Credit is important in our day to day life and we cannot move without it. The better is our credit; the better is the terms on which loans are offered. So we try our best to maintain a good credit score. Letters of credit are intended to help you to repair bad credit. Now, credit score depends on our credit report and so we try our best to remove negative items from our report as these items adversely affect our score. However, as per the Fair Credit Reporting Act and the FTC, we cannot remove accurate and timely information from our report. We can only remove the incorrect entries. Letters of credit helps us to remove these incorrect entries.
The most common types of letters include the pay for delete letter, dispute letters to the bureaus, debt validation letter, and the letter to remove hard inquiries. Each of these letters of credit helps us in different ways to repair our bad credit. Here we try to describe how these letters help us to repair our credit.
Pay for delete letter: This letter is generally sent to the creditor in order to remove a delinquent account from your report. However, it may be noted that certain negative accounts like charged off and judgments can never be removed even through pay for deletion agreement. In other cases, if a creditor agrees to the pay for deletion agreement, the negative delinquent account gets removed from your credit report once you pay off the debt in full to the creditor and your credit score improves. However, you should always get the pay for deletion agreement in writing before you start making payment towards the debt. Since the creditor is not bound to remove the negative account from your report as per the FCRA, he may not agree to PFD. In such cases you may ask the creditor to report it as “paid in full”. Although “paid in full” is also treated as a negative in your report, it is far better than the debt being delinquent, as it saves you from judgment.
Dispute letters: Dispute letters can be sent to the credit bureaus to dispute any incorrect listings in your report. As per the Fair Credit Reporting Act, both the creditors and the credit bureaus are required to correct any incorrect item in your report. Once you dispute the debt, the bureaus need to investigate it within 30 days with the creditor and send you updates along with a free copy of your report if any changes have been made.
Debt validation letter: If you receive a collection letter from a creditor or a collection agency, or if you find a creditor / CA listing in your credit report against a particular debt, Section 809 of the Fair debt Collection Practices Act gives you the right to ask for debt validation to be sure whether you actually owe the debt to the creditor or not. The creditor has to stop the process of debt collection till the time they validate the debt. If the creditor is not able to provide you with debt validation, he must remove the item from your credit report; else you may file a complaint against the creditor with the Federal Trade Commission.
Letter to remove hard inquiries: Hard inquiries are made whenever you apply for a new line of credit. Whenever you apply for a new credit, you automatically authorize the creditor to pull out a credit report and make a hard inquiry. Each hard inquiry reduces your credit score. More and more hard inquiry implies that you are credit hungry which may prove negative for your score. However, only authorized inquiries can stay in your credit report. So if you find any unauthorized inquiry in your report, you may send a letter to the creditor asking them either to remove the hard inquiry or to verify your authorization. In most cases the creditors get the hard inquiry removed from your report if they cannot verify your authorization.