I have worked for companies like this.  The idea behind it is the lawsuit settlement will still cost less than the actual funds collected.  Therefore, the lawsuit is simply a cost of doing business.

Collection Recon:

Bank of America Corp.’s credit-card unit agreed to pay $5 million and suspend arbitrations of consumer debt collections in California for two years to settle San Francisco’s lawsuit over its collection practices.

The agreement, filed Monday in state court in San Francisco, resolved a 2008 lawsuit alleging that Bank of America’s FIA Card Services unit used an arbitration service that was biased in favor of the bank and against consumers. The National Arbitration Forum Inc., based in Minneapolis, employed unfair business practices while administering arbitrations for consumers who owed credit-card debt to the unit, according to the lawsuit.

FIA agreed not to use the mediation service in arbitrations for five years or enforce unconfirmed arbitration awards obtained through the company, said San Francisco City Atty. Dennis Herrera. FIA is prohibited from barring consumers from suing the company as a group, according to the settlement.

“Both sides agreed to the settlement to avoid the costs and uncertainty of further legal action,” said Shirley Norton, a Bank of America spokeswoman.

Bank of America denies any wrongdoing, Norton said. The Charlotte, N.C., company discontinued mandatory arbitration for consumer credit-card disputes in August 2009 and hasn’t used National Arbitration Forum since then, she said.

The bank, the largest U.S. lender, also eliminated mandatory arbitration and requirements barring group lawsuits from consumer and small business credit-card agreements, Norton said.

To update your credit report and dispute inaccurate information takes time usually up to 2-3 months.  Also, if everything is correct, then you can be proactive in making on time payments from this point forward.  Usually creditors look at the past 2 years of payments to see what type of credit risk you are to them.

Even though this stuff is common sense, I thought I would print the easy things you can do to get your credit report and FICO score looking pretty.

Check Your Credit Report – Credit score repair begins with your credit report. If you haven’t already, request a free copy of your credit report and check it for errors. Your credit report contains the data used to calculate your score and it may contain errors. In particular, check to make sure that there are no late payments incorrectly listed for any of your accounts and that the amounts owed for each of your open accounts is correct. If you find errors on any of your reports, dispute them with the credit bureau and reporting agency.

Setup Payment Reminders – Making your credit payments on time is one of the biggest contributing factors to your credit score. Some banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when a payment is due. You could also consider enrolling in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account, but this only makes the minimum payment on your credit cards and does not help instill a sense of money management.

Reduce the Amount of Debt You Owe – This is easier said than done, but reducing the amount that you owe is going to be a far more satisfying achievement than improving your credit score. The first thing you need to do is stop using your credit cards. Use your credit report to make a list of all of your accounts and then go online or check recent statements to determine how much you owe on each account and what interest rate they are charging you. Come up with a payment plan that puts most of your available budget for debt payments towards the highest interest cards first, while maintaining minimum payments on your other accounts.

To improve your credit scores, it’s important to know where you stand now. You can get free credit reports once a year, but you typically have to pay to see your FICO scores.

Don’t fall for the myth that you have to carry a balance to have good credit scores. You don’t, and you shouldn’t. But having and using a credit card or two can really build your scores.

If you can’t qualify for a regular credit card, consider a secured credit card, where the issuing bank gives you a credit line equal to the deposit you make. Look for a card that reports to all three credit bureaus. One to consider is Public Savings Bank Classic Secured Visa.

You’ll get the fastest improvement in your scores if you show you’re responsible with both major kinds of credit: revolving (credit cards) and installment (personal loans, auto, mortgages and student loans). If you don’t already have an installment loan on your credit reports, consider adding a small personal loan that you can pay back over time. Again, you’ll want the loan to be reported to all three bureaus, and you’ll probably get the best deal from a community bank or credit union.

A great reason to get a loan is to consolidate your credit card bills into a lower monthly payment. I had a friend do this using Lending Club which made the process easy online.

Lenders like to see a big gap between the amount of credit you’re using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help. If you regularly use more than half your limit on a card, consider using other cards to ease the load or try making a payment before the statement closing date to reduce the balance that’s reported to the bureaus. Just make sure to make a second payment between the closing date and the due date, so you don’t get reported as late.

Say that fight with your phone company over an unfair bill a few years ago resulted in a collections account. You can continue protesting that the charge was unjust, or you can try disputing the account with the credit bureaus as “not mine.” The older and smaller a collection account, the more likely the collection agency won’t bother to verify it when the credit bureau investigates your dispute.

