Business & Economics/Personal Finance/Money Management Making Everything Easier!™ 4th Edition 4th Edition Jump-start your credit score Open the book and find: C C redit with this comprehensive r credit repair guide • Information on how credit e reporting works If you need to clean up your credit, this updated resource is • Tips on cleaning up your d Repair K it credit reports full of information to help you get your credit reports looking i t great, pay down debt, and keep your credit clean. You’ll find • Updated credit scoring out how to deal with debt collectors, dispute inaccurate examples with new ranges R information in your credit reports, and set financial goals to • Tricks for dealing with creditors e stay on track. and debt collectors • Sources of free p • Simple, proven steps — get an overview of working with debt professional help collectors, filing for bankruptcy, and more a • The lowdown on preventing • Rebuilding credit — explore options for starting or restarting identity theft and mortgage i credit, recovering from bankruptcy or identity theft, and foreclosure r much more • Advice on starting or restarting K • Big brother — find out how credit reporting works, how your credit in real life spending is watched, and how to monitor your credit for i • Tips on taking a sustainable optimal results t approach to credit • Credit management for life — discover how to create a realistic spending plan and protect your credit during major life changes Cover Image: ©iStockphoto.com/YinYang Learn to: • FICO facts — dive into the latest information on FICO and VantageScore credit scoring • Fix damaged credit or beef up thin credit • Student loans 101 — find out how to best deal with student loans and avoid defaulting • Recover from credit score hits caused by mortgage foreclosure • Mortgage meltdown — get updated information on how to keep or identity theft your home when foreclosure looms Go to Dummies.com® for videos, step-by-step examples, • Reduce insurance costs, qualify for how-to articles, or to shop! banking products, and get better Steve Bucci, BA, MA, is a personal finance expert and a nationally rates on loans syndicated columnist whose column is carried by the financial $24.99 USA / $29.99 CAN / £17.99 UK megasite Bankrate.com and the Scripps Howard News Service. • Take advantage of new consumer ISBN:978-1-118-82151-0 protections 52499 Steve Bucci, BA, MA 9 781118821510 Bucci Nationally syndicated columnist for Bankrate.com Get More and Do More at Dummies.com ® Start with FREE Cheat Sheets Cheat Sheets include • Checklists • Charts • Common Instructions • And Other Good Stuff! To access the Cheat Sheet created specifically for this book, go to www.dummies.com/cheatsheet/creditrepairkit Get Smart at Dummies.com Dummies.com makes your life easier with 1,000s of answers on everything from removing wallpaper to using the latest version of Windows. Check out our • Videos • Illustrated Articles • Step-by-Step Instructions Plus, each month you can win valuable prizes by entering our Dummies.com sweepstakes. * Want a weekly dose of Dummies? Sign up for Newsletters on • Digital Photography • Microsoft Windows & Office • Personal Finance & Investing • Health & Wellness • Computing, iPods & Cell Phones • eBay • Internet • Food, Home & Garden Find out “HOW” at Dummies.com *Sweepstakes not currently available in all countries; visit Dummies.com for official rules. Credit Repair Kit 4th Edition by Steve Bucci, BA, MA Credit Repair Kit For Dummies®, 4th Edition Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com Copyright © 2014 by John Wiley & Sons, Inc., Hoboken, New Jersey Media and software compilation copyright © 2014 by John Wiley & Sons, Inc. All rights reserved. Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. 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Library of Congress Control Number: 2013954101 ISBN 978-1-118-82151-0 (pbk); ISBN 978-1-118-82150-3 (ebk); ISBN 978-1-118-82157-2 (ebk) Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 Contents at a Glance Introduction ................................................................ 1 Part I: Getting Started with Credit Repair...................... 7 Chapter 1: Introducing Credit Repair, Credit Scores, and Your Life on Credit .........9 Chapter 2: Turning Your Credit Around .......................................................................25 Chapter 3: Cleaning Up Your Credit Reports ...............................................................41 Chapter 4: Getting the Best Help for Bad Credit for Free ...........................................57 Chapter 5: Coping with Debt Collection .......................................................................69 Chapter 6: Working with Collectors, Lawyers, and the Courts to Manage Debt Obligations ............................................................................................................91 Part II: Reducing Credit Damage from Major Setbacks ........................................................ 109 Chapter 7: Reducing Credit Damage in a Mortgage Crisis ........................................111 Chapter 8: Starting Over Again with Bankruptcy ......................................................127 Chapter 9: Repairing Credit Damage in the Wake of Identity Theft ........................145 Part III: Rebuilding Credit, No Matter Where or When You Begin ...................................................... 155 Chapter 10: Starting (or Restarting) Your Credit in Real Life ..................................157 Chapter 11: Ending Life’s Negative Credit Surprises .................................................177 Chapter 12: Protecting Your Credit During Major Life Challenges .........................189 Part IV: Big Brother Credit Is Watching You: Credit Reporting and Scoring .................................... 219 Chapter 13: Discovering How Credit Reporting Works.............................................221 Chapter 14: Understanding Credit Reports and Scores ............................................235 Chapter 15: Monitoring Your Credit Reports and Scores .........................................261 Part V: Never Have Bad Credit Again! Successful Credit Management for Life ...................................... 271 Chapter 16: Putting Yourself in Control of Your Credit ............................................273 Chapter 17: Taking a Sustainable Approach to Your Credit ....................................281 Chapter 18: Safeguarding Your Credit with a Spending Plan ...................................293 Chapter 19: Knowing Your Rights to Protect Your Credit ........................................319 Chapter 20: Protecting Your Identity ..........................................................................335 Part VI: The Part of Tens .......................................... 349 Chapter 21: Ten Consumer Protections Everyone Needs to Know .........................351 Chapter 22: Ten Strategies for Dealing with Student Loans .....................................359 Chapter 23: Ten Ways to Deal with a Mortgage Meltdown ......................................369 Index ...................................................................... 377 Table of Contents Introduction ................................................................. 