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The CARES Act Foreclosure Moratorium: How to Benefit

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When the federal government passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, it included a number of provisions designed to help ease the financial burdens of those affected by the pandemic. In particular, the CARES Act includes a nationwide moratorium on foreclosures for all federally backed mortgages.

The moratorium is in effect as of March 18, 2020, and is in place until May 18, 2020. During this time, all in-progress foreclosure proceedings must be paused and no new foreclosure proceedings can be initiated on federally backed mortgages.

The provision is designed to prevent individuals and families from losing housing during the health crisis, which would present a threat to not only those evicted but also the surrounding communities. 

Many homeowners have questions about how the moratorium works and how it can benefit them. Find the answers to some of those questions here.

Who Is Protected by the Moratorium?

The foreclosure moratorium only applies to federally backed mortgages. You are protected by the moratorium if your mortgage is owned or backed by any of the following entities:

Additionally, the moratorium only applies to residential mortgages, so small businesses or other nonresidential borrowers don’t qualify.

Graphic: How to Avoid Foreclosure

How to Use the Moratorium to Prevent Foreclosure

The foreclosure moratorium is more than just a brief pause in an inevitable foreclosure process. If your home was in the process of foreclosure, there are several things you can do during the moratorium period to prevent it from being foreclosed on:

1. Contact your loan servicer.

Even though the foreclosure moratorium is automatic—meaning, you don’t need to specifically request a moratorium to benefit—you should still contact your mortgage provider to explain your situation and ask what accommodations may be available.

The foreclosure moratorium is designed to resemble a similar clause in the FHA’s disaster relief protocols, which instruct lenders to use reasonable judgment in evaluating how best to help borrowers cope with a widespread threat like COVID-19.

To help your lender make this evaluation, you should be prepared to provide details on the nature of your financial hardship, supported by documentation. 

2. Inquire about forbearance.

In some cases, lenders can help borrowers in danger of foreclosure enter into a forbearance plan instead. The CARES Act includes a requirement that allows all federal mortgage borrowers to place their mortgage into forbearance for 180 days, with an option to extend by another 180 days if necessary. (You must explicitly request forbearance to benefit from this.)

If you’re able to place your mortgage in forbearance, you’ll be able to remain in your home while pausing your loan for several months. During this time, you can take steps to improve your financial situation, stay current on other credit accounts, find or resume employment and make other arrangements necessary to put yourself in a position to go back to paying your mortgage as scheduled.

3. Inquire about a loan modification or partial claim.

Though not included in the CARES Act, there are several other mortgage relief options, like loan modifications or partial claims, that may be available to you depending on your lender’s particular policies.

A loan modification is a permanent change to the original terms of a mortgage that makes the loan more affordable by lowering monthly payments. Typically, this adjustment is balanced with an extension of the length of the loan.

Another option is a partial claim, which is a special no-interest loan from the Department of Housing and Urban Development (HUD) that helps borrowers catch up on their original mortgage. The partial claim doesn’t need to be repaid until after the original mortgage has been paid.

Two Alternatives to Foreclosure After the Moratorium

If you’re unable to use the moratorium period to save your home, there are alternatives to foreclosure that allow you to exit your agreement without permanently damaging your credit. These options still involve you losing your home, but they allow you to avoid drawn-out and often costly foreclosure proceedings.

Graphic: Alternatives to Foreclosure

During the moratorium period, take a hard look at your financial situation and decide whether or not you’re able to use one of the mortgage relief options available to you to remain in your home. If not, contact your lender proactively to agree on the best way to exit your mortgage agreement with minimal damage.

1. Deed in Lieu of Foreclosure

If you contact your lender, you may be able to negotiate a deed in lieu of foreclosure. This agreement allows you to voluntarily deed your property to the mortgagee in order to be released from the agreement and avoid engaging in foreclosure proceedings.