Your credit scores are calculated based on the information in your credit reports, so certain errors there can really cost you. But not everything that’s reported in your files matters to your scores.

Here’s the stuff that’s usually worth the effort of correcting with the bureaus:

Late payments, charge-offs, collections or other negative items that aren’t yours.
Credit limits reported as lower than they actually are.
Accounts listed as “settled,” “paid derogatory,” “paid charge-off” or anything other than “current” or “paid as agreed” if you paid on time and in full.
Accounts that are still listed as unpaid that were included in a bankruptcy.
Negative items older than seven years (10 in the case of bankruptcy) that should have automatically fallen off your reports.

On a side note, I am compensated by the advertisers mentioned in this specific blog post and by all the advertisers listed on my blog.

There is a ton of great information nowadays available on the internet especially about credit. There is no need to go to the libraries to read up on them. Of course, since the internet is like a giant wikipedia, there is a ton of conflicting information that often contradict each other.

In a way it is up to you to figure out what is right and what is wrong based on your own experiences. So i found some information online and incorporated my own experience to help you understand credit and credit scores aka FICO scores.

For your three FICO scores to be calculated, each of your three credit reports must contain at least one account which has been open for at least six months. In addition, each report must contain at least one account that has been updated in the past six months. This ensures that there is enough information – and enough recent information – in your report on which to base a FICO score on each report.

When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they’d take by loaning money to you. FICO scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well. Your 3 FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. Taking steps to improve your FICO scores can help you qualify for better rates from lenders.

FICO scores provide the best guide to future risk based solely on credit report data. The higher the credit score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders use to determine your actual interest rates. However you can now see what interest rates lenders typically offer consumers based on FICO score ranges.

In general, when people talk about “your score”, they’re talking about your current FICO score. However, there is no one credit score used to make decisions about you. This is true because:

Your credit score may be different at each of the main credit reporting agencies.
The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the credit reporting agencies are different, it’s probably because the information those agencies have on you differs.
Your FICO score changes over time.

As your data changes at the credit reporting agency, so will any new credit score based on your credit report. So your FICO score from a month ago is probably not the same score a lender would get from the credit reporting agency today.

I found this summary online of a step by step plan which is basically what I had done over 20 years ago.  Yes, you could pay someone else to do this stuff, but that would be a waste of money in my opinion.

The basic strategy to repairing your credit is as follows:
Get and review your credit report.

Analyze your report.

Make a list of all items you consider to be questionable or negative. Clearly identify each item in your report you are disputing and explain why you are disputing this information.

Write a dispute letter to the credit bureaus.

Mail the letter to the credit bureaus. Make sure you send it registered or certified mail.

Document your efforts. Record when you sent your letters, and the results.

Wait for the bureaus to investigate your claims.

Analyze the results.

Repeat.

Specialized techniques. Was the item deleted or changed to your satisfaction? You may continue steps 1, 2 and 3 above until you feel the dispute is settled satisfactorily. Remember, there is no charge for a reinvestigation. If you don’t get the results you want, dispute the listing again.

While you wait for bad credit items to drop off, be sure to reestablish your credit with new credit cards. If you can’t or don’t qualify for one now, then get a secured credit card that reports to all three credit reporting agencies.

In this economy if you have bad credit you won’t be able to get a credit card. However, you need credit cards every so often. That is when a secured credit card will come in handy. The problem is getting one that is affordable.

I saw this from bankrate and thought these 10 questions will help you find a secured credit card that will be convenient for you.

1. What is a secured credit card?
A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500 in the account; you can charge up to $500. You may be able to add to the deposit to add more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits.

2. Where can I get a secured credit card?
Check Bankrate.com’s list of secured credit card issuers. If you’re a credit union member, ask about a secured card there. About half of the nation’s credit unions offer secured cards to their members and may offer lower interest rates and waive annual fees.

3. What kind of charges will there be?
This is where it pays to shop around. Look for a card that doesn’t charge an application fee. Every secured card charges an annual fee, and they vary dramatically. Read the fine print. Some people have gotten secured cards and found their entire limit consumed with fees before they ever used the card.

4. How much money do I have to deposit?
Again, the amount will vary by the card. Most are $300 to $500. Your credit limit will either be the amount of your deposit or some percentage above that amount.

