit limit on the account, the highest balance that you owed, the current account balance, the monthly payment required, the last payment made to the account, and the date an account was closed. The monthly payment history reflects if payments were made on time, or if late, how late, in 30 day increments.

The credit limit and high balance are important. The amount of credit reflects the confidence that a credit granter has in you. It is their bet. The high balance shows how close you have come to that level.

The closer you have come to the credit limit, the more risky you are to the credit granter. Ideally, you want to be at a 50% credit balance to credit limit ratio. If your credit limit is $10000, then you don’t want to go over 50%, or $5000 in balance owed. The higher the percentage, the more risky you become, and the lower your credit score, even if you pay on time.

A ratio of 50% of the credit balance to the credit limit is the important number. If you go higher than 50% then consider asking the credit granter to increase your credit limit. The higher the credit limits the better for your credit scores.

It’s not hard to raise your limit   

Recently I did a rehab and consented to a Home Depot promotion and got their card, even though it has a high interest rate if not paid within 30 days.

I called in, gave info, and in under a minute I was granted an $8000 credit line. The rehab took several thousand dollars and I decided that I wanted to increase my credit line. I called in, made sure my balance had been paid off in full and asked for a credit line increase. They asked, “How much?” I said, “$20,000.” In under 30 seconds they said, “OK.” My account was only about 45 days old. Now, I admit, having a credit score someplace well over 800 helps. At one time I had over 200 open credit cards, with $250,000+ in cash advance credits. I never had a late payment.

BTW, when the banks ask for your personal information, they cannot check anything that you state, so they are betting that you are telling the truth.

While they can check your address, social security number, etc., they cannot check your income. If you earn $40,000 but you say you earn $106,000, they cannot check, and your credit line is granted based upon your stated income – which is compared to the debts they see on your credit report, giving a debt to income ratio.

With debt payments on your credit report totaling $1000/month, an income of $106,000 gives a DTI of 11.32%, whereas an income of $40,000 gives a DTI of 30%. BIG difference. Be careful, as fraudulent Stated Income mortgage loans is a big reason why we had the Savings and Loan fiasco in 2000 and the Bank Bailouts of 2008.

Banking trickery

A significant current issue is that banks are lowering current credit card limits to below the balances owed. This hurts because, you are over the credit limit, which is bad, and your credit score is going to be lowered. You must work quickly and diligently to get the bank to increase your credit limit so that your balance is below 50% of your credit limit. This is important.

People believe that paying off their credit card debt is a very good thing. That is not a good idea. Credit granters believe that you could lose your job and spend wildly, or the empty card will be an enticement to run off to Paris. Ideally, you want to keep no more than a 20% credit balance, that is, only owing 20% of your credit limit.

Public records

Anything involved with our court system is defined as a public record, and can be listed on your credit report. These will be listed, showing the date issued, the judgment creditor, and the amount owed.

Go to court

You should always challenge any issue in court. Judges like for the two sides to settle. Tell the bank card attorney that you would like to settle for 10¢ on the dollar. If the attorney objects, say that you will tell the judge that the bank is not settling, and typically, the judge won’t issue a judgment. Be prepared to pay that settlement amount.

You can also ask the judge to have the debt verified. Verifying the debt involves having the creditor prove that you actually incurred the debt by showing a contract with your original signature. If the bank cannot supply your application, then the case will be dismissed because the debt cannot be verified or proven. Often a judge will not accept a copy of a signature.

You can ask for verification of the debt even if the judgment has already been granted. This is a very important point, as many credit card banks have closed and their records may be lost.
Should a judgment have been granted and you ask for verification of the debt, and the bank cannot provide your signature on an application, then the judge might order sanctions be paid by the bank, because the bank sought payment of a debt without proof of that debt.

If you have not appeared in court, even after a judgment has been issued, you can still reopen the case. You can explain everything to the judge, if you have too. Often, the bank will not want to expend further funds for an attorney and the bank will not be represented in court. The judge will then dismiss the case, and order the judgment dismissed.

You can then dispute the accuracy of the judgment with the credit bureaus. The court paperwork will show the dismissal and the bureau will see that the record is not accurate. Be sure to follow up with all three bureaus so that your credit score can be raised when the judgment is removed.