Deed in lieu of foreclosure has several benefits. Foreclosure itself can be a costly process, so voluntarily surrendering your home can actually save you some money. Additionally, this option allows you to keep the process relatively private in order to avoid some of the embarrassment of a public foreclosure announcement.

2. Pre-Foreclosure or Short Sale

Another option you may have is a short sale or pre-foreclosure sale, in which you will list your home at a price below what you owe on your mortgage. This allows you to reduce what you owe the bank to a more manageable debt amount, and lets you avoid the costly and public foreclosure process.

All of the options above require advance approval from your lender, so regardless of what path you plan to take, your first step is to contact your loan servicer as soon as possible.

How Does the Eviction Moratorium Apply to Renters?

Not all of the CARES Act’s homeowner protections apply to renters. For instance, homeowners can place federally backed mortgages in forbearance, but there’s no federal legislation allowing renters a similar ability to pause their monthly housing payments.

When it comes to the moratorium, though, qualified renters are protected from eviction during the moratorium. The bill also prevents landlords from evicting tenants after the moratorium without first giving 30 days’ notice. Notice of eviction can’t be given until after the moratorium ends.

The eviction moratorium only applies to certain renters living in “covered properties,” which are:

  • properties with federally backed mortgage loans
  • properties with federally backed multifamily mortgage loans
  • properties participating in a “covered housing program” as defined by the Violence Against Women Act
  • properties participating in the “rural housing voucher program under section 542 of the Housing Act of 1949”

The National Housing Law Project published a detailed list of properties that are covered under the conditions listed above.

Cases where renters are not protected include:

  • evictions that were filed before the moratorium took effect
  • evictions based on reasons other than an inability to pay rent or other charges
Graphic: Other Housing Relief

What to Do If You’re Not Qualified for Protection but Still Need Help

By virtue of how the moratorium qualifications are structured, there will be many people who are not covered by its protections but are still in danger of eviction. In this situation, there are a number of other options to pursue.

1. State and Local Protections

Though nonfederal mortgages and renters in non-covered properties are not protected by the federal CARES Act, many states and localities have instituted their own protections that go further than those in the federal law. For instance, New York City and Los Angeles have placed a complete moratorium on evictions, regardless of the property or whether it’s backed by a mortgage of any kind.

Many states also have pending or passed laws instituting partial or full moratoriums on evictions. Consult the National Conference of State Legislatures for an up-to-date record of state policies.

2. Individual Lender Flexibility

Just because the CARES Act doesn’t require your lender to extend housing relief doesn’t mean they won’t do so if you ask. If you’re concerned about your ability to make your mortgage or rent payment, contact your loan servicer or landlord proactively to explain your situation, detail how long you expect your financial hardship to last and make a specific request for help. Even small-property landlords may be willing to pause rent payments for a finite period of time if you explain your circumstances.

3. Other CARES Act Protections

Even if your rent or mortgage isn’t flexible during the pandemic, you may be able to take advantage of other provisions in the CARES Act to lessen your overall financial burden. For instance, you may be able to defer your federally backed student loan or borrow against your retirement account to cover your monthly expenses temporarily. If you’re unemployed, you may qualify for Pandemic Unemployment Assistance.

Regardless of whether you pursue national, state or local protections for your financial situation, it’s important to make sure you’re researching your options thoroughly and avoiding scams that have sprung up since the coronavirus outbreak. 

With the right research, you can avoid or minimize the financial damage caused by the coronavirus crisis and set yourself up to recover from your hardships quickly.

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Do I need a rainy day fund?

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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.

When it comes to your finances, not every day can be rainbows and sunshine, and unexpected expenses can pop up more often than you’d like. While budgeting is an essential part of financial planning, sometimes setting aside money for unplanned expenses can go right over your head. To avoid going into debt over small inconveniences, setting aside money and putting it into a rainy day fund is crucial.                      

In this article, we’ll go over what a rainy day fund is, how it differs from an emergency fund and how much you should be saving. We will also give you tips on how you can save for those stormy days. 

What is a rainy day fund?

