I'm a college student.  Bad, to start with, but worse, three years ago
while driving my motorcycle an older woman broadsided me with her car,
and eventually the judge in small claims court judged me guilty (this
is debatable, but another story) to the tune of $1000.  My father (I
was 19) was outraged, and told me not to pay it, and I ignored the
collection agency that chased me around for a year or so.  ALSO (this
was my fault) I forgot to return a heating pad to the physical
therapist (I sprained an ankle and hurt my knee in the accident) which
eventually got to a collections agency, but I got back from the
summer, returned the pad and got that taken care of.  Obviously, I've
got bad credit.  In my favor, I have a smallish IRA, a bank account
(again smallish), own five acres of an island in Maine, only Stafford
loans, and will have my BA in June.  I've heard that the so-called
credit services online that promise to restore good credit are bogus,
and I want to establish good credit, assuming that eventually I could
use it.  Can anyone help me? I'm willing to put work into this
solution, but definately don't want to do a scheme or anything
illegal.  Also, if there is a better catagory for this to be in,
please tell me.

Hi there,

I've been there, and is it ever a painful situation to be in!  You're
right that the online "repair schemes" are bogus - the only way to get
yourself out of this mess is to work at it, but the work is quite a
lot easier than you might think (and it sounds like your credit might
not be as badly damaged as you believe it to be!)

Let me address your question from a personal perspective:

First, get copies of your credit report from all three credit
reporting agencies (I'll provide the addresses and contact information
at the end of the answer.)  Go  over all of them carefully, and make
note of any inaccuracies.  For example, you note that you did return
the heating pad you had forgotten about, so that account should be
listed as settled.  If it is still listed as an open account, you can
dispute the information to have each credit bureau correct the error,
along with any other errors present on your report.  (How to do this
will be listed with the credit bureau contact information.)

Next, let's get that other collection account taken care of.  If
you've still not paid the debt, contact the agency immediately to make
arrangements to pay the debt.  Write or call to make arrangements, and
request that the agency report your account as "paid as agreed" while
you're paying it off.  Most agencies are willing to do this as long as
you stick to the arrangements you make with them.

*Get the arrangements in writing!*  When you send in your final
payment, enclose a letter referring to the agreement that the agency
report your account as "paid as agreed", and ask them for written
confirmation that they have done so.  Follow this procedure with
*every* outstanding account you have.

(If you've already paid the debts, contact your creditors in writing
and ask them to update your reporting information to read "paid as
agreed", to reflect the paid off status of your account.  Many will.)

One you've squared your debts away and have corrected any inaccurate
information in your credit reports, you need to get some positive
credit information in there to put you on the road to clean credit. 
NOLO Law Centers offers two sensible suggestions:

"Q:  What can I do to rebuild my credit?

A:  After you've cleaned up your credit report, the key to rebuilding
credit is to get positive information into your record. Here are two
suggestions:

    * If your credit report is missing accounts you pay on time, send
the credit bureaus a recent account statement and copies of canceled
checks showing your payment history. Ask that these be added to your
report. The credit bureau doesn't have to, but often will.
    * Creditors like to see evidence of stability, so if any of the
following information is not in your report, send it to the bureaus
and ask that it be added: your current employment, your previous
employment (especially if you've been at your current job fewer than
two years), your current residence, your telephone number (especially
if it's unlisted), your date of birth and your checking account
number. Again, the credit bureau doesn't have to add these, but often
will."

Rebuilding Credit FAQ
http://www.nolopress.com/encyclopedia/articles/dc/dc21.html


In the meantime, be certain to pay any installment loans or credit
card bills *on time*.  If for any reason you cannot make a payment on
time, contact the creditor *immediately* to let them know why and when
you expect to pay.  If you don't have a credit card, apply for one. 
Use it to make small purchases, then pay them off as soon as the bill
comes.  An open line of credit in good standing shows prospective
creditors that, even though you've had a few dings in the past, you're
capable of meeting your responsibilities.

NOLO Law Centers explains the usage of credit for the purposes of
rebuilding credit:

"QA: I've been told that I need to use credit to rebuild my credit. Is
this true?

A:  Yes. The one type of positive information creditors like to see in
credit reports is credit payment history. If you have a credit card,
use it every month. Make small purchases and pay them off to avoid
interest charges. If you don't have a credit card, apply for one. If
your application is rejected, try to find a cosigner or apply for a
secured card -- where you deposit some money into a savings account
and then get a credit card with a line of credit around the amount you
deposited."

Rebuilding Credit FAQ
http://www.nolopress.com/encyclopedia/articles/dc/dc21.html

A word of caution:  Don't overdo it with credit cards - carry two or
three, and use them only for small purchases that you can pay off
right away.  Creditors want to know that you can handle multiple
accounts, so be certain not to overextend yourself, and to make all
payments on time.

