In This Chapter:
How To Restore Your Bad Credit
Tips for restoring your credit history yourself, while avoiding "Credit Doctor" scams and their illegal schemes with EIN and Tax ID numbers, wasted fees, and other scams. We'll show you how you may be able to repair your own credit by doing it yourself for free.

WARNING

"Credit Doctors" should be avoided at all costs, no matter what they promise you!  The more they promise, the faster you better run!

We offer this information here free because we are sick of these morons ripping people off.  We wrote this article so you won't get taken by the scams of "Credit Doctors" who prey off those with bad credit, charging them hundreds of dollars up front and misleading them into thinking they can just make all their credit problems go away.  If you know anyone with credit problems, make sure they read this article as we are about to expose all the Credit Doctor morons and their illegal tricks.   They have plenty of scams going take your money.  One scam is quite costly and even has the risk of putting you behind bars on felony charges.  Many of these "Credit Doctors" have ads that state "Erase your Bad Credit!" "You'll have new credit in no time", or "Start over with a clean slate".  They especially love to spam you with it.  Ignore any spam that you receive related to credit repair, credit doctors, or automobile title loans. Real professional creditors don't spam.  Many of these spamming companies just take off with your cash and don't tell you anything.

What really happens is you pay the credit doctors several hundred dollars, and they tell you what to do.  Here's where the felony part comes in.   Part of their scam is they tell you to substitute your Social Security number with your 9 digit federally issued Employer Identification Number (EIN), or a Taxpayer ID# that you are to obtain.   By doing this, you are in effect illegally creating a new persona, which you can then use to get credit cards and loans.  Messing around with your federal numbers like that is a felony, and if it is proven that you used the internet or phone lines, you could be charged with racketeering under the RICO act.  Law enforcement agencies just love to abuse the RICO act.  Besides, credit bureaus are getting much better at catching these red flags because they are smarter than you and the credit doctors.  But many times the credit doctors lie to you.  As the FTC says they'll tell you “It’s 100% LEGAL...,” or “It’s not only legal, it’s your right.”

The First Step To Repairing Your Credit

By now you should have gotten a current copy of your credit report and probably found an error or legitimate black marks, also known as "dings".  If you have not yet obtained your credit report, here's a few sites to try.

In reviewing your credit report you may have come across inaccuracies or black marks on your payment history.  Some of the most common inaccuracies are current employer or salary.  These must be corrected if you expect to be approved for credit based on your current income.  There may be an error on your report which is causing you a bad credit rating even though you do not deserve it.  On the other hand your bad credit rating might be accurate.  Either way there are actions that you can take to restore your credit.  This chapter will first discuss how to fix errors, typos, and omissions on your credit report.  The second part of this chapter will provide advice on restoring a bad credit rating, and making your credit report look more presentable to get you the credit you deserve.

Many people are scared because they don't know what's on their credit report or how it will affect their chances for a good deal.  Car dealers use this to their advantage because almost everyone has a  bad mark on their report.   How often does this happen: You get an erroneous notice from a credit card or bank saying "we never got your check".  You call them up, find out it's their mistake, no problem.  But many people are shocked to find out this error made it onto their credit report! Here are some other scenarios that can put black marks on your credit report without you knowing it:

          1) You go through a divorce and your spouse has spent your credit cards up to the limit and left you holding the bag.

2) An old unpaid bill from your careless college years can keep you from getting a loan until it is fixed.

 

3) You moved out of an apartment and the electric company never sent you a bill for your last month there.  Now you have a late fee charge off on your credit report and it is keeping you from getting a credit card.

         4) A creditor fraudulently places a black mark on your credit report.

         5) A Bill paying service you are using "forgets" to send in your payment.

         6) A contractor you hired places a black mark on your credit history because you refused to pay him for unfinished or shoddy work.

         7) You bounced or overdrafted a check in your checking account.

         8) You were late paying your credit card payment.

Tricks of the "Credit Doctors"
As we mentioned before, there is NO way to simply erase bad credit.  Most of these expensive services (many who can charge hundreds of dollars) are nothing but scams that prey on those down on their luck with promises of making your bad history go away.  in fact, we think you should avoid credit doctors at all costs.   They just charge you $500-$1000 to do what you can do for yourself for free. But the harsh law of credit physics is pretty hard to beat.  If a black mark on your credit history is correct, not a person alive can remove it.  But there are a few tricks to that the "credit doctors" use.  One friend of ours was at a credit doctor's office, ready sign an $800 check over to them, when he got uneasy about the fact that the salesman seemed to be over hyping their ability, as well as the financial benefits of their service.  Luckily, our friend walked out, but many others are not so lucky. 

