You Can Repair Your Credit; Don't Pay Someone Else to Do It for You.

When someone gets in credit trouble, it's typically because something catastrophic has happened in her life, such as the loss of a job or, even worse, perhaps a death in the family. A consumer could work years to build a strong credit profile, only to have that credit profile be damaged by events that she had no control over. After some time has passed, the consumer can begin to repair her credit report and essentially rebuild her credit back to where it was before the disaster happened. Initially, the task of repairing credit seems daunting. Are there collection accounts that have to be paid? Are there past due payments that need to be made up? Which account should you start with first? Enter the credit repair companies.

Credit repair companies certainly advertise nearly everywhere, it seems. They're especially noticeable if you've suddenly found yourself in credit trouble.

They advertise, "We repair credit legally! 100%!" or "We get rid of bankruptcies, judgments, or collection accounts!" or something similar. Such companies will ask for money up front (don't send any) and maybe tell you not to contact any of the bureaus yourself, but to let them "handle" things for you.

A credit repair company that is intent on scamming you will make such claims, but in reality no one can remove anything that's true from your credit report, regardless of their claims. Can the company dispute items on your credit report? Can it fix true mistakes? Sure it can, but so can you, without your having to pay anyone for the privilege.

First, pay off any recent outstanding collection accounts or judgments. Next, catch up on your past due payments and, finally, pay your loan balances back down to around 30 percent of your credit limits. This is daunting at first, but concentrating on one account at a time and not trying to correct everything all at once will make it easier for you. After that, simply continue to do the things you did that got you good credit in the first place.

After about 12 months, you'll see some progress in your credit scores, and after 24 months, you've probably repaired your credit close to what it was before disaster struck. Because credit scores pay more attention to the previous 24 months than to any other period, your credit will be repaired a lot sooner than you would have initially thought.

But what about old collection accounts that are, say, five or six years old? Should you pay them to repair your score? First, you should pay any debt that you legitimately owe, but for the purposes of getting your credit scores back up to where they need to be, it might not make sense to pay off old collection accounts for a couple of reasons:

1. States have a statute of limitations on collection accounts that might prohibit a collection agency from collecting from you.

2. Any new activity on an old account would suddenly put that activity in the 24 recent months window, harming your score.

If You're Behind on Your Mortgage, Your Lender Has the Best Solutions.

When you get behind on your mortgage, you'll start getting letters from your lender reminding you of that (as if you didn't know it already), and then your lender will start calling you at home and maybe at work. The lender isn't harassing you; it's simply trying to call you and find out what's going on. Lenders don't want to own real estate through a foreclosure for a whole lot of reasons, one of which is to keep the "nonperforming asset" off of their books.

A nonperforming asset is a financial term for a loan that's not being repaid, and if the bank has enough of them, it can cost it lots of money in terms of reserve requirements and even its own borrowing capability. Banks work very, very hard to keep loans out of the nonperforming category.

When someone falls behind on his mortgage for a payment or even two, it's often hard for him to get caught up again. Although the borrower continues to make payments, it's difficult for him to make up for the past due amounts, but he is still paying on the note. This is called a "rolling late."

If you contact your lender and explain your situation, the lender can take your past due amounts and spread those payments out over six months. For instance, say your mortgage is $1,000 per month and you're two payments behind. A lender will take $2,000 and divide that by six months, adding $333.33 to your regular $1,000 per month payment, and now you're caught up again. Some lenders can take a past due payment and simply "forgive" that debt, adding it back into your loan amount. When a lender agrees to do this, it's usually only for someone who is one payment behind and not two.

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