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How to Negotiate With Creditors

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Disclosure regarding Lexington Law’s editorial content.

If you are dealing with calls from debt collectors,
getting notices for overdue bills you still can’t pay or have old debts you’d
like to settle to help clean up your credit report, you may be able to take
action. Many people don’t realize that all debts aren’t written in stone, and
you may be able to negotiate with creditors to move your finances in a more
positive direction. Here, learn how to negotiate with creditors and when it’s a
good option to try.

When Should You Try to Negotiate?

Negotiating with a creditor usually involves trying to get them to accept a debt settlement. This means that you agree to pay a portion of the debt instead of the full amount, and the creditor accepts this. Creditors are sometimes willing to agree to these arrangements because they know that an account already in collections is less likely to be paid, and they would rather have some money than none at all.

Working out a debt settlement can help you get current on
accounts again or help you pay off old collection debt. However, there are some
things to be aware of.

Successfully negotiating a debt settlement doesn’t make the debt go away completely. It will still show on your credit report until it ages off after seven years, and even if the creditor marks it as paid, the negative payment history can still affect your credit score. In some cases, starting to make payments on the debt again as part of a settlement agreement can also restart the statute of limitations on the debt.

In addition, you need to be prepared for possible tax consequences. In most cases, when you successfully get a debt lowered by $600 or more, your creditor will send you a Form 1099-C. This means that the amount forgiven is considered income and can add significantly to your tax bill.    

10 Steps for Negotiating With Creditors

Attempting to negotiate with creditors can be
intimidating, but it doesn’t have to be. Use these 10 tips to help you prepare
a plan, handle the actual negotiations and be ready to follow up as necessary.

1. Be Honest

It’s important to be honest as you negotiate with creditors. Saying you can make payments that you’re not able to follow through with or overexaggerating financial problems can make the situation worse. It can also make it more difficult to work together with the creditor for a mutually acceptable solution.

When you’re negotiating with creditors, know exactly how
much you can pay and when. Be clear and factual when explaining factors, such
as a furlough or layoff, that may have contributed to the issue.

2. Stay Calm

It’s normal to be frustrated, worried and even angry if
you’re in a position where debt collectors are calling, but it’s important to
stay calm and professional when interacting with creditors.

For example, if you’re trying to get a creditor to remove a late payment from your report, you may remind them that you haven’t missed a payment before. Then, you can let them know that you were injured and unable to work for a few weeks, but you’re back to work now and future payments won’t be a problem.

Getting emotional can also indicate to creditors that you
are in a desperate situation, and some may try to capitalize on this by being
unwilling to negotiate or saying you have to make a payment before you’ve
gotten the agreement in writing.

3. Have Cash Available

When you call a creditor to try to negotiate a debt
settlement, it’s important to have the cash available right then. You’ll still
want to wait to make a payment until you have the agreement in writing, but
many creditors can send this via email instantly, which means you’ll need to be
ready to pay right then and there.

Instead of giving creditors access to your banking
information, consider using a prepaid card to make your payment or do a wire
transfer.

4. Present a Plan of Action

Any time you’re trying to negotiate with someone, it’s
important to know exactly what you want out of the deal and what you’re willing
to give. Going into the negotiation with a plan shows the creditor that you’re
serious about trying to settle, and it provides an instant starting point so
you can get to a resolution faster. Knowing what you want also helps you stick
to the plan if the creditor tries to get you to pay more or accept different
terms.

5. Ask for Modified Loan Terms

In some cases, you won’t be able to negotiate for a debt settlement. The creditor may be unable or unwilling to accept the settlement offer or it may be something like a mortgage or student loan that is difficult to forgive. In these cases, you can still try to negotiate certain aspects, such as interest rates or minimum payment amounts, or ask for a forbearance to help give you more control over your financial situation.

6. Cover Worst-Case Scenarios

There are times when negotiations aren’t possible
because you don’t have the money to pay. In these situations, the best thing to
do is be honest with the creditor. Let them know that you want to pay but can’t
and that you probably won’t be able to pay in the near future either.

If bankruptcy is an option, it may help motivate the
creditor, as they would rather get a little bit of the money than lose it all
under the protection of a bankruptcy. They may be willing to accept a small
amount at that point instead.

7. Be Persistent

Creditors are notoriously difficult to negotiate with,
and you may have to offer your plan and refuse to settle for less several times
before they finally accept. Continue to be honest, courteous and matter-of-fact
in all of your interactions, and don’t be afraid to call back and try again if
the creditor refuses to negotiate the first time.

8. Keep a Record

Always keep written records for every communication you
have with a creditor. Record important details like the date, time and length
of the call, the name of the person(s) you spoke to and general notes on the
conversation.

