Goodwill Hunting

I heard that a "goodwill adjustment" can erase late payments from my credit report. Is it true?

Remember the makeup test you took in college because you skipped that early morning exam due to "the flu"? It offered a second chance to get the grade you deserved. Who knows, maybe it was the reason you got your diploma, landed a job and bought a house.

Well, think of a goodwill adjustment as the makeup test of the real world. Say you were paying your bills on time up until the day you had an accident, fell seriously ill or got laid off. Suddenly you found yourself a couple of months behind on your payments. While you managed to catch up once you were back on your feet, the damage was already done. Because of the late payments your credit score tumbled, a turn that could lead lenders to offer you higher interest rates and even ruin plans to refinance a home or buy a new car.

The remedy? Get a goodwill adjustment. Here's how it works. Simply call your creditor, explain the situation and ask for your account to be "re-aged." That means the account will be reported as current -; not late. It's called a goodwill adjustment because a creditor does it as a gesture to help a customer, explains Reed Racette, director of creditor relations at the National Foundation for Credit Counseling. "Any consumer can request an adjustment," he says, "but it's at the bank's discretion whether or not it wants to honor that request."

That's the catch: There's no guarantee that the creditor will agree to the request, says Gerri Detweiler, author of "The Ultimate Credit Handbook." Right off the bat, there are official federal guidelines that limit banks and other credit institutions to re-age an account only once in 12 months and twice in five years. Then, banks expect a borrower to demonstrate both willingness and ability to repay the loan. Some banks require a client to have made two or more consecutive monthly payments on time before a goodwill adjustment is made. And of course, some banks don't do goodwill adjustments at all -; mostly because late fees can really boost revenues, says Racette.

For those who have yet to catch up on payments, a goodwill adjustment isn't the way to go. "If you're currently in a situation where you're behind, you're unemployed or you're having trouble keeping up, this is not the time to ask for it," Detweiler says. Instead, you should consider contacting a debt counselor.

If you decide to try to get an account re-aged, be warned: It's time-consuming. Numerous calls to customer service may be necessary until you get to the right person on the line, Detweiler warns. "They're probably going to tell you that they can't do it, and you want to keep persisting until you get someone with the knowledge and the authority to do it," she says. "And sometimes that just means continuing to go up the ladder." Ask for a supervisor or a manager, and specifically use the term re-age. And don't forget to request a copy of all paperwork that the bank sends to the credit bureaus.

Keep in mind, once you've re-aged an account, that doesn't mean all your work is done. If other credit-card issuers have raised your rates in the meantime because of your late payments -; a common industry tactic -; they won't lower them back to their previous levels automatically. You'll have to make more calls and repeat the story all over.

Finally, it won't hurt to ask your creditor to erase your late payments altogether. This will boost your credit score faster than just bringing your accounts up to date, says Racette. But prepare to hit a wall there: Creditors aren't obliged to remove accurate information from a credit report, so they're reluctant to do it. "Most of them, if it's true information, will leave it on," Racette says. He suggests that if you go for it, send a request in writing rather than handling it over the phone, as you would with a simple re-age request.

For more on credit repair, read our previous Ask. Our Digging out of Debt calculator will help you figure out how long it will take you to pay off your credit cards.