Did you know you can successfully turn even current bad debts into a positive credit rating? Your goal is to approach these creditors and negotiate repayment plans that sincerely demonstrate your ability to make regular payments on time, pay off the debts you owe, and revive their interest in you as a customer. In return you are going to ask your creditors to restore your positive credit rating.
Working with your creditors
Even if your account has already gone to a collection agency, deal first with the original creditor. The creditor will not be as persistent as a collection agency, as it may have already given up any expectation of full payment. By dealing with the creditor, you may have more flexibility to negotiate the time or the amount to pay.
Often, because of this agreement with the collection agency, the creditor may not deal with you after turning over your account for collection. Remember, the collection agency is not consumer-oriented and will be more difficult to negotiate with. Therefore, it’s always best to do what you can to avoid having a debt turned over for collection.
If you cannot avoid negotiating with the collection agency, use these five pointers, which are also helpful when dealing with a creditor:
1) Make a win-win offer. Keep in mind that your goal is to trade money for a positive credit rating on your credit report. Perhaps you can offer to set up a payment schedule in exchange for a promise to improve your credit rating. For example, you could agree to pay 100 percent of what you owe in 12 monthly installments in exchange for the creditor agreeing to recognize your new bill-paying commitment with better credit ratings. Let’s be even more specific: Perhaps you can agree that after three months of punctual payments, a negative rating could be raised to a non-rating. Perhaps after six months of regular payments, the non-rating could be lifted to a positive rating, and so forth.
2) Obtain open account status. It looks bad when your account is closed to further purchases, even if you are making regular payments. Therefore, when you are negotiating an offer, ask to reopen your account while you uphold your end of the agreement. If the creditor will give you a clean bill of credit health, your extra effort to pay him is certainly worth it. Caution: Make sure the terms you finally agree upon are within the range of your budget so you can faithfully keep your promise.
3) Put it in writing. The win-win negotiation procedure up to this point can be carried out over the telephone. However, once you have reached verbal agreement it is vital to put it in writing. Type up the agreement as a letter, sign it, and send it with a second copy and a stamped, self-addressed envelope. Before you send the letter, however, you may want your lawyer to check the wording. Once the creditor signs the agreement and returns it to you, it can become part of your credit record. Before putting your agreement in writing, carefully repeat all the points of agreement with the creditor over the phone to get verification.
4) Honor the agreement. Now that you have a written agreement, you need only fulfill it and your credit rating will be restored. So be punctual. Make every payment on or ahead of time. Be responsible. If your ability to meet the payment schedule in the agreement should be threatened by unemployment or illness, inform your creditor right away, before you miss any payments. Let your creditors know your plans for meeting the payments, and explore ways to solve your temporary setback that will meet everyone’s needs.
5) Verify your credit upgrade. Before using your newly improved credit status, remember to order an updated copy of your credit file to verify that the creditor has honored his or her side of the agreement and made the promised changes. Allow a reasonable time period from the date the creditor agreed to make the changes, and then request your update. If the changes have not been made, call the person who made the agreement and remind that person of his or her side of the agreement. If the agreed changes are not made, you can dispute the information on your credit report. Use a copy of the creditor- signed agreement as supporting evidence for the change.
Tax liens and your credit rating
A tax lien on your credit report will definitely hurt your chances for a loan to buy a home, business, car, boat or any other major purchase. It may also prevent you from obtaining credit cards.
Unfortunately, the fact that you had tax liens may not be erased from your credit report until the taxes have been paid for seven years. However, a past lien isn’t nearly as damaging as a current tax lien. That’s why you must be certain every credit bureau updates your credit history to show that your outstanding tax liens have been fully paid and discharged.
Once you have fully paid your taxes, the IRS must send you a Certificate of Release of Federal Tax Lien. You must receive a certificate for each office that has a lien on file. This may include the clerk of your city, town or county, the Federal District Court nearest where you reside, and wherever real estate transactions for your locale are recorded. To ensure that you obtain a Certificate of Release for each lien filed, you must conduct a complete lien search. This can be done in several ways:
• Ask the IRS agent for copies of every lien the IRS has filed against you.
• Have a commercial lien search service comb the public records. These firms know how and where to look for liens, but be certain they know everywhere you lived or worked from the very beginning of your tax troubles. Also let them know of any change of name.
• Review your credit report. This may disclose outstanding tax liens, but don’t rely upon your credit report alone. A credit report may easily overlook some tax liens.
• Conduct your own lien search. It’s very simple. The clerk at the public recording office is usually cooperative and will assist you in your search.
Once you are satisfied you have identified all the recorded liens, make certain the IRS files a Certificate of Release for each lien. Don’t assume the IRS will do this on its own. Frequently it doesn’t. You must be diligent in following up on this or you’ll have outstanding tax liens that will haunt you for years.
Review your credit reports. For each recorded lien that is not noted as discharged, you must insist that the reporting agency contact the IRS or check the public records to confirm that the lien has been released. You may also send the credit bureaus copies of the Certificate of Release of Federal Tax Lien. Follow up to make sure your credit report reflects the discharge of all tax liens against you.
You can even help your credit picture if you are only now resolving your tax problems. For example, if you pay the IRS in installments, then your credit report can reflect the anticipated discharge of your lien because an agreement has been reached with the IRS. You can submit a statement to the credit bureau and insist that it accompany your credit report.
It is possible to erase existing (and unpaid) tax liens by following the same strategies used for erasing other negatives. If you challenge a tax lien, the government does not always substantiate the lien within the required 30 days. In many instances, the government won’t respond to the credit bureau for 45 to 60 days. Nevertheless, since the documentation was not provided within the required 30 days, the credit bureau must delete the tax lien notice and cannot later reinstate it.
You will be most successful if you attempt to erase the tax lien after your tax file has been transferred to the governmental archives. This transfer usually takes about a year. Having your tax file in the archives often increases the turnaround time to retrieve the records beyond the required 30 days.
Bankruptcy, repossession, and foreclosure
We have shown you how to clear up the majority of things that can occur in a credit report. However, you may have encountered some serious problems in your financial past, such as bankruptcies, court claims, repossessions, or foreclosures. These negatives may stick to your credit report after you try every method we discussed. For these major problems we can only recommend the virtues of patience and persistence. You will be surprised at how much you can accomplish merely by sticking it out. As these events drift further into your past, they will become less significant in your credit history.
You should know, however, that any adverse information more than seven years old must be deleted from your file, whether it is challenged or not. You cannot be penalized forever for past mistakes. One exception to this is a bankruptcy, which may be kept on your record up to 10 years.