9. Practice Follow-Through

This ties into the first point, but when you’re dealing
with creditors, it’s important to always follow-through with what you say you
are going to do. If you set up a payment plan, make sure to actually make the
payments as promised. Creditors deal with people facing financial difficulties
and strain on a daily basis, and they may be more willing to negotiate with
those who are taking steps to help themselves.

10. Get Professional Help

While you can do everything that a credit counseling agency
can do, this doesn’t mean you should. Dealing with creditors requires a great
deal of time and energy when it comes to making phone calls, dealing with paper
trails and keeping records of who said what when. A professional company or
attorney can sometimes help take some of this burden so you can focus on
continuing to work toward a better future.

What If
Negotiation Doesn’t Work?

While negotiating with creditors can help in many situations, there will be times when it doesn’t work. Whether the creditor refuses to negotiate or your financial situation is dire enough that negotiations aren’t going to actually make a difference, there are other debt relief options, such as bankruptcy, that you may want to consider. Filing for bankruptcy is very serious and is usually considered a last-resort option. If you think that your situation may require filing for bankruptcy, make sure to talk to an experienced bankruptcy attorney who can discuss the details of your case and advise you on which type of bankruptcy is best for you.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Credit Cards

Disputing a charge on your credit card

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credit card dispute

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Everyone makes mistakes, and sometimes the entity making the error is your credit card company. Luckily, you’re protected by the Fair Credit Billing Act (FCBA), which provides, in part, some processes by which consumers can dispute a credit card charge. The FCBA also requires that the credit card company investigate the matter when requested. If the card company finds it made an error on your statement, it must correct it.

Sometimes, the retailer or other merchant processing the charge actually makes the error. Examples can include accidental double charges, being charged the wrong amount or having someone make fraudulent charges on your card. In these cases, the credit card company has the ability to issue a chargeback. That just means the charge is reversed, and the merchant in question returns the money that was paid to them.

For a chargeback or any other type of remedy to occur, you typically have to dispute a charge on your card. Find out more about credit card disputes below.

When can you dispute a credit card charge?

There are three reasons you can legally dispute a charge on your credit card so you aren’t ultimately responsible for it.

When someone uses your card without your permission

This doesn’t mean that someone authorized on your card, such as a spouse, bought something you didn’t agree with. That’s a problem you have to work out with the person in question.

Instead, this refers to people fraudulently using your card or credit card number. It might mean someone you know—who is not an authorized user—taking the card without your knowledge and making purchases. It could also refer to a stranger stealing your card and using it or someone stealing only the credit card number and making purchases online.

When there is a billing error

Examples of this can include your electric company processing a double payment in error or your cable company billing you for a higher-value package than you actually have. In these cases, you may want to contact the company first because most are more than willing to reverse the charges themselves and save everyone the time involved in a credit card dispute investigation.

But if that’s not the case or you can’t or don’t want to involve the company for any reason, your credit card issuer can typically help.

When the merchant won’t help you resolve an issue with the purchase

If you make a purchase that doesn’t live up to the understood agreement, you may want to return the purchase. If the merchant won’t help, you may be able to file a credit card dispute. Note that this is meant for issues such as a damaged or incorrect product and not as a way to recover from buyer’s remorse.

For example, if you order size 10 shoes and get size 8, but the merchant refuses to accept a return, you may have a case for a dispute. But if you simply order a pair of shoes, get exactly what you ordered and decide you didn’t want to spend that much after all, a dispute may not be the ideal path to a resolution.

Try to avoid friendly fraud

Friendly fraud occurs when someone tries to use the credit card dispute process to force a chargeback on legitimate charges. The above example of wanting to return shoes because you decided you didn’t want them after all could be an example of friendly fraud if you force a chargeback over it.

Friendly fraud also refers to filing a credit card dispute for a chargeback simply because you think it’s easier than going to the retailer for a refund. But retailers lose more money to chargebacks due to chargeback fees, the fact that they don’t get their merchandise back and the labor time associated with handling the dispute and chargeback.

These losses can hurt all types of business but can be especially harmful for small or new businesses. And if you abuse dispute systems in this way, you can actually be blacklisted by companies who will not accept your method of payment anymore. That’s true even if you didn’t mean any harm in filing disputes of this nature.

How to dispute a charge

But if you have a legitimate, legal reason to dispute credit card charges, you should. Follow the steps below for doing so.