1 About This Book ..............................................................................................2 Foolish Assumptions .......................................................................................3 Icons Used in This Book .................................................................................4 Beyond the Book .............................................................................................5 Where to Go from Here ...................................................................................5 Part I: Getting Started with Credit Repair ...................... 7 Chapter 1: Introducing Credit Repair, Credit Scores, and Your Life on Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Repairing Bad Credit .....................................................................................10 Settling debts ........................................................................................10 Resetting your goals ............................................................................10 Rebuilding your credit by using it .....................................................11 Using a cosigner or becoming an authorized user ..........................11 Finding sources of free help ...............................................................12 Dealing with collectors........................................................................12 Weathering a Mortgage Crisis ......................................................................13 Opting for help .....................................................................................13 Doing it on your own ...........................................................................14 Strategic mortgage default..................................................................14 Filing Bankruptcy ...........................................................................................15 Protecting Your Credit and Your Identity ..................................................16 Getting familiar with credit laws ........................................................16 Receiving free reports and filing disputes ........................................16 Signing up for credit monitoring ........................................................17 Setting alarms, alerts, and freezes .....................................................17 Identifying identity theft .....................................................................18 Maintaining Good Credit Throughout Life .................................................18 Establishing credit for the first time .................................................18 Making credit changes at life’s stages ...............................................19 Avoiding pitfalls ...................................................................................19 Managing Credit in Today’s Unforgiving Economy ...................................20 Planning for success ............................................................................21 Reviewing your credit report .............................................................21 Knowing your credit score .................................................................22 Considering credit a renewable resource.........................................23 vi Credit Repair Kit For Dummies, 4th Edition Chapter 2: Turning Your Credit Around . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Understanding How Your Actions Impact Your Credit Score .................26 Using a Cosigner to Raise Your Score .........................................................27 Turning Small Purchases into Big Credit ....................................................28 Maximizing Your Credit Score with Major Expenditures .........................30 Leveraging your mortgage ..................................................................31 Financing your car ...............................................................................33 Paying back student loans ..................................................................34 Understanding How Good Debt Builds Good Credit .................................35 Achieving goals with the help of credit ............................................35 Sending a message to potential lenders ...........................................36 Giving nonlenders a sense of how you handle responsibility .......36 Selecting the Best Tools for Building Your Credit ....................................37 Spending your way to better credit with a spending plan .............37 Tracking your progress: Paying attention to your credit report and score ...................................................................39 Chapter 3: Cleaning Up Your Credit Reports . . . . . . . . . . . . . . . . . . . . . 41 Understanding the True Value of Good Credit ..........................................42 Reviewing Your Reports for Problems .......................................................44 Using the Law to Get Your Credit Record Clean and Keep It That Way ........................................................................................46 Identifying and Disputing Inaccurate Information ....................................48 Understanding the dispute process ..................................................48 Correcting all your credit reports .....................................................49 Contacting the creditor .......................................................................52 Adding Positive Information to Your Credit Report .................................53 Opening new credit accounts.............................................................53 Adding a 100-word statement .............................................................54 Chapter 4: Getting the Best Help for Bad Credit for Free . . . . . . . . . . . 57 Knowing Whether You Need Help ...............................................................58 Gauging your need for outside assistance........................................58 Handling situations on your own .......................................................59 Identifying Help You Can Get for Free ........................................................61 Getting help with your mortgage .......................................................62 Considering credit counseling ...........................................................62 Working with an attorney ...................................................................67 Chapter 5: Coping with Debt Collection . . . . . . . . . . . . . . . . . . . . . . . . . 