Wednesday, May 19, 2010

A 10-Step Take Action Plan: Part Five - Decide & Act: Dispute, Negotiate or Wait

Now it’s time to take action. This means taking the steps to get the items on your list updated, corrected, or removed. There is a book written by Linda Ferrari, a national credit expert, titled The Big Score - Getting It & Keeping It. And although I am going to give you some great information below, I highly recommend that you consider reading this book if you are facing serious credit challenges. Throughout The Big Score, you will receive access to tools, tips, information and even legal references that will help you successfully dispute and negotiate with the credit bureaus and creditors; however, for the purposes of this part of the series, I will outline the basics.

You have three choices:

Dispute

If your decision is to dispute an item, you must be ready to commit and follow through. Here are some basic tips to get you started:
  1. Send a letter to the credit bureaus giving them a detailed explanation of what you are requesting. Attach copies of any supporting documentation that you have (i.e. statements proving your correct credit card limits and proof of payments). Send letters certified, and, to avoid delay in their replies, always attach proof of social security and proof of address right from the beginning.
  2. Wait 35 days (allowing 5 days for mail time.) If the bureaus do not respond within 35 days, send a formal complaint letter reminding them that per Section 611 of the Fair Credit Reporting Act they are required to respond within 30 days from the date they received your initial dispute. Also remind them that per Section 616 & 617 of the same Act they are liable for damages, including punitive, and that if necessary you will seek legal representation. Attach your original dispute letter and proof of delivery to the complaint.
  3. Just because the credit bureau has determined an item “investigated” does not mean the results are accurate. If you are 100% sure that your claim is true and accurate, and the bureau responds stating that the creditor has verified the information and the item will not be removed or updated, you must request a reinvestigation under Section 611 of the Fair Credit Reporting Act. I highly recommend that you do so within 5 days of receiving the results of their investigation. You can repeat this process as many times as you want, however, after three to four attempts, I would consider moving onto the next step.
If the credit bureau continues to stand its ground on not updating or correcting inaccurate items on your credit report, here are some additional tips:
  • Attaching copies of lawsuit verdicts that show how consumers have prevailed against the bureaus can help you convince the credit bureaus to make the necessary changes to your reports. It lets them know that you are well aware of your consumer rights. There are several references to successful lawsuits online wherein consumers who have sued the credit bureaus and creditors with punitive damages have been awarded hundreds of thousands of dollars and even millions.
  • Look for other consumer stories on the web. There are many credit repair blogs in which consumers share their strategies. Be careful not to take advice as blind trust, but instead, look for helpful hints that pertain to your situation.
  • File a complaint with the Federal Trade Commission Consumer Response Center. You may be able to have your case added to a class action lawsuit against the bureau that is reporting the inaccurate information. You can access the FTC Complaint Wizard at http://www.ftc.gov/bcp/index.shtml, or you can mail a complaint letter to the following address:
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580

Negotiate

If your decision is to negotiate on an item, the most important advice I can give you about negotiating is to do your research before entering into negotiations with a creditor or collection agency.
Here are some other great resources to help you get to know the ins and outs of the credit counseling and debt negotiation industry:
Here are the basics to debt negotiation:
  1. Lay your debts out on paper.
  2. Validate collection and charge-off debt with the creditor or collection agency.
  3. Verify the Statute of Limitations and 7-year reporting period.
  4. Figure out how much you can realistically afford to pay.
  5. Call the creditors to discuss your options or negotiate.
  6. Get the agreement in writing, and then follow through with the payment plan as agreed.
The key to successful debt relief negotiation is to establish clear goals before you start, and be persistent. Many times you may have to contact the creditors or collection agencies several times before reaching an agreement. Be professional even when they are not. Do not let your emotions get the best of you. Be polite, calm, and cool.

I am a true believer in trying to do it on your own if you have the time because no one will have your back like you will. It does not take a specific degree to get the job done. However, there is a clear precedent set years ago by the credit counseling and debt negotiation industry that makes creditors very reluctant to deal directly with consumers. But a precedent is not a law, and if you do your research, and work hard enough, you can definitely do it on your own.
Two important things to remember:
  1. Negotiate with confidence that you will win. By doing your research, you will gain the knowledge you must have to successfully negotiate derogatory debts. Knowledge is power, and once the collection agency or creditor realizes that you have done your research, not only will you limit their response options, but they will realize immediately that you are not a pushover. The tactics that they would normally use on a consumer who doesn’t know their rights, will now be useless to them, and they will be more apt to agree to your terms.
  2. Get everything in writing. Words mean NOTHING when it comes to agreements with collection agencies or creditors and the terms they agree to on the telephone.
On the other hand, if you don’t have the time or emotional energy to face creditors and collection agencies head-on, you do have options. My best advice is to do as much research and cost comparison as you can before you hire a company to help. Make sure you do the math on the plans they propose. In other words, make sure that at the end of the day, the payment plans, or fees make sense.
Here’s a real life success story from Linda Ferrari’s book, The Big Score - Getting It & Keeping It - to help motivate you to take on your creditors.