You can do approximately this same  process with collection accounts and  charge-offs. Don’t pay anything, get  verification of the account with original  signatures, and try to settle, but only if the creditor will remove the negative item. They can do this even though you will be told that it is illegal. It is not. Be sure not to make any payments until you have everything in writing, on the collection company’s letterhead and signed by a person that has the appropriate authority. After payment, dispute the negative and have it removed.

Inquires

Every time you apply for credit, you create an inquiry. Hard inquiries will stay on a credit report for two years. A group of inquiries, of the same type, is considered as only one inquiry if gotten in a short time span, like 15 days. If seeking to purchase a car, and you go to several car dealers in a short time period, all the car dealer inquiries will be interpreted as only one inquiry.

A Good Idea

Bring a copy of your current credit report with you any time you are going for a loan. The credit grantor will require that they run a credit report in order to give you a loan but they can look at your report to give you an approximate idea of what interest rate they would charge. Should the rate not be to your liking, you don’t have to get an inquiry on your report.

General rules affecting your credit score

Installment loans are considered a better loan type than revolving loans. Installment loans have the same payment each month. They show consistency. Revolving loans have adjustable balances, which are not consistent. A late payment on a credit card therefore will affect the credit report more than a late payment on a car loan.

Try to schedule the acquisition of new credit to not more than once each quarter. Don’t open a lot of accounts at the same time. It creates alarm bells because it shows that you are seeking a lot of credit, a questionable pursuit.

A long credit history is a very good thing. It shows stability. Keep old accounts open, even if the credit limits are low and you don’t use the account anymore.

The more open accounts you have, the better. It shows that many credit grantors think you a good credit risk. The credit reviewer sees that others have a good opinion of you, so he can also, and feel safe in that decision.

Credit grantors and credit bureaus have 30 days to verify any dispute, or the negative item must be removed. Sometimes counties are busy and cannot answer in time. By timing a dispute, you can sometimes get lucky when putting in an application, say, for a mortgage. The credit bureau may not get the information about a judgment in time and you get a mortgage.

Collections and charge-offs stay on a credit report for seven years after the last reporting date. A creditor cannot legally re-age your account, that is, they cannot send in a report after five years and get another seven years of reporting.

When disputing any negative, you do not have to give an explanation why you state the information is not accurate; all you need to do is stipulate that the information being reported is not accurate.

You can dispute a reported item as many times as you wish. The credit bureau must investigate each time you dispute an item. Ignore any statements by the bureau that your request is “frivolous.” Just send another request stating that the item is wrong, and to remove it. Best is to state a different dispute for the credit item.

Make sure to communicate in writing, not over the internet. Send all communications certified, with a signed return receipt. It is more costly, but it shows that the bureau received your letter.

Most lenders will take a middle credit score, that is, of the three credit bureaus scores, the middle score will be the one that is used to determine if credit is given and at what rate. You must make sure to dispute information on all three credit bureaus at the same time, so that the reports are not out of balance. You don’t want a high score and two low scores.

Re-aging

Re-aging is the changing of the Statute of Limitations (SOL) date of a debt OR the changing of a credit status of a credit item.
Re-aging is beneficial when used to upgrade credit, as going from delinquent status to current. It is an illegal practice when re-aging is utilized to lengthen the SOL, and permits derogatory collection accounts to appear on a credit report longer than the Fair Credit Reporting Act, FCRA, allows for the defined obsolescence period.

Collection agencies regularly change the dates on accounts to make them appear newer than they actually are, in violation of the Fair Debt Collection Practices Act. Re-aging results in collection accounts being on your credit report far longer than the law allows, thus increasing the odds and the ability of the collection agency to pursue collection. The Fair Credit Reporting Act stipulates when the seven-year reporting period begins, and that the same date is used when the account goes 180 days delinquent with the original creditor. This date never changes, no matter how many times the debt changes ownership. Re-aging is one of the single greatest concerns of consumer advocates, and constitutes the basis for many law suits against collection agencies.

Law suits

You have the legal ability to sue your creditors or to sue a credit reporting agency in small claims court. You merely ask the court to remove the negative information. Do not ask for monetary damages; only ask for an injunction to action. Because money is not involved, most likely, the creditor will not appear in court and you will receive a default judgment against the creditor for your request to have the negative item removed. Be sure to file in a court of equity, even if it is state court, with its higher fees, because only a court of equity has the power to order the company or credit agency to perform a specifically requested action.