69 Handling Those Collection Phone Calls ......................................................70 Knowing what collectors can do ........................................................70 Knowing what collectors can’t do .....................................................71 Deciding whether to answer the phone ............................................72 Preparing to answer collection calls .................................................72 Knowing what not to say ....................................................................73 vii Table of Contents Taking Charge of the Collection Process ....................................................74 Asking for proof that the debt is yours .............................................74 Knowing when debts fade away: Statutes of limitations ................75 Negotiating a payback arrangement..................................................76 Keeping your promise .........................................................................78 Identifying Escalation Options That Help ...................................................79 Asking to speak to a manager ............................................................79 Approaching the creditor ...................................................................80 Fighting harassment ............................................................................80 Communicating with Customer Service Before Being Placed for Collection ..............................................................................................81 Contacting your creditor promptly ...................................................82 Explaining your situation ....................................................................83 Offering a solution ...............................................................................83 Covering all the bases .........................................................................84 Keeping Collectors in Check ........................................................................85 Calling in a credit counselor ...............................................................85 Referring the matter to your lawyer ..................................................85 Freeing Up Money to Pay a Collector ..........................................................86 Utilizing a spending plan .....................................................................86 Cutting the fat from your monthly spending ....................................87 Avoiding Collectors Altogether ...................................................................87 Getting organized .................................................................................87 Stopping the paycheck-to-paycheck cycle .......................................88 Chapter 6: Working with Collectors, Lawyers, and the Courts to Manage Debt Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 91 Getting a Handle on Charge-Offs ..................................................................92 So what is a charge-off? .......................................................................92 Making sense of unpaid charge-offs ..................................................93 Making charge-off payments ..............................................................93 Coming to a Debt Settlement Agreement ...................................................95 Considering a debt settlement offer ..................................................95 Hiring a debt settlement firm .............................................................95 Reaching expiration dates on debts ..................................................96 Finding Out about Judgments and What They Mean to You ...................96 Understanding Wage Garnishments ............................................................99 Dodging wage garnishments ..............................................................99 Figuring out how much can be garnished ......................................101 Stating Your Case in Court .........................................................................101 Managing IRS Debts, Student Loans, and Unpaid Child Support ..........103 Handling IRS debts .............................................................................103 Educating yourself about student loans .........................................105 Putting your kids first: Child support .............................................107 viii Credit Repair Kit For Dummies, 4th Edition Part II: Reducing Credit Damage from Major Setbacks ...109 Chapter 7: Reducing Credit Damage in a Mortgage Crisis . . . . . . . . 111 Assessing the Damage from a Mortgage Meltdown ................................112 Understanding How Mortgages Differ from Other Loans .......................114 Spotting a foreclosure on the horizon ............................................114 Counting to 90 ....................................................................................115 Knowing Where to Turn for Help ..............................................................116 Finding good help for free.................................................................116 Working with your mortgage servicer ............................................116 Avoiding help that hurts ...................................................................117 Alternatives to Going Down with the Ship ...............................................118 What to do first ..................................................................................119 What to do for more serious problems ...........................................119 What to do to end matters ................................................................120 Managing a foreclosure .....................................................................121 Strategic default: Stopping payments .............................................121 Dealing with Deficiencies ............................................................................123 Preparing for “Credit Winter” ....................................................................124 Chapter 8: Starting Over Again with Bankruptcy . . . . . . . . . . . . . . . . 127 Deciding Whether Bankruptcy Makes Sense for You .............................128 Deliberating the bankruptcy decision .............................................128 Adding up the pluses and minuses ..................................................132 Considering a debt management plan first ....................................134 Understanding Bankruptcy, Chapter and Verse ......................................135 Qualifying for and Filing for Bankruptcy ..................................................136 Qualifying for Chapter 7 ....................................................................136 Qualifying for Chapter 13 ..................................................................138 Managing Your Credit After a Bankruptcy ...............................................139 Telling your side of the story ...........................................................140 Reaffirming some debt ......................................................................141 Repairing your credit score ..............................................................142 Establishing new credit .....................................................................143 Moving forward with a game plan ...................................................144 Chapter 9: Repairing Credit Damage in the Wake of Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Taking Fast Action When Identity Theft Occurs .....................................145 Communicating with the right people ............................................146 Protecting your identity through the FACT Act .............................149 Sending out a fraud alert ...................................................................150 Blocking fraudulent credit lines .......................................................151