  1. Gather documentation that illustrates the charge was in error, if possible.
  2. Make a good-faith effort to resolve issues with the merchant first. This can include calling or going to the store and talking to someone in customer service or billing. Let them know the issue and give them a chance to handle it.
  3. Take steps to protect yourself if you believe fraud has occurred. That includes changing passwords, notifying your credit card company and putting a freeze on your credit report.
  4. Contact your card issuer by mail, phone or online to file a dispute. Mail is the best method because it’s covered by the FCBA and creates a paper trail. But the other methods can also work.

If you don’t know what to write in a credit card dispute letter, don’t worry. The FTC offers a sample letter you can use.

Once you do write the letter, make sure you send it to the right address. Don’t send it to the address you mail payments to. Look at your statement or check online to find out the address for your creditor’s billing inquiries department.

How long do you have to file a dispute?

Under the FCBA, you have 60 days to file a billing dispute. That’s 60 days from the date when the original bill or statement with the inaccuracy was mailed to you, which means by the time you see the statement, you may have less than 60 days. Mailing your dispute letter certified mail with return receipt requested can be a good idea if you want to document that you met this deadline.

Look out for your credit throughout the dispute process

Throughout the process of handling your credit card dispute, make sure you’re keeping your overall credit in mind. This is especially true if you were the victim of identity theft. In such a case, there’s a good chance that you might have other issues to deal with. Sometimes bringing in help, such as working with a credit repair firm such as Lexington Law, can help you deal with multiple issues on your credit report.

And even if you’re only dealing with the one billing issue, make sure you follow up. Ensure that in the time it takes to deal with the issue, the credit card company doesn’t mark you as missing a payment or report a missed payment to the credit bureau. If that does happen, you may need to write a separate credit dispute letter to the bureau requesting that the negative item be removed.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Are You Unscorable? – Lexington Law

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

The topic of credit repair is a broad one, and while it mostly focuses on recovering from past mistakes, it can also encompass credit creation.

Consumers who are new to the credit realm are often tagged with the term “unscorable” because the credit bureaus do not have enough information to create a credit file in their name. For example, an unscorable consumer usually falls into all of the following categories:

  • A new adult or American citizen with no credit experience
  • No credit cards
  • No bank account
  • No mortgage or auto loan
  • No personal (or reported) rental, utility, or cable accounts

Even those with previous credit histories can fall off the map if they close all accounts and fail to use credit for more than six months. There are a few things you can do to build your credit file and establish a positive score:

  • Order your credit reports. It’s impossible to know your credit status without contacting the credit bureaus. Every consumer is entitled to free annual copies of their TransUnion, Experian and Equifax credit reports via AnnualCreditRepair.com. Order yours to see where you stand.
  • Assess your accounts. The average consumer isn’t getting the full benefit of “alternative” credit data, also known as unreported data. For example, suppose you rent an apartment, have cell phone service and a cable package, and yet, none of these accounts appear on your credit reports. In general, these types of lenders fail to report histories to the bureaus unless a problem exists, costing you credit score points in the process. Contact your lenders directly to learn more about their policies. A simple request to report could lead to fast and easy credit creation.
  • Open a credit account. The concept of credit can be overwhelming without the right perspective. Rather than viewing credit and debt together, consider using credit as a tool to help you create a positive future. Start slow by opening one of the following accounts:
    • A secured credit card. Consumers with no credit history may find it difficult to get approved for a standard line of credit. Consider applying for a secured credit card first. This type of card requires pre-loading funds before use like a debit card, however, your activity is reported to the bureaus like a regular credit account. Steady use will also allow you to convert the card to standard credit after a period of six months to a year.
    • Personal loan (with a cosigner). Applying for a small personal loan, e.g., a line of credit at the local bank or a federal student loan can help you establish credit with necessary funds and a manageable repayment schedule. Ask a close family member to act as your cosigner and remember that your actions affect their credit health as well. Pay your bill in full and on time to avoid taking advantage of their generosity.
  • Remember the Five Factors. Losing the “unscorable” label takes time, and it’s important to establish healthy habits from the very beginning. Click here to review the Five Factors that determine how your credit is calculated. Understanding the facts is your first priority.

The bottom line: A world of opportunity waits for those who take the right steps. Begin your journey with knowledge and planning; the result will help you achieve the credit score you deserve.

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Credit Cards

How to remove inquiries from a credit report

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young family reviewing credit report together

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Credit scores naturally fluctuate from month to month depending on your usage, payments and transactions. For the most part, your credit score is directly tied to your actions. Occasionally there will be errors on your report that were out of your control, such as with hard inquiries and lines of credit. If you notice a sudden decline in your credit score, even if only by a few points, you may be suffering from the effect of an unwarranted credit inquiry.