Identity Theft

These days it is almost mandatory to check your credit card balances daily. However, if you are dealing with ID Theft, you have the leverage you need to force removal of anything included in the theft. You should do the following:

1. File a police report
2. Activate a fraud alert with each credit reporting agency. Experian – 888-397-3742, Equifax – 800-685-1111, TransUnion – 800-916-8800
3. Visit the FTC www.ftc.gov and obtain an ID Theft Affidavit
4. Contact each creditor and notify them of the ID Theft status.
5. Add a victim statement to each credit item in each credit report.
6. Forward a copy of the police report & ID Theft affidavit to all companies – credit reporting agencies, creditors, and collection agencies.

When involved in identify theft, you are able to get two free credit reports per year. The fraud alerts are only good for three months. You should renew the fraud alert as needed. Most important, you must be aggressive and stay on top of the credit situation.

You need to keep good records, take down names of companies, dates and times you called, name of reps you spoke with, their number & extension. Keep good notes about everything talked about. In some states you can legally record the call and use the recording in court. In states where recordings are not legal, I have heard of people recording the calls to ensure accurate note taking.

Statute of Limitations

This is a confusing area for many. Do not confuse the reporting limitations of credit items with the SOL for suing for non-payment. They are two different things. The Statute Of Limitations is the legal period you or a creditor has to sue. Reporting time is the period an item can remain on the credit report.

The FCRA seems to stipulate a SOL for reporting a credit item, but it does not. Any payment to a credit item restarts the credit reporting clock at zero. Example: If you have a collection account that has had no payment for five years, and you make a payment; at that point the credit reporting clock starts over from the date of that payment. If you had waited the seven years without payment, the collection account would have been removed from the credit report.

Each state is different. These are the Statute Of Limitations for bringing suit in NY. Open Account.: 6 years (NY) Written Contract: 6 years (NY) Domestic and Foreign Judgments: 10 year renewable lien, total 20 years (NY) Money Judgments: 20 years (NY).

If you make any payment within the time listed, then the Statute Of Limitations can be restarted. The lender has another 6 years from that new payment date to sue, should you stop paying again. The credit bureau is also able to report this activity for the next seven years.

Once a judgment is obtained, the open ended Statute Of Limitations is void. The judgment takes over and the SOL is going to be a total of 20 years (NY) from the filing date of the judgment.

The 7 year reporting period can’t be renewed on closed end / open end accounts. If a judgment is obtained in NY, then for 7 years of the first 10, the judgment can listed on the credit report, leaving 3 years that cannot be reported. If, the judgment creditor renews the judgment, then a new listing can be added to the credit report for only the first 7 years, and for the last 3 years, the judgment will again be removed from the credit report.

The bigger problem is if the judgment gets converted to a lien, then a lien can remain on the credit report forever as long as it remains unpaid. Once paid, the credit bureau can still report the consumer’s lien for an additional 7 years from the satisfied / released date.

The Fair Credit Reporting Act can be hard to understand, and hard to locate relevant information. I recommend someone to reread the FCRA until it starts making more sense.

Pay to delete

If you are going to make a payment to an old, unpaid account, you should certainly get something for your good behavior. When agreeing to pay, but before making any payment, get a letter from the creditor, on their letterhead, signed by competent authority, that upon several on time payments (3), the credit status is stated as “current,” and then deleted completely from the credit report upon full payment or listed as “Paid Satisfactorily.”

Getting information

Ability of Consumer to Dispute Information Directly with Furnisher

In general. The Federal banking agencies, the National Credit Union Administration, and the Commission shall jointly prescribe regulations that shall identify the circumstances under which a furnisher shall be required to reinvestigate a dispute concerning the accuracy of information contained in a consumer report on the consumer, based on a direct request of a consumer.

Bank Levy

If a creditor gets a judgment against you, your wages can be garnished and your bank accounts can be levied. The creditor can send your bank a judgment letter and request the bank to collect any money that gets deposited into your accounts. The moment any amount that falls into your account, it gets garnished by the creditor and this process continues till you paid the entire amount owed. This process is known as a bank levy. Social Security payments cannot be garnished by private creditors. Social Security payments can be garnished for back alimony, child support, unpaid federal taxes and amounts due other federal agencies.

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