Justin from Facebook writes:
So, basically there’s no sense in me trying to fix my credit/ pay down old debts and debt collectors until I make more dough correct? If im livin paycheck to paycheck now..then there really aint no way right?
A couple things you need to know from someone who is currently working with close to 500 people on debt management:
1. Fixing your credit- There is no such thing as “fixing your credit” and there definitely isnt a such thing as a “good credit score”. Credit was developed so that you couldnt “fix” it. Its a system to keep you trapped in a cycle of dependency and late payments. Noone in the lending industry makes money off people who pay off loans early and they damn sure dont like when you pay on time. The only solution is to be smart about how you treat your finances and live within your means so you can exit the game entirely. By doing so you will see just how easy it is to avoid credit altogether, stay out of debt, stop paying interest payments on everything you use and also become wealthy while most of your friends stay broke.
2. The Statute of Limitations game- Even if you did ignore everything I just wrote above and wanted to stay trapped in the matrix, there still is no legal way to “fix your credit”. You must understand that by law these companies are required to report delinquencies and charge offs to the credit bureaus. Sure you may have a homeboy who got “lucky” and had one of his many delinquencies removed due to that company not complying to the timeframe required to respond. However, for each one that does that, there are more that will respond with an update to your credit file with NEW and more RECENT dates thus “re-aging” the items that remain on on your report. No, this isnt right and yes its a dirty practice but it will happen. Because guess what? These collection agencies/creditors are dirty to begin with! Thats their M.O! I’ve seen it hundreds of times.
So then what happens. You end up contacting that collection agency directly (which is what they want you to do) and request that they change the information on your credit reports. What noone will tell you is that the one single thing MUCH MORE important than a credit score or report is called “The Statute of Limitations”. The S.O.L. is essentially the length of time each creditor/debt collector has to successfully file a lawsuit and claim monies owed to them. The exact length of time varies state by state but is generally between 4-6 years from date of default.
The reason the S.O.L. is so important in this case is because after 4 or so years from the date you’ve defaulted on that loan, you are basically free and clear and dont have to pay them jack. Now, the reason why its in their best interest for you to contact them in hopes of them removing items from your credit report or changing them is because they know something you don’t know. They know there are two main ways to have the S.O.L. time frame restarted. The two ways are: 1.by you making a single payment on an old debt OR 2. by simply PROMISING to make a payment. Its called “legally recognizing a debt”. So when you call them and discuss the specifics of these old debts, many times you get off the phone by promising to make a payment (whether you plan to actually pay or not) in exchange for them removing or correcting the info on your credit report. Needless to say, they are betting and hoping you dont know what I just told you so they can capitalize on most people’s ignorance and continue doing this. You really think you hear “this conversation may be monitored or recorded” because they want to insure proper handling of your issue? No, its because they will play back that recording of you promising payment in court when they sue you. And they’ll do it in a heartbeat.
3. Now back to your credit report & score (even though your score is really meaningless). The items on your credit report are legally forced to fall off after 7 years (or basically 7 years and 180days from your first missed payment in a series). The best and smartest thing you can ever do in terms of credit is to not aim to raise credit scores but instead aim to have a CLEAN credit report. This is probably the most important thing I can stress to you. What most people do after they get some collections and delinquencies on their credit report is start looking for ways to dispute information that legally belongs on there while also attempting to take out secured credit cards which promise to help you re-establish credit. This is a mistake because instead what you’ll most likely do is start on a long path of re-aging old accounts, adding new delinquencies due to the secured credit cards, and even possibly getting into legal trouble by paying people under the table to do “credit cleaning” on your behalf.
In summary: In regards to old debts -let the items you defaulted on remove themselves from your credit report, dont restart the S.O.L. by contacting debt collectors who are holding old debts, and always, always, ALWAYS only buy things using money you currently have from here on out. Now if you are attempting to pay debts WITHIN the statute of limitations (Go here to check your state’s S.O.L. –>http://www.fair-debt-collection.com/SOL-by-State.html#5 ) then you need to create a budget, stop aquiring new debt, cut back on your existing monthly expenses and implement a debt snowball plan which you can learn about here: http://www.daveramsey.com/article/get-out-of-debt-with-the-debt-snowball-plan/. But importantly, from now on, I need you to get off the “credit crack”. Thats how the rich do it, thats how Warren Buffett does it and thats how you should do it. No Credit Needed.
I will be doing another post on some of the misconceptions people have regarding credit scores. There really is basically no reason anyone on earth needs a credit score for anything beneficial to them and I will explain.
(Readers who have questions regarding debt collectors, credit, buying a house or car, student loans, renting an aprt etc, please send them to email@example.com and we promise to answer them!)