Credit Repair Kit For Dummies E-Book

Steve Bucci

• Herausgeber: John Wiley & Sons
• Kategorie: Ratgeber
• Sprache: Englisch

Seitenzahl: 883

Veröffentlichungsjahr: 2025

Beschreibung

Improve your credit score and rebuild your financial future

Interested in getting a credit makeover? You're not alone. The overall amount of Americans' outstanding credit card and revolving debt continues to rise, powered by the increasing availability of lending options and an increasingly challenging financial environment. Millions of people are struggling to repay – or even keep up with – one or more loans, on a credit card or some other debt instrument.

Credit Repair Kit For Dummies delivers easy-to-follow, usable advice on how to get your debt under control, repair your credit score, and restore your financial health. You'll find reliable info on getting out of debt quicksand and implementing the steps you need to take to improve your finances and credit once and for all. You'll also explore practical proven strategies for tackling student debt, medical debt, and even credit score disasters caused by a divorce, identity theft or bankruptcy.

• Updates on student loan repayment rules in the United States and medical debt repayment regulations
• Explanations of AI's role in contemporary credit decisions
• Discussions of a new kind of identity theft
• The latest changes to credit reporting in the United States
• A ton of helpful credit repair tools, including sample credit reports, forms, templates, and links to online resources

We all deserve a fighting chance to enjoy the benefits of good credit. This book demonstrates how to climb your way back from even the worst credit situations and build a new, prosperous, and financially rewarding future.

Leseprobe

Credit Repair Kit For Dummies®

To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Credit Repair Kit For Dummies Cheat Sheet” in the Search box.

Table of Contents

Cover

Table of Contents

Title Page

Copyright

Foreword

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Part 1: Getting Started with Credit Repair

Chapter 1: Introducing Credit Repair, Credit Scores, and Your Life on Credit

Repairing Bad Credit

Weathering a Major Crisis

Understanding Fairness in Credit

Filing Bankruptcy

Protecting Your Credit and Your Identity

Maintaining Good Credit Throughout Life

Managing Credit in Today’s Unforgiving Economy

Chapter 2: Turning Your Credit Around

Understanding How Your Actions Impact Your Credit Score

Using a Cosigner to Raise Your Score

Turning Small Purchases into Big Credit

Maximizing Your Credit Score with Major Expenditures

Understanding How Good Debt Builds Good Credit

Selecting the Best Tools for Building Your Credit

Chapter 3: Cleaning Up Your Credit Reports

Understanding the True Value of Good Credit

Reviewing Your Reports for Problems

Using the Law to Get Your Credit Record Clean and Keep It That Way

Identifying and Disputing Inaccurate Information

Adding Positive Information to Your Credit Report

Chapter 4: Getting the Best Help for Bad Credit for Free

Knowing Whether You Need Help

Identifying Help You Can Get for Free

Chapter 5: Coping with Debt Collection

Handling Those Collection Phone Calls

Taking Charge of the Collection Process

Identifying Escalation Options That Help

Communicating with Customer Service Before Being Placed for Collection

Keeping Collectors in Check

Freeing Up Money to Pay a Collector

Avoiding Collectors Altogether

Chapter 6: Working with Collectors, Lawyers, and the Courts to Manage Debt Obligations

Getting a Handle on Charge-Offs

Coming to a Debt Settlement Agreement

Finding Out about Judgments and What They Mean to You

Understanding Wage Garnishments

Stating Your Case in Court

Managing IRS Debts, Student Loans, and Unpaid Child Support

Part 2: Reducing Credit Damage from Major Setbacks

Chapter 7: Reducing Credit Damage in a Crisis

Assessing the Damage from a Mortgage Meltdown

Understanding How Mortgages Differ from Other Loans

Knowing Where to Turn for Help

Alternatives to Going Down with the Ship

Dealing with Deficiencies

Preparing for “Credit Winter”

Curing Medical Debt

Managing Student Loans

Avoiding Car Repossession

Coping with So-Called Acts of God and Other Things That Are Not Your Fault

Chapter 8: Filing for and Recovering from Bankruptcy

Deciding Whether Bankruptcy Makes Sense for You

Understanding Bankruptcy, Chapter and Verse

Qualifying for and Filing for Bankruptcy

Managing Your Credit After a Bankruptcy

Chapter 9: Repairing Credit Damage in the Wake of Identity Theft

Taking Fast Action When Identity Theft Occurs

Getting and Using Credit After Identity Theft

Part 3: Rebuilding Credit, No Matter Where or When You Begin

Chapter 10: Starting or Restarting Your Credit in Real Life

Debunking Misinformation about Banking and Credit

Obtaining Credit: Starting Out on the Right Foot

Overcoming Credit Fears and Mistakes

Qualifying for First-Time Cards and Lending

Considering Credit for Students and Military Members

Chapter 11: Ending Life’s Negative Credit Surprises

Keeping Your Credit from Hurting Your Job Prospects

Dealing with Rental Application Checks

Qualifying for a Mortgage

Preparing to Purchase a Car

Unveiling the Relationship between Your Credit and Your Insurance Premiums

Chapter 12: Protecting Your Credit during Major Life Challenges

Tying the Knot in Life and in Credit: A Couple’s Guide to Building Good Credit

Protecting Your Finances in a Divorce

Keeping Credit Strong while Unemployed

Curing Medical Debt

Resolving Credit Issues after the Death of a Spouse or Partner

Fitting Credit into Retirement

Part 4: Making Sense of Credit Reporting and Scoring

Chapter 13: Discovering How Credit Reporting Works

Grasping the Importance of Your Credit Report

What Is a Credit Report, Exactly?