In 2019, 15 percent of adults said they would use a credit card a carry a balance to cover a $400 unexpected expense. Source: Federal Reserve.

The purpose of a rainy day fund is to have money set aside that is readily available for life’s unexpected financial situations that tend to occur outside of your normal living expenses. Whether you need to buy a new phone or have to pay for an unexpected car repair, a rainy day fund can help you cover the costs of these unplanned and inconvenient situations. 

If not accounted for, these costs can disrupt your monthly budget, which can in turn increase your chances of going into credit card debt. According to the Federal Reserve, 37 percent of adults said they could not or would not pay for a sudden $400 expense with cash or a cash equivalent, with 15 percent saying they would use a credit card and carry a balance to cover the costs (and 12 percent wouldn’t be able to pay by any means). 

Having a financial cushion such as a rainy day fund can help individuals afford the costs of these expenses and avoid racking up unnecessary debt.

Rainy day fund vs. emergency fund

Though they may seem similar, emergency funds and rainy day funds are not the same. Emergency funds are meant for larger financial emergencies and act as a financial safety net when things like a job loss or a sudden medical expense occurs. 

Should an emergency like this happen, you would have money to cover everyday expenses, such as rent, groceries, car payments and other recurring bills. Many experts recommend having at least three to six months’ worth of living expenses saved in an emergency fund, but this amount can differ depending on your circumstances. 

In simple terms, emergency funds are used for great financial hardships, while rainy day funds are used to cover smaller, unforeseen expenses. 

How much should you have in a rainy day fund? 

Saving for a rainy day fund can look different for everyone depending on their needs and lifestyle but having at least $500 to $1,000 saved is usually recommended. This amount should be able to cover smaller expenses that come up and help put your mind at ease whenever they occur. 

On average, you should aim to have $500 to $1,000 in your rainy day fund. Source: Lexington Law.

When forecasting your rainy day budget, consider any long-term expenses that could pop up. Do you have a pet that is nearing old age that may need to be taken to the vet any time soon? Maybe you have children and want to budget for those impromptu doctor’s office visits. Whatever your situation, a rainy day fund can be the umbrella that protects you from any unexpected financial storm. 

Where should I put my rainy day fund? 

Your rainy day fund should be liquid, meaning it is easily accessible to you and can be pulled out at any given moment, without any additional fees. Money market accounts, high-yield bank accounts and traditional savings accounts are all great options that can keep your money safe and accessible. Your rainy day fund should be kept separate from your other accounts, such as your emergency fund. Avoid tapping into your savings, as this money should only be used when small inconveniences arise. 

4 quick tips on saving for a rainy day fund

Saving for a rainy day fund can be fairly simple. Since these accounts are for smaller expenses and don’t require a hefty amount of cash, you can likely save up enough money within a year. Here are four quick saving tips to help get you started: 

1. Tighten up your budget 

As with any savings account, you want to take a hard look at your budget and see if you can afford to cut down some of your spending. For example, you can save money by eating out less and cooking at home more. You can also limit your coffee runs to only once a week as opposed to every day. This type of spending adds up, and by tightening up your budget a bit, you’ll be able to quickly put that money into your rainy day savings. 

2. Set up automatic transfers 

Automatic transfers are an easy way to put cash aside without even having to think about it. Set up an automatic transfer from your checking account to your savings account and determine a monthly amount that is feasible for your budget. Transferring $50 every month will put your savings account at $600 in one year.

Another option is a swipe-and-save feature, which most banks offer. Each time you swipe your debit card, your bank will automatically transfer $1—or any amount you choose—into your savings account. Though this may seem like a small amount, you’d be surprised how fast it can add up. 

3. Save your change

Saving your spare change and cash may seem old school, but it’s an extremely effective way to save for your rainy day fund. Extra cash from a birthday or holiday can go straight into a savings jar. Eventually, you can build up your cash savings and add it to your rainy day fund whenever the time is right.