Credit inquiries occur when a lender requests your full credit history from one of the credit reporting agencies. These inquiries into your credit history can affect your credit score negatively and will typically stay on your report for up to two years.

Inquiries stay on your record for so long because they reflect how many times you have applied for credit. Lenders use how many times you have applied for credit to judge whether you should be approved for an extension of credit.

In certain circumstances, an unapproved inquiry can be removed from your credit report by sending a credit inquiry removal letter to the credit reporting agency or by disputing it online.

The difference between hard and soft inquiries

difference between hard and soft inquiries

Although there is no difference between the data provided in a hard and soft inquiry, they do not affect your credit the same way. A common misconception is that checking your own credit history will negatively affect your score, but this is not true. When you check your own credit history, it is considered a soft inquiry and will not show on your credit report or affect your score.

Hard inquiries, by contrast, occur when a lender pulls your credit report. A lender may pull your credit history while going through an application for a new loan, a new credit card or any line of credit. Additionally, banks and property managers may pull your credit while setting up accounts or determining approval for an apartment.

Occasionally, a hard credit report can sometimes be pulled without your knowledge, approval or without your full understanding. Hard inquiries that were pulled without your request can be removed from your credit report under the Fair Credit Reporting Act.

How do credit inquiries affect your credit score?

Hard inquiries count as minor negative entries and account for 10 percent of your credit score. Although the exact effect on your credit score will vary depending on your credit history and current standing, you can typically expect to see a one to five point drop in your overall credit score.

Although the exact hit to your credit score will vary, you can expect to see drops in your score when these inquiries start to add up. Occasionally lenders will either pull your credit by mistake, pull your credit multiple times or pull your credit without your knowledge whatsoever.

Can you remove inquiries from your credit report?

reasons to dispute a hard inquiry on your credit report

Hard inquiries can be removed from your credit history if they occurred without your approval. If you did not have knowledge of the hard inquiries pulled from your credit profile, you have the right to ask for the inquiry to be removed

You can remove a hard inquiry if:

  • The inquiry occurred without your knowledge.
  • The inquiry occurred without your approval.
  • The number of inquiries exceeded what you expected.

How to send a credit inquiry removal letter

To send a credit inquiry removal letter, you should contact any credit reporting agency that is reporting the inquiry. Credit inquiry removal letters can be sent to both the credit reporting agencies and the lender who issued the credit inquiry.

1. Send the credit inquiry removal letter via certified mail
Certified mail is a way in which the sending and receiving of a letter or package is recorded. This form of mail will give you proof that the credit issuer or lender received the proper first notification to remove the hard inquiry.

2. Notify the lender first
Notifying the lender before you send a removal notice is necessary if you plan to take the dispute further to court. This is the proper first step for removing hard inquiries.

3. Include a copy of your credit report
Including a copy of your credit report with the highlighted unapproved hard inquiries may help with referencing your case. Although the credit reporting agencies will have easy access to your report, a hard copy will help investigators when processing your request.

4. Send to the appropriate credit bureau
It is important to send your letter to the credit bureau with a record of the hard inquiry you want removed. Below are the addresses for each bureau:

Equifax
P.O. Box 740256
Atlanta, GA 30374-0256
Equifax Dispute Information Center

Experian
P.O. Box 4500
Allen, TX 75013
Experian Dispute Information Center

TransUnion LLC
Consumer Dispute Center
P.O. Box 2000
Chester, PA 19016
TransUnion Disputes Information Center

Credit inquiry removal letter template

Date
Your name
Your street number, street name
City, state, zip code
Your phone number
Social Security Number
Name of credit bureau

Re: Reporting Unauthorized Credit Inquiry

To whom this may concern,

I am writing to request the removal of unauthorized credit inquiry/inquiries on my (name of the credit bureau—Equifax, Experian and/or TransUnion) credit report. My latest credit report shows (number of hard inquiries you are disputing) credit inquiry/inquiries that I did not authorize.

I am writing to dispute the following inquiries and ask for their removal from my credit report.

Item No.CreditorAccount

Please have these/this unapproved inquiries/inquiry removed from my credit report within 30 days, as it is harming my ability to obtain new credit. I would appreciate a copy of my credit report once this issue is resolved.

Thank you for your assistance.

Sincerely,

(Your Name)

How to stay on top of negative credit report entries

Removing questionable negative items from your credit profile can be a long and time-consuming process that can seem daunting. Although a few points’ difference may not seem like a large priority, it is important to stay on top of these entries before they add up and get out of control.

If keeping your credit score high or improving your credit score is a top priority, Lexington Law Firm may be a good option for you. Lexington’s credit repair services can help you with addressing questionable negative items on your credit report as you work on improving your credit.

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