Take heart.  You can have your credit cleaned up and shiny again in as
little as two years (or even less if you can convince your creditors
to have your old account listings deleted!)  Typically, derogatory
credit information can remain on your credit report for 7 years, but
most credit card companies will issue you a card if the derogatory
information is more than two years old:

"How long does adverse credits appear on the report ?  
The public record information and adverse credit information are
reported as follows:
 
Bankruptcy ------------------------------- 10 years 
Tax Liens ------------------------------- 7 years 
Judgment ------------------------------- 7 years 
Foreclosure ------------------------------- 7 years 
Notice of Default ------------------------------- 7 years 
Collection ------------------------------- 7 years 
Repossession ------------------------------- 7 years" 
 
Know Your Credit Report 
http://www.1acs.com/Question1.asp

See also:
Rebuilding Credit FAQ
http://www.nolopress.com/encyclopedia/articles/dc/dc21.html

To get yourself started, write the following agencies for copies of
your credit reports, or order them online:

Equifax  
P.O. Box 740256   
Atlanta, GA 30374-0256 
https://www.ai.equifax.com/ai/ 
 
TransUnion LLC  
Consumer Disclosure Center  
P.O. Box 1000  
Chester, PA 19022  
1-800-888-4213  
http://www.transunion.com/Personal/PersonalSolutions.jsp  
  
Experian  
P.O. Box 2002  
Allen, TX 75013  
1-888-397-3742  
http://www.experian.com/consumer/index.html# 

If you find any inaccuracies, compose a letter to each agency
explaining which information is incorrect, and ask them to either
verify the information or delete the listing.  Enclose a copy of the
report with the mistake circled, highlighted or otherwise clearly
indicated.

Also include in your request:  
    * First, middle, and last name (including Jr., Sr., III)  
    * Current address  
    * Previous addresses in the past two years, if any  
    * Social Security number  
    * Date of birth  
    * Current employer  
    * Phone number  
    * Signature


You might also find the following resources useful:

Building A Better Credit Record  (Includes sample dispute letter)
http://www.ftc.gov/bcp/conline/pubs/credit/bbcr.htm

Credit Repair: Self-Help May Be Best
http://www.ftc.gov/bcp/conline/pubs/credit/repair.htm

Erasing Bad Credit - Audio Presentation from the FTC  (Requires
RealPlayer)
http://www.streampipe.com/ram/ftc/call_for_action/erase_bad_credit.ram

Credit and Your Consumer Rights
http://www.ftc.gov/bcp/conline/pubs/credit/crdright.htm


I hope this helps!  If you need further assistance, don't hesitate to
ask!  I'll be glad to help you out!

--Missy

Search terms:  [ "rebuild credit" FTC ], [ "credit repair" ] and more
firsthand experience than I care to admit!

---

Request for Answer Clarification by arnicae-ga on 26 Nov 2002 21:02 PST

Do I really have to PAY the award from several years ago?  I stand
with my father in thinking that this was a somewhat questionable
ruling (i.e. pretty much bunk) and I don't want to support this woman
driving around and hitting people!

---

Clarification of Answer by missy-ga on 26 Nov 2002 21:48 PST

Hi arnicae,

If you intend to re-establish good credit, yes, particularly if the
judgement resulted in the filing of a lien against you.  Unlike most
debts, which disappear from your credit report after 7 years, liens
are renewable and do not go away unless they are released - either by
judicial order or by you paying the debt in full.

Additionally, as long as the debt remains unpaid and on your record,
you're vulnerable to wage garnishment and/or attachment of property
and/or bank accounts until the debt is paid.

To determine whether or not a lien has been filed, you'll need to
obtain your credit reports.

If a lien was not filed and it's been seven years or more since your
last contact with the collection agency, the debt may have disappeared
from your credit report.

If it hasn't, and you're serious about re-establishing good credit,
you'll need to pay the judgement.  Your only other option (and a very
bad one) is to file for bankruptcy - it wipes out all of your debts,
but also takes your assets, too, and remains on your credit record for
ten years.

--Missy

Great answer, appreciate the good advice from the researcher.

First, if you're having trouble paying your current bills, you should
figure out a plan to get current. Your local Consumer Credit
Counseling Service can help you devise a plan. They also can negotiate
lower interest rates with your creditors. The Consumer Credit
Counseling Service is a non-profit group and is reputable.

I would agree with you to be skeptical about companies promising to
fix your credit. They often charge large fees and many people end up
in worse shape than they began.

Fixing a credit rating is only usually a matter of paying your bills
on time for a period of a year or more. A bad credit rating is only
temporary, if you work hard at fixing it.

If you decide to work with a company or non-profit group to fix your
credit, I would certainly encourage you to check out that group with
your local Better Business Bureau and state attorney general's office.