The Negatives and Positives of Credit Reporting

Your Credit Report’s Numerical Offspring: The Credit Score

Chapter 14: Understanding Credit Reports and Scores

Getting Copies of Your Credit Reports

Tracking Down Specialty Reports: From Apartments to Casinos to Prescriptions

Perusing Your Credit Reports

Correcting Any Errors You Find

Getting and Understanding Your Credit Scores

Chapter 15: Monitoring Your Credit Reports and Scores

How Credit Monitoring Really Works

Understanding the Types of Monitoring Services Available

Making a Case for and against Third-Party Credit Monitoring

Getting Your Money’s Worth from Monitoring Services

Setting Alarms, Alerts, and Freezes

Part 5: Successfully Managing Your Credit for Life

Chapter 16: Putting Yourself in Control of Your Credit

Determining Your Credit Style

Balancing Spending, Savings, and Credit Use

Remembering the Importance of Planning When It Comes to Your Credit

Chapter 17: Taking a Sustainable Approach to Your Credit

Going Green: Treating Credit as a Renewable Resource

Sustaining Your Credit Ecosystem for Life

Steering Clear of Credit Pollution

Surviving and Reviving After a Credit Catastrophe

Chapter 18: Safeguarding Your Credit with a Spending Plan

Appreciating the Benefits of a Solid Spending Plan

Deciding on Goals: Imagining Your Future as You Want It to Be

Building Your Vision of Your Future

Using Cool Tools to Help You Build and Stick to a Spending Plan

Adjusting Your Priorities and Your Plan

Chapter 19: Fair Access to Credit

Benefitting from Financial Inclusion

Participating in the Financial System

Taking or Retaking Control of Your Credit

Educating Yourself on How the System Works

Tackling Debt

Working Toward the Goal of Homeownership

Chapter 20: Knowing Your Rights to Protect Your Credit

Why You Have the Right to Credit Protections

The CARD Act: Shielding You from Credit Card Abuse

The Consumer Financial Protection Bureau: The Cop on the Financial Beat

Safeguarding Your Credit Data through the FACT Act

The FDCPA: Providing Protection Against Debt Collectors

The CROA: Getting What You Pay For

Exploring Other Protections

Chapter 21: Protecting Your Identity

Keeping Thieves at Bay

Catching Identity Thieves in the Act

Part 6: The Part of Tens

Chapter 22: Ten Consumer Protections Everyone Needs to Know

The Fair Debt Collection Practices Act

The Bankruptcy Abuse Prevention and Consumer Protection Act

Your Lawyer

Statute of Limitations Laws

Your State Attorney General

The Consumer Financial Protection Bureau

The Credit Card Accountability, Responsibility, and Disclosure Act

The Fair Credit Reporting and Fair and Accurate Credit Transactions Acts

The Federal Trade Commission

Servicemembers Civil Relief Act

Chapter 23: Ten Strategies for Dealing with Student Loans

Knowing How Student Loans Are Reported Differently Than Other Loans

Dealing with the Collection Process

Identifying the Best Repayment Option for Your Situation

Taking Your Loans to Bankruptcy

Dealing with the Prospect of Default

Gaining Student Loan Forgiveness

Lowering Your Bill While You’re in School

Keeping Up with Your Loans After You’re Out

Setting Limits During the Planning and Application Process

Getting Help If You’re in the Military

Chapter 24: Ten Ways to Deal with a Mortgage Meltdown

Knowing When You’re in Trouble

Knowing How Your State’s Laws Treat Foreclosures

Deciding Whether to Stay or Go

Tightening Your Spending to Stay in Your Home

Prioritizing Your Spending to Build Cash

Lessening the Damage to Your Credit

Knowing Who to Call

Beware of Scams

Beefing Up Your Credit

Consulting an Attorney

Index

About the Author

Connect with Dummies

End User License Agreement

List of Tables

Chapter 6

TABLE 6-1 Maximum Garnishment of Disposable Earnings Under Normal Circumstances*...

Chapter 7

TABLE 7-1 The New Medical Debt Reporting and Scoring Rules

TABLE 7-2 SBA Disaster Loans

Chapter 14

TABLE 14-1 FICO Score Distribution (Q3 2024)

TABLE 14-2 FICO Score Distribution Table (2015–2024)

TABLE 14-3 How Much You’d Pay in Interest Based on Your Credit Score (May 2025)

Chapter 18

TABLE 18-1 Income Worksheet

TABLE 18-2 Expenses Worksheet

Chapter 20

TABLE 20-1 Consumer Protection Laws

Chapter 24

TABLE 24-1 Disaster Relief Options by Loan Type

List of Illustrations

Chapter 2

FIGURE 2-1: The actions and impacts chart shows the relative impact of positive...

FIGURE 2-2: Score recovery chart.

Chapter 6

FIGURE 6-1: A sample court summons letter.

FIGURE 6-2: A sample court judgment letter.