Real Life Success Story: David

Debt Negotiation can create real life miracles. In fact, just a few months ago, I received a call from a client I’ll call David. David was in a situation in which he found himself a heartbeat away from throwing his hands up and walking away from everything. He had a failing business that had been in the red for more than two years, a home for which he now owed more than its value, four credit card accounts that were maxed out to the tune of $ 210,000, and a collapsed emotional and physical threshold.

We sat down and took a look at his debt, to see what we could do to salvage his credit and his life. The first question I asked David is how much cash he could gather to help settle his debts. He estimated that he could raise about $ 100,000 to settle $ 210,000 in credit card debt, and bring his mortgage current.
David had always been on top of the game. He usually had a lot of money, and he was strong. Because I knew this, I worked with David teaching him how to debt negotiate. At first he was reluctant, because the accounts were still open and in good standing. “There is no way that these banks are going to accept this offer from me, especially when I am still current on the accounts,” David argued. “I have no idea what to say, or what to ask for. I want you to handle this for me.”

I explained to David that original creditors do not like dealing with third parties. More so, to have a third-party call on behalf of his open accounts that were in good standing would immediately create a defensive situation. If anyone other than David made that first call, the chances of reaching a settlement amount on his accounts before they charged off would be very slim. So we wrote his hardship letter and mailed it to the creditors, and I coached David through the do’s and don’ts of negotiating on the telephone. Within one week, he had successfully negotiated three of the accounts for 40%. He told me that he was honest and professional. I had advised him to not threaten bankruptcy straight out, but to make it clear that he did not foresee being able to pull himself out of his financial situation. I also suggested that he offer to send them proof of his hardship. Proof that his company had been in the red and that he was not pulling enough income to cover his debts, and proof that his mortgage was in default. Once David finished negotiating with the first creditor successfully, the remaining creditors were much easier to face. He now knew it was possible to do something that he had believed could not be done. He saved many thousands of dollars in commission fees to a debt negotiation company and he immediately reduced his debt by more than $ 60,000.

The accounts were reported to the credit bureaus as “Paid For Less Than Full Balance,” which is negative, but less negative than a Charge Off or Collection with a balance that is open to lawsuit. Plus when the balances went down to zero, his score went up in the Amounts Owed factor because his debt to limit ratio on those accounts was at $ 0.

Wait

Two of the most misunderstood aspects of credit reporting are: Statute of Limitations and the 7-Year Reporting Period. It is important to understand both when deciding whether you should wait for the derogatory information to fall off of your report, or not. Most consumers don’t realize that there are two expiration dates when it comes to negative credit accounts. In most instances, charged off debt expires sometimes 3-4 years before the 7-year reporting period is up. What you need to take into consideration:
  • If the statute of limitations has expired on a debt, then you are no longer legally liable to pay that debt. You cannot be sued and your wages cannot be garnished. However, the item can still remain on your credit report for the 7-Year Reporting Period and you may be denied credit due to an open derogatory balance on your credit reports. Statutes vary by type of debt and by state. Call me if you have a question about your state.
  • Once the 7-Year Reporting Period runs, you can have that item removed from your credit report altogether. There are exceptions to the 7-Year Reporting Period for some public records, but in most instances, when that 7-Year Reporting Period expires, you are free and clear.
It’s a personal decision. If you are a year from the 7-Year Reporting Period and you cannot afford to pay the debt, then wait it out. However, if you are able to pay the derogatory AND negotiate a deletion, you can arrange to have the item removed earlier and get on with your financial goals. Remember, knowledge is key to successful negotiations.

It’s a personal decision. If you are a year from the 7-Year Reporting Period and you cannot afford to pay the debt, then wait it out. However, an open collection debt with a balance may stop you from successful loan transaction. If you are able to pay the derogatory AND negotiate a deletion, you can arrange to have the item removed earlier and get on with your financial goals. Remember, knowledge is key to successful negotiations.
In Part Six, you’re going to learn about how important your mix of credit is to your credit scores. You will receive some great tips on How To Get Your Mix In Check. Be sure to keep an eye out for this important information.
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