Credit Doctor Trick #1:  They simply inundate the credit bureau, broadly disputing all the bad marks on your credit report in the hope of bogging down the system.  They are banking on the chance that the bureau will be so busy answering all their frivolous disputes within 30 days, that they will not finish reviewing all of them and they'll default on the 30 day limit.  By law, if a credit bureau does not respond to requests within 30 days they must remove the disputed items from your credit report.  You can do a better job of this yourself for far less money than a credit doctor would charge you. But in this day of electronic banking and online approvals, the credit bureaus can quickly determine if the bad marks on your credit report are valid.  Also, Credit Bureaus have gotten wise to the scheming of credit doctors and are allowed to refuse or ignore "frivolous requests".   These requests would be the type we mention above where the credit doctors buckshot the credit bureau, disputing every item on your report.  Because of this, credit doctors have become much less effective than they used to be.  A Credit Doctor's chances of success are no better than yours if you are armed with the information we give you here.

Credit Doctor Trick #2:  This is the most successful method.  Do it yourself and contact the creditor personally, bypassing the credit bureau.  The credit bureau cannot remove valid bad marks off your record unless told to do so by the creditor who put it there.  So go right to the source.   Erroneous bad marks on your credit report should be easily removed with a simple phone call to the creditor.  Others require some work.  You must always be calm, never aggressive, don't be angry, you will portray the part of a thankful, distressed client in need, and the service representative you are talking to is the person who can help.  Many times they will work hard to help you too.  Even if you had been late paying a bill years before, you may be able to convince them to remove the bad mark on your credit report.  There may have been mitigating circumstances like you never received the bill, and you can point out that you did pay the bill when you found out it was due.  But one thing is for sure, if you don't ask for it, they won't do it, so a 5 minute phone call is worth it.  We've done this before with test cases and it does work.  Don't be afraid of getting "No" for an answer, that does not mean you lost.  Supposing they had written off a charge on your account in the past.  You can negotiate to pay them back in full if they agree to reinstate your positive credit rating.  Many creditors should agree to this, as this is an offer right out of the blue, and they avoid having to pay a collection agency.   Tell them you are trying to do the right thing, while still protecting your credit rating.  Practice what you will say before you call them, and anticipate their reactions to your statements.  If your creditor agrees to your proposal, always get it in writing before you pay them.  They could just be baiting you into to pay them back, then they still leave the black mark on your credit report.

Credit Doctor Trick #3: This is similar to the credit doctor tricks mentioned earlier.  You can use the software mentioned above, or simply write your own letter to the credit bureau and dispute the bad marks.  You may get lucky and they won't get to it in time, or even better, maybe the original creditor went out of business, now the credit bureau will hit a dead end and will be required by law to remove the black mark because they cannot verify it with the creditor.  Maybe the creditor was bought out by another company, and records were not well maintained.   When the credit bureau investigates your claim, they'll hit a dead end and they'll have to remove your black mark.  You may also direct the credit bureau to add 100 words of your own choosing to dispute certain items on your credit report.  This trick is always worth pursuing if the others fail.

If you have a bad credit rating but do not have debt outstanding, click here to jump to "Rebuilding Your Credit"

 

Restoring Your Credit

There's another way to restore your tainted credit:  Start paying your creditors what you owe them.  Then maybe the creditors will remove the bad marks from your credit history.  This is a good negotiating point for you with your creditor.  If you have several credit card balances, transfer as much as you can to your lowest interest rate card, then ditch the other cards.  Leave your credit cards at home, and stay out of the malls you own enough clothes.  Pay more money to cards with high APR, and ALWAYS send more than the minimum payment, or it will take  years to pay off the balance.  Here are some common methods that people use to pay off high interest debt:
 

• If you have cash in the bank earning a few percent, it's losing you more to income taxes, so you can use it to buy down your debt.

• If you have equity in your home, a home equity loan can be used to pay off your high interest credit cards.  Sometimes APR on an equity loan is less than credit cards, and as an added benefit, the interest on home equity loans may be tax deductible, making the effective APR even less.  Don't borrow more than 80% of the equity in your home.  You can't write off the interest if you borrow more than what the house is worth.  There may also be points charged at the loan closing so be sure to figure those into your analysis.

• If you have a stock that's doing bad and would create a loss for you by selling it, here's an idea.  If you expect to have gains this year from your other stocks, one consideration is to sell your dog of a stock at a loss to offset your taxable gains, then use the proceeds of the sale to payoff your debt, which is losing you 18% APR.  This just created 2 financial advantages for you.  The same could be said about a stock that is making you money.  You could sell the stock at a profit, then use the profit to buy down your debt, which is losing you 18% APR. Too many people who think they are smart investors only focus on their stock market "winnings" but fail to recognize that credit card debt at 18% erases your stock market gains.  You must pay attention to your total financial picture.