Chapter 17

FIGURE 17-1: Your financial environment is made up of interdependent parts.

Guide

Cover

Table of Contents

Title Page

Copyright

Foreword

Begin Reading

Index

About the Author

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Credit Repair Kit For Dummies®, 6th Edition

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Foreword

We’ve all made money mistakes. I know I have. Sometimes they come from ignorance. Sometimes we know better but do it anyway. And sometimes life throws us a financial emergency we didn’t anticipate or prepare for. Looking back, we realize that not having an emergency fund was a huge mistake — oops. Other times, even if we did prepare with 6 to 12 months of savings, the crisis is so severe or drags on so long that it still leaves us in a financial hole.

No matter how it happens, a financial crisis can damage your credit score and trigger a vicious cycle of hardship. If this has happened to you, take heart: You are not alone. Maybe it happened recently. Or maybe it happened months or even years ago, and the stress was so overwhelming that you avoided dealing with it while the problem quietly grew worse. Either way, you’re here now, and you’re ready to take it on. That’s worth celebrating.

It may not feel like it, but you’ve already taken the most important step toward a better financial future. And you’ve come to the right place. I’ve known Steve Bucci for more than two decades, and he’s always been my go-to expert on credit and credit repair. His work has helped thousands of people transform their financial lives, and I know he can help you transform yours.

As you move through this process, don’t be surprised if you feel guilt, shame, regret, or frustration. Money is the number-one source of stress for most Americans, and mistakes with credit are incredibly common. Don’t be too hard on yourself. If you find yourself discouraged along this journey, set the book down, take a walk, listen to some music, or spend time with a friend. You can start back up when you’re feeling better tomorrow.

The key is to keep moving forward. Every page you read and every step you take will build your confidence and momentum. Before long, you’ll start experiencing the freedom and peace of mind that come from a healthy relationship with money and credit.

You’ve got this!

Dr. Brad Klontz

Certified Financial Planner, financial psychologist, professor, and national bestselling author of Start Thinking Rich

Introduction

In uncertain times, we look for a trusted resource to help us reach our goals. This book is a time-tested and updated guide to help you create the life you want and deserve for yourself and your loved ones.

Credit Repair Kit For Dummies is here to guide with you with helpful advice and trustworthy information throughout your journey, with vetted information about credit at every stage of your life. And I’ve been delighted and proud to have been your guide since 2005.

Twenty years is a very long time. Over those years, your life likely changed. If you’re now in your twenties, you were growing up; if you’re now in your forties, you were just becoming an independent adult and you may have been starting a family; and if you’re now in your sixties and looking at retirement, you may have been thinking you’d never get there.

For many people, credit loosens and tightens cyclically. For others, it has been a challenge through good times and bad. Fair and equal access to credit and the benefits it brings have never been fully assured for those new to credit, minorities, the working poor, or merely the naive and uninformed.

Your need for great credit never ends. This book will help you successfully build, rebuild, or manage your credit. Rather than taking an academic approach to the subject of credit, Credit Repair Kit For Dummies helps you succeed at integrating credit into your real life. It enables you to make great credit an outcome of the decisions you make every day as you pursue life and happiness. I call it your credit–life connection.

Given today’s increasing reliance on credit reporting and credit scores for lending and non-lending decision-making, you need better credit and a higher credit score to access today’s credit products, which are an essential part of leading a rewarding life in today’s society. Not only are the criteria for the best access to credit very selective, but the penalties for ignorance and failure have multiplied. Threats to your credit are everywhere. Data breaches are so common that it is not a stretch to say that if everyone’s personal information isn’t already for sale on the dark web, it will be soon.

And if all this isn’t enough, the non-lending use of credit reports is growing by the day. Updates to this book tell you about new consumer databases that collect information about your medical history, prescription drug use, rental history, banking data, and more. Employers, insurance companies, landlords, and lenders use this information to decide whether to hire or promote you, what insurance rates to give you, whether to rent you an apartment, and whether to offer you new banking products. You need to know what’s in these files, and that’s one of many things I tell you how to do in this book.

Credit Repair Kit For Dummies comes at a critical time. Credit plays an ever-changing and increasingly important role in your life, regardless of whether you use a credit card. Insurance, employment, home buying or renting, and getting an education with student loans are more dependent than ever on you having good credit. Plus, although the rewards for good credit have never been higher, the penalties for failure — foreclosure, eviction, job problems, mounting debts, collections — have never been greater. For these reasons and more, millions of people are looking for up-to-date, useful, and proven answers from a trusted and knowledgeable resource. If you know the rules of the credit game, you’ll get a winning score. That’s why I wanted to bring you the best, non-biased information in the industry based on decades of experience and research.

About This Book

The approach I outline in this book is different because it’s low-cost and simple and drives right to the heart of the matter. With this book, you can manage your credit by applying just a few key concepts. Unlike the talk-show approach of making one philosophy fit all after a 15-second question-and-answer period, this book takes the time to give you the concepts and tools you need so that you can apply them to your specific situation and come up with an answer that’s custom-tailored to you.

So why this book?

Because although credit problems can seem incredibly complex and unfair, you can have good credit with a few simple actions that anyone can master.

I give you all the tools and insight you need to rebuild your credit (or build it up for the first time).