4. Open a dedicated rainy day savings account

As mentioned, a high-yield savings account is a great option for storing your rainy day fund. Not only are these funds easily accessible, but you’re also able to earn interest on each deposit you make. Shop around for accounts that will make the most sense for you—keep interest, deposit requirements and fees in mind. If you don’t have to tap into your rainy day fund often, you can end up earning more money than you would in a traditional savings account. 

Though it’s impossible to prepare for all of life’s unexpected events, setting up a rainy day fund can help give you peace of mind should any financial storms come your way. Keep educating yourself on how to prepare for these life events to ensure that you keep your credit health in good standing. 


Reviewed by Anna Grozdanov, Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Anna Grozdanov was born in Sofia, Bulgaria but moved to Arizona with her family. Ms. Grozdanov grew up in Arizona and went on to graduate Magna Cum Laude from the University of Arizona with a B.A. in both Philosophy and Psychology. Ms. Grozdanov finished her first year of law school at Pepperdine University School of Law in California, but returned to Arizona where she graduated from the Sandra Day O’Connor College of Law. Since graduating from law school, Ms. Grozdanov has worked in Estate Planning, Estate Administration, Probate, and Personal Injury. She has extensive experience advising and working closely with clients and applies these skills at Lexington by helping clients achieve their credit repair goals. Ms. Grozdanov is licensed to practice law in Arizona. She 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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How minimum monthly credit card payments affect your credit

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credit card monthly payment

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.

Many people don’t hesitate to pay just the minimum payment on their credit card. This is especially true if the total balance is high or the cardholder is confused about the credit card lending terms and doesn’t understand the impact of paying the minimum balance. But, making just the minimum payment can have a greater impact on your credit score than most people realize.

Learn how lenders calculate the minimum payment, what it means for your debt and how making a minimum payment affects your credit.

What are credit card minimum payments?

Your credit card minimum payment is the least amount of money your lender will accept toward your credit card balance each month. You need to pay the minimum payment by its due date to avoid late penalties and other fees and to keep a consistent payment history. The minimum payment amount is displayed on your credit card bill and often ranges from one to three percent of your total credit card bill. 

How is a minimum payment calculated?

Your lender calculates the minimum payment based on your total balance and any outstanding interest charges. 

Each credit card lender has a different method for calculating its minimum monthly payment. The two primary methods are formula and percentage.

Formula

Many of the major credit card lenders use a formula to calculate your minimum payment. The formula picks an amount and adds one to two percent of your monthly balance. For example, let’s say your lender picked $35 as the minimum payment amount, plus two percent interest, and you spent $500 in new charges for the month. In this scenario, your minimum payment would be $35 plus $10 ($500 x 2%) for a total of $45.

If your total balance is less than the minimum payment, then your whole balance is due. Following the previous example, if your lender charges $35 plus two percent interest but your credit card balance is $20, you will owe $20 for that month, plus any fees and interest from the previous month.

Percentage

Other lenders—typically credit unions and financial institutions—use a simpler, percentage formula to calculate the minimum monthly payment. This method is most common for high-risk borrowers with poor credit. The percentage can range from four to six percent.

For example, if you had a $1,000 credit card balance with a lender that charges six percent, you would owe a minimum payment of $60 plus any additional fees ($1,000 x 6%). 

Some lenders will include any past-due fees in the minimum payment. 

What happens if you make only the minimum payment on your credit card?

Making the minimum payment on your credit card is better than paying nothing at all. As long as you always make the minimum payment, you should not receive negative items on your credit report, as it relates to your payment history. 

However, making only the minimum payment means you may see greater charges for interest, resulting in you paying more over time.

Take a look at this example: Let’s say you have $5,000 in credit card debt and your lender offers an 18 percent interest rate with a minimum payment of two percent of the balance. In this scenario, your minimum payment is $100 per month, which can look very tempting. But, it will take you almost eight years to pay off your balance and you will pay a total of $4,311 in interest—almost doubling what you originally owed. 

