How to Repair Bad Debt
Financial problems can end up on your credit report as bad debts. Repairing these bad debts and getting them removed from your credit report can be a long process, but there are things you can do to speed up the repair of your credit file.
- Difficulty:
- Moderately Easy
Instructions
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1
Contact the three credit bureaus--Experian, Equifax and TransUnion (see Resources)--and request a copy of your credit report. Examine your report and ask that the bureaus remove any erroneous information. This can take some time and may require you to provide documentation regarding the disputed claims.
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2
Replace your past bad debt reports with more recent good debt reports. Do this quickly through compensating balance loans with your bank or other financial institution. A compensating balance loan is a loan against collateral that you place in the bank and that the bank freezes until the loan is repaid. Compensating balance loans can be based on anywhere from 10 percent of the loan being collateralized all the way up to 100 percent collateral.
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3
Research local banks and other lenders until you find one that requires 50 percent or less collateral to be deposited against a loan. Deposit the required collateral into your bank or other financial institution account. Collateral can be in the form of cash, stocks, bonds or even the title to a car, boat or home. Deposit the least amount you can to cover the smallest loan the lender will authorize. In this way, you can get your loan at a good rate with little up-front expense.
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Request a loan based on the collateral you have deposited. Expect your collateral to be frozen by your financial institution until your loan is repaid.
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Negotiate the terms of your loan. You will be able to get a good interest rate because your loan is partially collateralized and your loan will not be affected too greatly by any past poor credit for the same reason. Make certain there is no prepayment penalty for the early repayment of your loan.
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Place the proceeds of your loan in an interest-bearing account for 30 days. Repay your loan in full with the loan proceeds that you set aside--you will need to pay a small amount of interest for the 30 days that you kept the money. You have now taken out a loan and repaid it early--this will be a good debt on your credit report.
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7
Take out another compensating balance loan once your first one is paid in full. Again, set aside the loan proceeds for 30 days and then repay the loan in full using the original loan proceeds (plus a small amount of interest from your own pocket). This will put two good debt reports on your credit reports, helping to repair any bad debt report.
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Tips & Warnings
Ask your financial institution to report your fully repaid loans to all three credit bureaus. You may take out additional compensating balance loans as often as you wish to help overwhelm and negate any past bad debt reports with newer good reports.
Do not use the proceeds from your loans for any purpose other than to repay your loans at the end of 30 days.