Because you may need the advice of an experienced advisor to guide you through a mortgage problem.

This book tells you how to find a good resource for credit or bankruptcy counseling.

Because your credit may be in detention due to crushing student loans.

This book can help you find the right solution and then rebuild your credit score as quickly as possible.

Because you want to get a job or promotion; buy a reliable car to get to your job; start a business; insure your home, apartment, or car; or further your education.

If any of these situations applies, you need a good credit record.

Because you may be one of the millions of people who become victims of personal data theft each year.

This book provides valuable information to salvage and protect your identity and credit from thieves.

Because you may be on the brink or even over the cliff of credit trouble.

This book gives you budgeting and spending advice that can pull you back from the edge.

Because the time is right for you to regain control of your credit and your financial peace of mind.

This book helps you do just that.

Foolish Assumptions

I assume that you’re reading this book because you know that repairing your credit is important, but you may not know all the ins and outs of making credit work for you. Whether your credit is not so great and you want to know how to improve it or your credit is just plain nonexistent and you want to establish it on your own terms, you’ll benefit from this book. An understanding of your credit and how the credit system works may be especially important during life’s transitions. This book is of particular value to you if you’re

Concerned about your credit report and who may be looking at it

Concerned about the credit status of a loved one

Considering what to do about overwhelming debt

Wondering how to deal with medical bills

Unsure about the credit impact of remaining in your home or walking away

Starting over again after filing for bankruptcy

Taking on or paying back a student loan

Concerned that your personal information may have been compromised or stolen

Already in or soon to be in a marriage or partnership

Recently divorced or in the process of divorcing

Reestablishing credit after the loss of a spouse or partner

Hunting for a job or hoping for a promotion

Establishing credit for the first time

Wanting to know how to maintain good credit after you get back on track

I assume that you don’t have a formal education in credit or personal finance. Even if you do, however, I believe that you can still find practical insights in this book based on my experience and that of others I’ve helped.

Icons Used in This Book

Icons are those little pictures you see sprinkled in the margins throughout this book. Here’s what they mean:

This icon denotes critical information. Considering the state of our own overcrowded memories, I wouldn’t ask you to remember anything unless it was really important.

This image of a credit professional — okay, fine, of the Dummies Man — shows up whenever I go into more detail on a concept or rule. If you don’t care about the details of how something works or where it came from, feel free to skip these gems.

This lightbulb lets you know that you’re reading on-target advice — often little-known insights or recommendations that I’ve picked up over the years.

This icon serves as a warning, telling you to avoid something that’s potentially harmful. Take heed!

Beyond the Book

In addition to what you’re reading right now, this product also comes with a free access-anywhere Cheat Sheet that lists the contact information for the three major credit bureaus, credit score breakdowns, tips for improving your credit score, and advice on handling an overdue mortgage. Just go to www.dummies.com and type Credit Repair Kit For Dummies Cheat Sheet in the Search box.

This book includes companion downloadable content, too. Go to www.dummies.com/go/creditrepairkitfd6e to find useful forms, worksheets, sample letters, and credit-related legislation and laws.

Where to Go from Here

You get to choose what happens next. This book is packed with information to help you repair your credit. You can use the table of contents and index to jump directly to the topics of most interest to you, or you can start at the beginning of the book and take it from there. With the information in Credit Repair Kit For Dummies, you can get great credit and keep it great for the long haul. I wish you all the best in achieving your dreams, which increasingly require good credit to realize. You and your family deserve it.

Part 1

Getting Started with Credit Repair

IN THIS PART …

Understand the basic workings of credit, the role of artificial intelligence (AI) in credit decisions, credit repair, and credit scores.

Find out how to rebuild your credit after a crisis.

Fix inaccuracies and add positive data in your credit reports and boost your credit score.

Solve your credit problems on your own or get expert help that really works for free.

Field calls from debt collectors with confidence.

Deal successfully with debt collectors, lawyers, and court actions.

Chapter 1

Introducing Credit Repair, Credit Scores, and Your Life on Credit

IN THIS CHAPTER

Handling credit problems

Dealing with the issues surrounding fairness in credit

Rebuilding your credit after a crisis such as a foreclosure or bankruptcy

Safeguarding your credit and your identity

Discovering how to manage your credit

Keeping your credit solid in every stage of life

Credit plays a larger role in life than ever, and its influence will only expand in the years to come. The good life, happiness, and credit are inextricably linked. It’s not that more material things make you happier, but bad credit exacts a price from your life, your hopes, and your dreams, as well as your relationships with others. Think of it as your credit/life connection. Whether it is hard or easy, fair or not, you must learn to successfully manage your credit and, by extension, your personal finances if you are to lead a successful and satisfying life in the United States.

Financial products, credit foremost among them, have become much more complex and powerful, while the price for having a bad credit report or no credit at all has never been steeper. Your credit report is a financial snapshot of your life in financial terms. For example, a divorce can wreak havoc in your life, and that instability can show up as missed payments or even a bankruptcy on your credit report as well. When you use credit, the information usually gets reported to a data center known as a credit bureau. This information ends up on your credit report for at least the next seven years. The good, the bad, and the ugly are all there for anyone you do business with to see and for FICO, VantageScore, and other lesser-known scoring elves to summarize in a three-digit number known as your credit score.