• If you have a retirement account at work, some companies allow you to borrow against this account and pay yourself back with interest.  This can be a good way to earn more interest on your retirement funds, but this is also a risky loan.  If you default on this loan, there goes your retirement money.  You should seek the advice of a professional credit counselor before attempting this type of loan.

Click Here to find out how to pay lower interest on your credit card debt

Don't you hate those junk mail credit offers and home equity loans that will lend you up to $80000?  The most banks will lend is 80% of the equity in your home, which for most people will end up being a $15000 loan at best.   I just stuff their prepaid envelope with their own junk and let them pay the postage to get it back. If we all do it, maybe we'll see less junk.

Sometimes you are just in too deep and your situation is too confusing.  That's when it's time to bring in the pros.  We are not talking about credit doctors and their unethical unpredictable scams, we are talking about credit counselors, that work out deals between you and your creditors for you to responsibly pay what you owe, and earning your good credit standing back, one creditor at a time.  Many times the counselors can get your creditors to reduce the interest, or drop it altogether if you'll agree to pay back what they owe.  This is a win win situation for all parties, as now your creditor does not have to hire a collection agency to get their money back.  Please see our chapter on credit counselors for more information.

WARNING

Some lenders just send you a pre approved check out of the blue, hoping you'll just sign up to their program without doing your homework first.  Here's what usually happens.  You'll get a check in the mail from them for say $3500 with a letter that says: "Congratualtions, attached is your check for $3500 to open your loan account.  Because you've demonstrated your financial responsibility, we've sent you this first check for your new Greedy Bank Of America Credit Line.  Use it to make that special purchase, pay a few bills, enjoy a relaxing getaway, fix your car or home, it's your money, so it's up to you." Of course if you're smart like we know you'll be after reading, you'll scan through the fine print to see the interest rate is a whopping 24%!  You should be asking them why they want you to pay them 24% to payoff bills that are at 18% or lower!  On top of that, you'll also note the fine print states there is an annual fee for participation in this revolving loan program, and fees for documentary stamps and personal property taxes.  Of course you can purchase insurance options as well.  Anytime someone just sends you a check in the mail like that, just rip it up, they are doing you a big disservice.  The only thing they care about is stealing you out of your current debt and dipping you into their 24% APR, riddled with fees that they don't tell you about on the front page of the letter.

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Rebuilding Your Credit:

Once you have removed as many bad marks from your credit report as possible it is time to start rebuilding your credit rating.  The first thing you need is a line of credit to use in order to prove that you are credit worthy.  We recommend that you get ONE credit card to use.  This way you will be able to control your spending and build a good history as quickly as possible.  Use the card to buy gas or food, and pay it off in full each month to establish a pattern of responsibility.  You can't get blood from a stone and the moral of the story is to not get into these situations to begin with.   The way to build solid credit is to pay your credit bills on time.  So how do people with bad credit get into these situations?  By not taking their financial pulse and making a budget.  You must have a budget and stick to it.  Remember our Credit Rule #1?  If you don't know how much money you owe your creditors, you have a credit problem.  End of Sermon.

Find Out Who Will Give You A Credit Card Instead of applying to different credit cards, getting turned down, and having your credit ruined even more, try this cool credit card finder called Cardsearch.  Just answer a few simple common questions, and they list all the credit card banks who are guaranteed to issue unsecured credit cards to people matching your criteria of "less than perfect credit".  It's like pre-qualifying, WITHOUT the credit check.   Click Here for a list of banks guaranteed to give you an unsecured Credit Card

 

To establish or rebuild bad credit use an unsecured credit card.

 

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Tips to remain creditworthy as you rebuild your credit
 

Don't move around too much.  Creditors hate to issue credit to nomads, so don't apply for credit unless you've been stationary for at least 6 months.

Always pay more than the minimum monthly payment.  If you send in the minimum payment every month, it could take over 3 years to pay off your balance, because interest is accruing on the remaining balance.

Keep at least one creditor happy.  If you're in the weeds and file bankruptcy, or develop bad credit, stop spending for 6 months, and concentrate on keeping at least one of your credit accounts in good standing.

Don't change jobs frequently.  Notice the pattern yet?  Creditors like stability.  If you've been at the same job for 3 years and living in the same house for 3 years, they'll love to have you as a customer.

Have a verifiable address.  Don't get rejected for credit simply because the creditor was unable to open the phone book and verify your address.  This can mean you move around a lot.

The key to stability is living where you can afford the rent, even if it's not up to your standards, so you don't have to move every year.  If you move around too often you become uncreditworthy.  Also, if you're a trouble maker, that can be noted on your credit history by the apartment management.  We look for this whenever we run credit checks on prospective tenants at our rental properties.  How many banks do you think will lend money to some loser who always had the cops called on them?

 

Go to the next chapter All About Credit Counselors.