Your minimum payment is generally a small portion of your total debt, and most of that payment goes to interest. As a result, you are slowly progressing toward paying off your principal amount, and you could end up paying minimum payments for many years.

Additionally, your credit card utilization may be high if you make only minimum payments. Credit utilization is the amount of credit extended to you by the lender versus the amount you owe. If you maintain a high credit card balance while only paying the minimum payment, you are at risk of having high credit utilization month after month. 

Several factors determine your credit score, but credit utilization accounts for 30 percent of your overall score. So, maintaining a high utilization ratio can negatively impact your credit score. 

Finally, when you maintain a high credit card balance and a routine of only paying the minimum payment, you may fall behind on payments. When you make late payments or miss the payment entirely, having a negative payment history can also lower your overall credit score. 

What should you do if you can’t afford to pay in full?

If you can’t pay your credit card in full, don’t panic. Approximately 47 percent of Americans have credit card debt, so it’s quite common—but that doesn’t mean you shouldn’t pay off credit card debt. Follow the steps below to tackle your debt efficiently and in a way that works for you. 

Pay as much as you can

As mentioned before, it’s essential to always make at least the minimum payment on time. This will help you avoid negative items on your credit report for late or missed payments. However, whenever possible, try to make more than the minimum payment. This will help you pay down your principal debt faster and pay less interest over time. 

Come up with a repayment strategy

If you have multiple credit cards with debt or various types of debt, it’s crucial to have a repayment strategy. 

There are two popular debt repayment strategies: the avalanche and the snowball. The snowball method recommends you pay off your debt from smallest to largest (like a growing snowball). This method is meant to give people positive reinforcement because they feel motivated as they knock out several of their small debts quickly before moving on to the larger debts. 

The avalanche method is a more systematic approach—you list all your debts and their interest rates and pay the one with the highest interest rate first. This method aims to save you money in the long run by getting of higher-interest debt first. 

Decide which approach fits your style. Both of these methods are highly effective in their own way. 

Budget

A budget is the first step to taking control of your financial health. Without a budget, you may not know where your money is going or where you can save. Often, a budget can highlight unnecessary spending. There are plenty of free apps, such as Mint, that allow you to have an automated look at all your spending and build a budget. 

Talk to your credit card issuer

You can reach out to your credit card issuer if you’re going through financial hardship to see what they can do for you. Some credit lenders will offer to lower your interest rates, which will help you tackle your principal debt much faster. Some financial hardships can include the loss of a job, an injury or a medical incident. Ultimately it will be your lender that decides if your situation merits help. 

Consider a balance transfer

There are a lot of credit card options out there. If your credit card has a high-interest rate, you may consider a balance transfer. Some credit card lenders offer a low-interest promotional rate when you transfer a credit balance to them. During this time, you can make a significant dent in your debt. However, you should know that some balance transfers come with a one-time fee, so make sure to consider this as well. 

Care for your credit

Your credit is your door to many financial opportunities. A healthy credit score can help your chances for approval for auto leases, mortgages, personal loans and more. It can also help you get a much lower interest rate and better borrowing terms when you receive financial products.

Improving your credit takes work. While focusing on your credit card’s impact on your credit score, make sure your overall credit profile is accurate. Errors and inaccuracies can greatly hurt your credit score and put a dent in your debt-relief goals. Professional credit repair companies can help you navigate the challenges of credit reporting inaccuracies.

The first step toward establishing a healthy credit history is making sure all items are listed fairly and accurately—professional credit repair is an easy, effective way to get your credit score back on track.


Reviewed by Shana Dawson Fish, Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Shana Dawson Fish is an Arizona native whose family migrated from Guyana. Shana graduated from Arizona State University in 2008 with her Bachelor’s Degree in Criminal Justice & Criminology, and in 2012 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, Shana was a Judicial Intern at the United States District Court for the District of Arizona and the Maricopa County Superior Court. In 2016, Shana was awarded a legal defense contract and represented clients as a Trial Attorney in juvenile proceedings. Shana has experience in litigating numerous trials and diligently pursuing the rights of her clients. As a Trial Attorney, Shana identified the needs of her clients and also represented debtors in bankruptcy proceedings. Shana is licensed to practice in Arizona and is an Associate Attorney 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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What is an escalated information request?