A bad credit report can keep you from finding a job, getting the promotions you deserve at work, being approved for an affordable loan, getting insurance (or paying the lowest price for it), securing an apartment or house, and more.

This chapter is all about getting you started in repairing, rebuilding, or even just starting your credit so you can get that job, promotion, loan, home, and insurance to protect it. I cover the basics and the fine points. It’s really simple. But if you don’t understand credit, you can’t fix it, so I discuss how credit works, how to apply that knowledge to get what you want, how to deal with the effects of life’s inevitable setbacks on your credit, and how to recover from those setbacks as quickly as possible. Other chapters build on this information, helping to make your credit the best it can be and keep it that way. Why? Because life isn’t always fair, but you still need to repair the damage and carry on without being taken advantage of by unscrupulous financial companies or wasting precious years recovering from credit problems that you can avoid or minimize by using the advice in this book.

Repairing Bad Credit

After you’ve had a rough patch and fallen behind on your payments, you may think that you can never recover. Between the cost of interest and maybe even collection actions, the situation can be overwhelming. But I assure you that you can reverse the cycle. You can not only reestablish good credit but also keep good credit and enjoy its benefits for the rest of your life. Forever is a long time, but if you follow my advice, you can banish the credit blues permanently! It’s not magic, and it won’t cost you another dime. By realistically assessing your situation, seeing yourself as others see you, knowing where you stand, using free help if you need it, setting goals, planning your spending and savings, and using credit as part of your overall plan, you can quickly rebuild your credit.

Settling debts

You hear the ads all the time: “Settle your debt for pennies on the dollar!” “You have a right to pay less than you owe!” Debt settlement is an often misunderstood option that may work for you, but only if you handle it properly. Many companies that offer debt settlement services help themselves a lot more than they help you. You can avoid huge fees and potential credit damage if you reach a settlement agreement with your lender on your own for free using the information in this book or if you use your own attorney.

You are personally responsible for the actions of the debt settlement company you hire, and your credit will be ruined in what is a protracted and adversarial settlement process. Chapter 6 gives you the information you need to decide whether debt settlement is for you and outlines your best options.

Resetting your goals

Just as you did when you first started establishing credit, I want you to revisit your goals from time to time. When your life changes, your goals should reflect your new reality. Goals that once seemed within easy reach may move from short term to long term. Others may change as you mature. Buying that red sports car may not be as important to you now as it was in your 20s. Take the time to reset your sights, as I explain in Chapter 2.

Begin by envisioning your life as you’d like it to be over the short, medium, and long term. Next, create a spending plan (or update your plan if you already have one) so that you know your current financial strengths and weaknesses. Then begin to see how long it will take to fund your goals and determine when using credit may be appropriate. Chapter 18 goes into detail about how to create and maintain a spending plan and how to use credit wisely as a part of that plan.

To ensure that your credit is up to the task of supporting your goals for the future, check your credit reports and dispute any inaccuracies or out-of-date information. To rebuild your credit reports, you need to start with an accurate credit history, not one riddled with errors that may hold you back. After you check your reports, look for opportunities to review them for free as often as you can. Part 4 tells you everything you need to know about credit reporting.

Rebuilding your credit by using it

The best way to rebuild your credit is to exercise it! Using your goals and spending plan as a guide, start making those payments as agreed, on time and for the correct amounts. Every month you do so, you build better credit while your older, bad credit either counts for less or drops off your credit reports altogether.

Consider opening a secured credit card (backed by a bank account deposit) or a passbook/savings account loan to add a revolving and installment account to fatten your credit history and boost your score. You can find the details in Chapter 10.

Using a cosigner or becoming an authorized user

I normally don’t recommend that you, personally, ever cosign for a loan, but in this case, someone else is doing the cosigning for you! Enlisting a cosigner is a way to get access to credit so that you can begin to rebuild your credit history with the credit bureaus. But you need to keep in mind a few important rules:

You have to make all the payments on time.

If you can’t make a payment when it’s due, you have to tell the cosigner in advance so that the cosigner can make the payment and protect his or her credit. You can pay your pal back later.

You can’t get mad at the cosigner for not being understanding or more helpful while you owe him or her money. Your cosigner is doing you a huge favor at great personal credit risk!

Another way to rebuild your credit is to become an authorized user on someone else’s credit card. After you’re added to the other person’s account, his or her good credit history flows onto your credit record as a positive account and payment stream, beefing up your record and credit score. The person needs to have good credit, though, or his or her bad credit may negatively affect yours. I suggest that you decline getting your own card for the account so that only the other person’s charges appear on the account. That way, if he or she has a bad memory (as I do), you’re spared monthly calls asking whether this or that charge is yours. Although you won’t have access to new credit, your credit score gets a boost.

Finding sources of free help

You can do a lot of things on your own, but sometimes having a pro on your side to give you tips helps. You can find that help in three main places, and it ranges from inexpensive to free. Nonprofit credit counselors, pro bono lawyers, and HUD-approved counseling agencies offer priceless free insight, assistance, and advice. The trick is to know to ask for it.

Nonprofit credit counselors work with you to set goals, develop a spending plan, and assess your ability to repay your debts. They can set up a repayment plan in concert with your lenders to lower your payments and interest rates and get positive information back on your credit reports faster than you could on your own. They’re funded by creditors but work for you, and I recommend the good ones highly. Discover where to find the good ones in Chapter 4.

