Many people these days find themselves in an overwhelming amount of debt. If you are in this situation, you are not alone. Dealing with collection agencies and bad credit can be frustrating and debilitating. Living beyond your means is very tempting and a culture of buy now pay later has made it acceptable. The only way to improve your situation is to start taking action. It is possible to improve your credit and get out of debt even with a low income. It just takes time.
Repair Your Credit
Many factors are taken into account when calculating your credit score. Credit utilization is one of those factors. Credit utilization is how much debt you have compared to how much credit you have. One way to improve your credit score is to decrease your debt. To really improve your credit, you should use many strategies.
Once you start paying off your debt, it will be easier to receive a credit limit increase. Some lenders will raise it automatically. In other cases, you will need to request an increase. This requires a hard check on your credit score which temporarily lowers your score. Don’t be alarmed. The resulting increase in your limit will have a bigger positive impact overall. It can actually increase your score several points.
Start paying all your bills on time. Set up automatic payments where possible. This includes rent and utilities as well as subscription services. Most creditors don’t report late payments until they are 30 days overdue, but it is a good idea to start creating good habits. Cut expenses where you can, so you aren’t struggling to pay your necessary bills.
Avoid hard checks on your credit. As mentioned before, this has a negative impact on your credit score. This means you should refrain from applying for additional credit. Ideally, you don’t want more than one or two hard checks on your credit a year. Keep in mind that these checks can affect your score for up to twelve months.
Know the Laws
There are four major laws that can help you against unfair creditors and collectors. As a consumer, you can wield a lot of power by knowing your rights and not being afraid to use the law in your favor.
- Fair Credit Reporting Act (FCRA): This federal law controls how information about your credit can be gathered, shared, and used. Credits bureaus want to gather all the credit information about you that they can. The FRCA requires that they bureaus provide you with one free credit report per year. They must also verify any inaccuracy you report to them. That means that if an item is inaccurate the bureau is required by law to remove it.
The FCRA also mandates that blemishes have to be removed from your credit report after seven years. This means that seven years after a debt first goes late it should no longer affect your score. Of course, this is dependent on there being no activity on your account after the debt is late. Bankruptcy stays on your record for ten years.
Anyone reporting credit must make sure that all information is complete and accurate. They must also investigate any item you dispute and correct any mistakes they find within 30 days. Anyone planning to report negative items to the credit bureau is obligated to inform you within 30 days or reporting the negative item.
- Fair Credit Billing Act: This federal law helps protect you against unfair billing. It also determines how errors should be corrected. You can use this law to fight against unfair business practices.
If you find a mistake, send a typed letter to your creditor’s “billing inquiries” address. This is different from the address you send payments to. The creditor must receive this dispute letter within 60 days of the date on of the statement on which the error appears. Consider using registered mail for this so that you have proof.
Disputing claims on a creditor’s website might waive your protection under the Fair Credit Billing Act. Make sure you know your rights before you submit your dispute in this format. Creditors are required to acknowledge your dispute within 30 days of receipt of the letter and have 90 days to correct the error or turn you down. If they claim there is no error, you have the right to request the creditor’s documentation proving there is no error.
- Fair Debt Collections Practices Act (fdcpa): This law protects you as the consumer from bad behavior from debt collectors. It also provides you a way to obtain information if you need to dispute a charge. Debt collectors are not allowed to engage in “abusive and deceptive” behavior. It also requires that collectors act professionally.
The Consumer Financial Protection Bureau (FTC) is charged with enforcing this law, but you also have the option of filing a private lawsuit. If you win, you could receive damages, fees, and costs determined by the court. Be aware that if you lose or are found to have filed the suit frivolously, you may be required to pay the debt collector’s fees.
- Truth in Lending Act (TILA): This federal law covers disclosures about terms and costs. It also makes sure that creditors calculate finance charges in a uniform manner. It mandates that they disclose their charges in an easy to understand manner. This allows you to shop for the lowest rate even if you don’t have an economics degree.
Repairing your credit takes time and effort, but it is a worthwhile pursuit. Start by creating better spending habits. This way you can maintain a strong credit score once you restore it. Take the time to review the law and use it in your favor. Creditors are required to report your debt accurately and to investigate any disputes. Collectors must also act in a fair and professional manner. When reviewing your report, keep this in mind. Dispute any errors you find and demand respect from collectors. Take back your credit score and reduce your stress today.