5. Do all banks offer secured credit cards?
No. Linda Sherry, editorial director of Consumer Action, says her organization is seeing a trend in banking away from secured cards and toward unsecured cards with lower limits and higher interest rates and fees. Still, secured cards are a good choice — and sometimes the only option — for people who are just starting out or rebuilding after a major life event, such as a divorce, job loss or serious illness. In addition, some issuers only give secured cards to people who are new to credit — not those who have already had one crack and blown it.

6. Are there any problems to watch out for?
Yes. Howard Dvorkin, president of Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla., a nonprofit organization that helps people get out of debt, calls secured credit cards “a Clint Eastwood movie — the good, the bad and the ugly. Some are good. They have low fees and treat customers as customers instead of as cattle. The bad ones take advantage and extort the clients because of their situations. Then there’s the ugly, which are completely despicable. They’ll give you the card, but you have to buy this insurance policy for $55 a month.”

The Federal Trade Commission organized a crackdown on telemarketers illegally charging fees that range from $25 to several hundred dollars in advance of receiving “guaranteed” credit cards or loans. Consumers either got nothing or were just sent credit card applications.

Gather plenty of information when you apply for a card. In addition to such important items as the interest rates, fees and the required deposit, you’ll want to get answers to these questions:

7. Do you report to all three major credit bureaus?
The reason for having a secured card goes far beyond being able to buy CDs online. It’s a vehicle for building a good credit history. If the issuer doesn’t report, you’ve lost a major benefit. (Tip: If you start getting mailers offering you unsecured cards after you’ve made several months of payments on time, you’ll know that the bank is reporting.) Ask if the issuer will flag the report to the credit bureaus as a secured card. Consumer Action points out that such a flag could be a deterrent to rebuilding credit.

8. How long does it take to qualify for an unsecured card?
The card issuer should want to keep you as a customer, so most will qualify you for an unsecured card after a period of making all your payments on time. The average is about a year.

9. How much interest will my deposit earn, and what kind of account does the deposit have to be in?
Generally, you’ll be getting about what you’d get if you opened a savings account at your own bank. The deposit options include a savings account, money market or certificate of deposit. Also, ask how long the money has to stay on deposit after the account is closed. Some banks will want to keep the deposit for a couple of billing cycles to cover any stray charges that arrive.

10. How can I make the best use of a secured card to build my credit rating?
Buy a few things and pay off the card every month. “People should not get these cards to carry any balance,” Sherry says. “It seems you need to make a few purchases and pay for them. It helps to pay in full every month to show you’ve got this excellent credit rating.”

While secured cards make sure you never spend more money than you can afford while they force you to save, it’s not a good idea to keep one any longer than you have to, experts say.

All secured cards have annual fees and higher interest rates than regular, unsecured cards. If you have enough discipline to use a secured card responsibly, you have enough to use an unsecured card and set up a better savings program on your own.

“We recommend to people that it should be a stepping stone,” Sherry says.

So the economy is in an unofficial recession and there is no credit card bailout coming from the government. This means that people who can’t pay their bills and have defaulted on the credit accounts now have bad credit. Bad credit will stay on your credit report for 7 years until the date of the actual delinquency.

That may be good or bad depending on how long you haven’t paid your credit card. Depending on how much bad credit you have, it will take some effort to build good credit. It may take time, but it is actually easy to get perfect credit if you make an effort.

Assuming you have 5 credit card charge offs and nothing else on your credit report, you will want to counter it with 5 good credit accounts. Obviously, no one will give you an unsecured credit card with that type of credit. What you want to do is get a secured credit card that reports on all 3 credit reports.

If you have the funds and ability to get 5 secured credit cards now, then that will counter the 5 bad charge offs. Basically, it will cancel the 5 bad accounts. however, that doesn’t mean you will start getting offers for unsecured credit cards. This action will only increase your credit score. It will take about 2 years or 24 monthly “on time” payments to build decent credit.

Again, as you build your credit some of the bad credit will fall off your credit report after 7 years or if you dispute them early for inaccuracies, then they may actually be removed faster.

The first step you want to take from going to bad credit to good credit is to find out how your credit looks like and what your actual credit scores are now. Do this once a year so you know where you are starting from. The second step is to open up an unsecured credit card and try to establish a perfect 24 monthly payment record with them.