Lawyers sometime offer free or pro bono help if you can’t afford to pay. Chapter 4 includes a list of resources to help you find one in your area.

A mortgage is a different and sometimes dangerous type of loan. The rules for handling a delinquent mortgage are different from those for regular consumer debts, and the penalty for a mistake can be the loss of your home. So, I strongly recommend that if you have a mortgage problem, you get professional, HUD-certified help. You can find an agency at the HUD website (www.hud.gov).

Watch out for bad help. In a nutshell, if someone approaches you and offers to help for a fee, don’t do it. The free resources work well. The costly ones too often are just ways to separate you from your money while you’re under stress.

Dealing with collectors

Sometimes, you have to take the call. You know it’s a debt collector, but you don’t know what to say, do, or offer. Chapter 5 spells out how to take control of the collection process. Collectors must follow certain rules, and if you know the rules, you’ll feel more confident in dealing with a stressful situation. The Fair Debt Collection Practices Act (FDCPA) regulates what collectors can and can’t do. In general, this law protects you from abuse and threats. For example, a collector can’t threaten an action that it can’t or doesn’t intend to take, can’t make harassing calls, and can’t use abusive language. When you know your rights and insist on being treated fairly, you can negotiate a payment schedule that fits your budget. If you need help coming up with a workable plan, you can always ask a credit counselor for assistance.

Chapter 5 offers solutions that work. From how to handle calls and threatening letters to how to craft a repayment proposal, I walk you through how to keep a small collection annoyance from becoming a major and upsetting life event.

Weathering a Major Crisis

Some credit problems are worse than others. In Chapter 7, I cover four of the big ones: mortgages, medical debt, student loans, and auto repossessions.

Mortgage meltdowns

In my experience, a mortgage crisis is among the most upsetting, expensive, and damaging to your credit and relationships. Your home is your castle. When you are at risk of losing it, you likely feel as though your very existence is under attack. Thinking matters through and coming up with the best solution for you and your family may be difficult. In this section, I preview the major options to help guide you along the best path. Check out Chapter 7 for more mortgage information.

Mortgages are different from other types of debts and credit because of a number of factors, including the size of the debt, the importance the lender attaches to a debt secured by a home, and the fact that the debt is probably packaged in a security that’s been resold many times and is subject to inflexible collection rules. Mortgage delinquency can have a significant and long-lasting negative effect on your credit score. For example, being just 30 days late on a mortgage payment can cost you 100+ points on your credit score and take three years to recover from. The upshot is that if you’re in danger of falling behind on your mortgage payments or you’re already behind, you’re better off seeking professional help.

Opting for help

In a mortgage crisis, the sooner you get help, the better. The reason is simple: The stakes are high and the help is free.

Most people who have a mortgage payment due on the first of the month know that they have until the 15th to pay it. But do you? If you miss that payment on the 15th, you’re 45 days late. Mortgages are paid in arrears, so the bill is already 30 days old when you get it. Miss the due date and the 15-day grace period goes away until you catch up. By the 15th of the next month, you’re 15 days away from a foreclosure action. Fast, isn’t it? So, I suggest that you don’t delay in contacting a HUD-approved counseling agency. These agencies are often housed in credit counseling agencies, so they can address all your debt issues at once.

Doing it on your own

You may insist on working out your mortgage problems on your own. The process is tricky and long, but it can be done. Chapter 7 goes into details on the steps and time frames for action. In addition to acting quickly, you need to keep excellent notes about who you speak with, when you talk, and what is said. You’re dealing with a bureaucracy, and bureaucracies love to forget that they ever heard from you and send you all over the place to avoid responsibility for helping. So good notes are essential. Chapter 7 lists key terms and things to ask for so you can know what you’re talking about.

Just because a bank doesn’t want to take your home doesn’t mean that it won’t.

As in any debt resolution process, you need to do your homework before you call your mortgage servicer. Know what you really need in terms of help to take care of your missed payments, and know what you can offer. You may be able to make additional payments over a six-month period to catch up. Or you may need to ask for a reduced payment amount for a certain amount of time. Whatever you need, you have to be specific. Chapter 7 helps you understand the major options, but they change frequently, so you may have to rely on your mortgage servicer (the bureaucrat) to advise you.

If you can’t work out a compromise, there are ways to leave your home that result in less credit damage. Among them are

Deed-in-lieu of foreclosure:

You give the house back, saving the bank foreclosure expenses.

Short sale:

You get the bank to agree to let you try to sell the house for less than the mortgage value.

Friendly foreclosure:

You cooperate with the bank and leave the house in good shape on a timely basis.

Chapter 7 goes into more detail about these options.

Strategic mortgage default

Strategic mortgage default isn’t an option that anyone likes. However, a number of people consider walking away from their homes as an alternative to trying to work matters out. Based on how much you owe, you think that you are unlikely to get back the money you’re putting into monthly mortgage payments. Why waste thousands in overpayments? Following that reasoning, some people mail the keys to the bank and walk away from their homes.