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escalated information request

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.

When you discover an error on one of your credit reports, such as an inaccurate address or a record of a late payment that you know you paid on time, you can begin the credit dispute process to hopefully correct the error. This is one of your rights as a consumer, according to the Fair Credit Reporting Act (FCRA).

But what happens if your credit dispute or challenge fails? If you are like many consumers, the process may not initially yield favorable results. This is where an escalated information request comes in. Read on to learn what your options are following a dispute rejection.

What are the steps involved in the credit dispute process?

There are four main steps in the credit dispute process.

First, you send your dispute letter to whichever of the three credit bureaus—Equifax, Experian and TransUnion—shows the error on your credit report. In your letter, identify the information that you want to dispute, explain why you’re disputing it and provide any relevant evidence that supports your case. Ask that they remove or correct the information in question. (You can use this sample letter from the FTC if you’re not sure where to start.)

Second, you may reach out to the data furnisher that provided the inaccurate information to the credit bureaus, such as a creditor or another financial institution.  Data furnishers should conduct a reasonable investigation to verify the accuracy of the information they’re reporting to the bureaus if someone submits a dispute, and this could help you as well.

Third, wait for the credit bureaus and data furnishers to respond to your dispute. They typically have 30 to 60 days to investigate your claim. However, there is the possibility that they might deem it “frivolous,” which might happen if your dispute is inaccurate or if you repeat the same claims without adding new evidence.

Once you get a response, review the results of the investigation. If your dispute is accepted and the information is confirmed to be inaccurate, your report should be updated accordingly. If your dispute is rejected because it’s considered frivolous or the information on your report is seemingly verified, you have a couple of options—you can either let the issue drop, or attempt to escalate your dispute.

What do I do if my dispute is rejected?

Denial isn’t the end of the line. When a credit dispute is rejected, it is up to you to continue your efforts to ensure you have a fair and accurate report. Before resigning yourself to defeat, you may follow the steps below to escalate your information request.

1. Send additional letters

Draft another set of letters to the credit bureaus and a new one for the creditor in question. Outline the following:

  • Your disappointment with the initial credit dispute decision
  • Information about the account and the nature of your dispute
  • Detailed information about the dispute (include supporting documents)
  • And, for the bureaus, a list of the incorrect items on your credit report and how they should be corrected

At the end of your letters, you may document your intention to escalate your claim to the appropriate authorities if needed. Then you may mail your letters and supporting documents to the credit bureaus and relevant creditors with a return receipt requested.

2. Wait for responses

It may take up to 60 days to receive responses. Keep copies of your letters, emails and any phone calls between yourself and the credit bureaus and creditors. Be sure to write down dates, times, names of representatives and a summary of your discussions. In the case that you need this documentation, you will be very glad you kept a record of the events.

3. Review the final decision

If, upon reviewing the final decision you are still not satisfied with the outcome, you may send copies of your escalated information requests and supporting documents to the appropriate authorities, such as the Federal Trade Commission and your state’s Attorney General.

However, you should strongly consider speaking with an attorney to discuss your situation to determine what are your best options. In each of these endeavors, make sure you have enough evidence to prove your case and discredit your claim’s denial.

Protect your rights

Facilitating escalated information requests can be a long and arduous process, especially following an initial credit dispute. However, you have a right to fair and accurate credit reports, and the long-term benefits of accurate credit can make the dispute process worth your time and effort.

Make sure to regularly review your credit reports for errors, and if you find any, take action as soon as you can. You can initiate the credit dispute process yourself, but if you don’t have the time to dedicate to it or if you would rather work with a professional, there are credit repair companies who can help. Contact Lexington Law today to learn more about how we can help you as consumer advocates.

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