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The Credit Guy

Steps to take to repair your credit

The Credit Guy columnist Todd Ossenfort

Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly “The Credit Guy” column, answering reader questions about credit counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
I recently received my annual credit report. I would like to know what should I begin paying off first? The big debts or the little debts? I would like to rent an apartment soon, but I owe for moving out of my old apartment early due to a family emergency and I also owe the electric company. Should I try to negotiate with these collection agencies or do I pay them off all the funds that I owe?  — Wanda

Answer for the CreditCards.com expert

Dear Wanda,
Congratulations for checking your credit reports. I hope you used annualcreditreport.com and received a copy of your reports from all three credit bureaus. If not, check out the site and review all of your credit reports (Equifax, Experian, and TransUnion). It is important for you to check all three because you may have some items listed on one that are not listed on the other two. Also, checking for any inaccuracies would be wise.

If you do find any incorrect information, dispute the item with the credit bureau that reported it. You can find information on how to file a dispute with each of the bureaus at Equifax, Experian and TransUnion.

As you have no doubt discovered, when renting an apartment many landlords review your credit report before agreeing to enter into a lease with you. You will want to get your credit report in the best shape possible before you go apartment hunting.

In regards to your question as to which accounts you should pay first — the higher balance or lower balance accounts — my recommendation is to pay first any past due amounts on accounts that are still open and active. Making those payments will bring the accounts current, eliminating any over-the-limit or past due charges that might be accruing. 

Next, I would begin paying off the accounts that have been closed, charged-off and/or sold to a collection agency. Although this won’t improve your credit score immediately, any potential new lender will look at these actions in a positive manner.

As for payment negotiation, you could try and negotiate a payment that is less than the full balance due on these accounts, but keep in mind that any amount that is forgiven by a creditor can be reported to the IRS as income to you. Just a word of advice: stay away from any so called “debt settlement” company.  It has been my experience that the vast majority of “debt settlement” companies do way more harm to your credit score than they can do to improve it. 

A better idea would be to pay the full amount owed. You acquired the debt and it is your responsibility. This way you will not have to worry about owing money to the IRS in increased taxes for the forgiven debt that is considered income.

Paying the accounts with the largest balances first would increase your credit score the fastest, so if you have the funds, I’d begin by paying your largest account balance first. 

Take care of your credit!

See related:The good guys of credit repair

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