Credit damage from a strategic default is significant and lasts a long time. You can expect to have really bad credit for seven years and to see a credit score drop of 140 to 160 points. (See Chapter 14 for more on credit scoring.) Plus, Fannie Mae, the government agency that guarantees most mortgages, won’t guarantee a new loan for you for the next seven years, which means that to buy another home in the next seven years, you’ll pay more for a new mortgage and you’ll need expensive mortgage insurance.

Medical debt

Being ill is bad enough. Dealing with medical debt can sometimes seem insurmountable. There are special rules in both credit reporting and credit scoring that can help set your mind at ease. Knowing the rules from Chapter 7 may help lower your blood pressure. I also help you deal with medical insurance issues with a list of your options and resources.

Student loans

Chapter 7 covers how to establish a credit history using student loans. When your payments begin, I cover how to avoid a default and, if that’s not possible, where to get help. Did you know you may be able to get your student loans forgiven? I cover the rules and more in Chapters 7 and 23.

Car loans

Missing a payment or two may not be a big deal for a credit card, but it can be a disaster for a car loan. Knowing what counts can help you avoid a repossession along with the expenses and damage to your credit that goes along with it. I cover your options to cure a default, scams to avoid, and what happens if your car is repossessed.

Understanding Fairness in Credit

For most Americans, credit is as American as apple pie. But for some, especially minorities, the poor, and immigrants, credit can appear mysterious, unfair, and part of a system designed to ensure an expensive failure on their part. Chapter 19 tackles these issues and more head on. It recognizes the previously discriminatory history of race in credit while offering a solid understanding of why that’s no longer the case. It details how credit reporting, credit scoring, and credit legislation have reset the relationship between lending and minorities. It also debunks credit myths with credit facts and offers tips to make you successful, whether you’re applying for a loan or need to access help if you get in trouble.

When it’s time to take control of your credit, this chapter is your ticket to success. Just follow the ten steps detailed in Chapter 19, and you’ll have great credit and a high score to match.

Filing Bankruptcy

There are times in life when you just can’t cope. For some people, this is also true in credit matters. If you’re unable to come to terms with the aftermath of being overextended, bankruptcy may enable you to hit the reset button and start over again. But there is no free lunch.

While you pay a price in terms of future credit, bankruptcy for the right reasons and in the right circumstances may be your best bet. This section gives you a quick look at an often misunderstood and misused tool so that you can decide whether the cure for your debts is worth the damage to your credit. Chapter 8 has more information on the bankruptcy process, what it means to you, and what your alternatives are.

If you do opt for bankruptcy, you need to pass a means test to see which type you can file for. Chapter 7 bankruptcy gets rid of some of your debts but not others. If you don’t qualify for a Chapter 7, Chapter 13 bankruptcy requires you to pay what you can afford to your creditors over a five-year period. In a nutshell, if you earn too much money, you have to pay your bills in a Chapter 13.

Even worse, from my point of view, is that filing for bankruptcy may not solve your problem. If you’re in debt trouble because you spend more than you make — or, to put it another way, because your expenses exceed your income — then bankruptcy won’t change the situation. Before long, you may be back in debt, but without the option of refiling. After filing for bankruptcy, you face a waiting period before you can file again. This period can range from two to eight years, depending on the type of bankruptcy you file and the type you want to file next.

In today’s tight credit market, expect a long recovery time from a bankruptcy. Recent FICO research indicates that a Chapter 7 filing can lower a good credit score by up to 240 points and that it takes seven to ten years for the score to recover to its original level. Ouch! That’s a long stay in the bad credit hotel. Be sure it’s worth it!

Protecting Your Credit and Your Identity

Your credit history is increasingly used for more than just determining the interest rate on your credit card. It affects your ability to compete for a job or a promotion; get affordable insurance; qualify for professional licenses, military service, and security clearances; and even find a decent place to live. At the same time, data breaches have exposed the Social Security numbers and passwords of millions of people to identity thieves. These thieves can use stolen identities to establish credit, drain your bank account, access medical treatment, and file false tax returns in your name without your knowledge and then leave you to straighten out the mess.

Getting familiar with credit laws

Over the last several years, Congress has passed new laws to give consumers more protections. Knowing about and taking advantage of these safeguards can help you keep your credit safe. If your identity is stolen, knowing your rights is essential to a quick resolution. Among the laws I discuss in Chapter 20 are the

Dodd–Frank Wall Street Reform and Consumer Protection Act,

which created a consumer watchdog agency and allows consumers free access to their credit scores (sometimes at a price).

CARD Act,

which restricts lenders from raising rates on existing balances and more.

FACT Act,

which gives you access to free credit reports and identity theft protection.

Fair Debt Collection Practices Act (FDCPA),

which spells out your rights and the rules that debt collectors must follow.

Receiving free reports and filing disputes

As Chapter 13 explains in more detail, the Fair Credit Reporting Act (FCRA) as amended by the FACT Act entitles you to a free copy of your credit report annually from each of the three major credit bureaus: Equifax, Experian, and TransUnion. They are currently offering free reports as frequently as weekly. I strongly recommend that you get these reports on a regular basis and check them for errors. In addition, your state may require the bureaus to give you more copies — sometimes many more! In addition, you’re entitled to extra free reports, free credit scores, if you’ve been turned down for credit, didn’t get the top rate offered, or had an adverse action (like a reduction in credit limit) on a credit card. All these situations are opportunities to check and clean up your credit reports for free.

Signing up for credit monitoring

Every time I turn around, someone is offering to monitor our credit. Do you need this service, and are you willing to pay for it? This question has become more complex due to extensive data breaches and rising identity theft numbers. Chapter 15 gets into the details of credit monitoring and identity theft protection.

If you have a credit card, you may already have basic fraud-monitoring in place. Most cards monitor spending patterns to sniff out fraud and identity theft before they cost the card issuer a fortune.

Setting alarms, alerts, and freezes

If you’re worried about others accessing your credit data, you have the right to limit access to only those you approve. Chapter 15 covers how to limit access, along with the pluses and minuses of doing so. Among your options, you can

Set up alerts with your creditors to spot new activity on your account.

Place an alert on your credit file so that lenders use more caution before approving any changes.

Place an active-duty alert on your files if you’re a member of the military.

Freeze access to your account so that no new creditors can access your information without your express permission (except if you owe the government money).

Identifying identity theft

Identity theft isn’t going away. The number of cases reported is small in relation to the huge amount of identity information that hackers collect every time you hear of a database compromise. Your identity may be in jeopardy for years to come as thieves warehouse stolen data and piece together a profile of your identity using artificial intelligence.

Simple vigilance can help you stop identity theft in its early stages before serious damage is done. Follow these tips from Chapter 21:

Protect your information at home. Often identity theft is low-tech and committed by people whom you invite into your home.

Shred financial documents that contain account and Social Security numbers.

Use electronic bill paying to avoid bill theft from your mailbox.

Check your credit report frequently to look for unfamiliar credit lines. If you see accounts you don’t recognize, take the actions I suggest in

Chapter 21

.

If you become an identity theft victim, you need to take fast, effective steps as soon as you find out you’ve been victimized. Chapter 9 walks you through what you need to do and whom you need to contact. It also helps you reestablish your credit afterward.

Maintaining Good Credit Throughout Life

Your credit report presents a financial snapshot of your life … so far. As your life changes, your credit report changes, too. If your life is filled with positives like a steady job, a good income, controlled expenses, and maybe even a partner, then your credit report should reflect that stability. If, however, you have a reversal of fortune with a job loss, income interruption, illness, or divorce, expect your credit to reflect the stress of your life.

Establishing credit for the first time

Getting credit doesn’t need to be scary. You have easy ways to establish credit for the first time — or the second time around as a newly single person. Knowing what to do and what to avoid makes this process simple and foolproof. Chapter 10 covers the essentials of getting your credit up and running. Using simple techniques like borrowing your own money and using retail store cards and authorized user accounts, you can establish good credit in no time. Your credit score can be figured on a history of just a month or two, and then you’re on your way. If you’re concerned that credit is unfair, Chapter 19 gives you the facts and tips you’re looking for to be sure you’ll be successful applying for and using credit.

Here are a few ways to build credit for the first time:

Open a secured credit card with a bank that reports monthly to all three bureaus.

Open a savings account at a bank that reports loans to all three credit bureaus. Then take out a loan using the account as security and make monthly payments on time.

Have a relative add you as an authorized user on his or her credit card. Your relative’s history for that account will flow onto your credit report.

Making credit changes at life’s stages

As you move through life, you’ll find new needs for credit and encounter new challenges in keeping your credit strong especially when life gets bumpy. Chapters 11 and 12 help you negotiate life’s often turbulent credit waters without capsizing your boat. Credit plays a strong role in every aspect of life, including getting a job, buying a home or renting an apartment, purchasing a car, insuring your home and car, getting married or divorced, paying medical bills, planning for retirement and end-of-life expenses, and more!

Many people know that because a prospective employer may check your credit in the hiring process, having good credit while job hunting is important. But how can you keep your credit in good shape when you’ve been laid off and don’t have enough income to handle all your bills? Chapter 12 tells you how. It also gives you practical tips for safeguarding your credit before, during, and after a divorce.

Avoiding pitfalls

Whether you’re new to credit or you’re a credit veteran, you need to be careful of counterproductive actions. Some examples of things I advise you to avoid if at all possible are payday lenders, refund-anticipation loans, check cashers, and credit repair companies.

You won’t go blind from using a payday lender once for an emergency, but the very concept of this type of high-interest loan is flawed. If you have no savings, you’re living paycheck to paycheck, and an emergency expense comes up, does getting a payday loan make sense? You have to pay back a short-term (two weeks or so) loan on your next payday. But all that money is already committed, so how can you pay it back? Chances are you’ll need more than one loan and end up owing lots of money in fees and interest charges.

Refund-anticipation loans are another potentially counterproductive borrowing product. These loans accelerate an e-filed tax refund by a very short period for a very large fee when calculated as an annual percentage rate (APR). Plus, if your refund is held up or reduced, you owe more money on the loan than you expected.

Check cashers perform a valid but expensive function for people with no bank accounts who need to cash checks. I suggest that you get a bank account so you have a place to begin saving and stop paying for unnecessary check cashing.

Credit repair companies have a horrid reputation. Legislation called the Credit Repair Organizations Act has tried to limit the damage caused by fraudulent actions that some companies advise to rig the credit-reporting system. If you’re thinking of credit repair companies, think again.

Debt settlers