Your Guide to Credit Repair
9 MIN READ
Published April 06, 2023 | Updated November 05, 2023
Your credit report can provide you with a detailed picture that can make it easier to spot fraud or errors. Credit repair does not happen overnight, but with these tips, you can take the necessary steps to start fixing it.
A good credit score has many benefits, whether you want to apply for a mortgage or qualify for lower-interest loans. On the opposite side, a lower credit score can have a negative impact on your ability to borrow.
In the U.S., where a FICO score below 580 is considered to be poor, the average credit score was 698 in February 2021.
Lower credit scores make it difficult for loans and credit cards because 6 in every 10 of those with lower credit scores end up falling behind on loan payments.
The higher your credit score is, the easier it will be for you to borrow.
Let’s review how credit repair works and what you can do to improve your credit scores.
What is credit repair
Credit repair is any action you take to improve your credit score, such as paying off debt, making timely payments, and removing negative information from your credit report. Credit repair can be DIY or can be through a credit repair company.
These companies attempt to get information and remove unverifiable or inaccurate information from your credit reports.
In many cases, credit repair organizations try to get accurate but negative information removed from your credit report before it would naturally be erased.
There are many steps that you can take to repair your credit scores if there is any inaccurate information in your history.
The Credit Repair Organization Act defines what credit repair companies can and cannot do to comply with federal law.
Practices such as offering guarantees to remove information from credit reports and advising customers to change identification are not allowed under the act.
How do Credit Repair Companies Work
Credit card companies communicate with credit reporting agencies and companies that provide your information to these bureaus on your behalf.
The companies that provide data to credit bureaus are usually financial services companies like credit card issuers, banks, and debt collectors.
These companies aim to have your credit information deleted or modified so that it will be favorable to you.
Most companies start by requesting your credit report from the three major credit bureaus - TransUnion, Experian, and Equifax.
They will look for derogatory marks on your credit reports, such as:
- Tax liens
- Civil judgment
- Late payments
Next, they will create a plan to negotiate with creditors and dispute errors. Credit repair companies do this by requesting bureaus and creditors to validate information, sending dispute letters for inaccurate marks, and more.
7 Tips to Repair Credit on Your Own
DIY credit repair involves identifying problems with your credit report and addressing these issues. Here are seven tips to repair your credit on your own.
1. Get Credit Report Copies
Start by obtaining copies of your credit reports so you can carefully review all the information listed. This will allow you to identify issues that might be negatively impacting your score.
5 in every 10 adults in the U.S. never check their credit scores, but getting credit report copies is free and easy. Checking your credit reports regularly is an easy way to spot any inaccuracies at the earliest.
You can get a free credit report once a year from each bureau. You will have to provide basic details such as your name, address, social security number, and date of birth to get your credit report.
2. Review Credit Reports in Detail
Take a closer look at each of your credit reports to see why your score is low. Your credit score is determined based on a number of factors, such as:
- Your payment history. Borrowers with accounts in collections or late payments can have lower scores.
- Your credit utilization. This is the amount of credit you use in relation to the credit available to you.
- Account types. Having different types of accounts, such as mortgages, credit cards, and auto loans, is viewed favorably if you pay them on time.
- Credit inquiries. When you apply for financial products such as personal loans, mortgages, or auto loans, there may be a hard credit pull or soft credit check, which will be reflected on your credit report.
Make sure your credit reports reflect accurate information. Find negative items on your reports, such as late payments and missed payments.
You should also look out for other inaccurate information, such as credit accounts that you do not have.
3. Dispute Inaccurate Information
If there are any inaccurate details on your credit report because of identity theft or a mistake made by lenders, you should ask for its removal.
You can dispute information online, by phone, or by mail.
Once they receive your dispute letter or email, credit bureaus must investigate the information. They will usually check with the lender reporting the information to verify it.
After the investigation is completed, they will inform you about their decision.
4. Address Missed and Late Payments
If you have any missed or late payments on loans or credit cards, it can lower your credit score.
The sooner you address these outstanding payments, the faster you can start fixing the situation. Make sure to make payments to avoid your account going to collections. The lender may even take legal action.
If you are struggling to make payments, you can work with a debt relief company. A professional can review your situation and suggest the best debt solution that fits your needs.
You may be able to get a debt consolidation loan to replace your high-interest credit card debt with a personal loan with a lower interest rate.
In some cases, you may be eligible for debt settlement, so you can settle your account for less than what you owe.
5. Improve Your Credit Utilization
Your credit utilization has a huge impact on your credit score.
Credit utilization is your credit limit compared to how much you currently owe. Bringing your credit utilization down can improve your credit scores and your financial health.
There are several debt solutions that can help. Debt repayment methods like debt snowball and debt avalanche can help. Ideally, your credit utilization should be 30% or lower. The lower it is, the better your credit score will be.
6. Pay Bills on Time
Your payment history plays a major role in determining your credit score. If you have any late payments on your account, it can lower your credit score.
An easy credit repair tip is to avoid any late payments in the future.
You can set reminders or set up automatic payments with your bank account. This will ensure that you do not miss any due dates and will help you improve your credit over time.
7. Develop Good Finance Habits
Once you have taken the credit repair steps listed above and made progress, focus on developing good personal finance habits. Make a budget to review your spending habits. Do not take on any additional credit card debt except for emergencies.
You can also work with a credit counselor for a monthly fee if you’re not sure how to build a realistic budget and want to learn money management strategies.
Continue periodic credit monitoring, and don’t take on any new debt if you don’t think you can pay.
What to Know Before Hiring a Credit Repair Company
If you are considering hiring a credit repair company, you should exercise caution because there are many fraudulent companies preying on vulnerable customers.
If you decide to work with a credit repair company, you should ensure that the company abides by the rules set forth by the CROA, such as:
- Charging fees only after successfully delivering the promised service.
- Allowing you to cancel services without charge within three days.
- Providing you with a written contract explaining the credit repair services they provide and your legal rights as a customer.
As a customer, you have several rights. If a credit repair company does not put its services in writing, asks for upfront payments, or does not answer your questions, avoid working with them.
How to Find a Credit Repair Company
There are several ways you can vet a credit repair company:
If a company seems too good to be true, it probably is.
Steer clear of anyone who says they can create a new credit identity for you or guarantees improved credit scores.
Keep an eye on these red flags to avoid being a victim of credit repair scams:
- Demanding upfront payment
- Guaranteeing a specific credit score
- Asking you to misrepresent information
- Not providing you with a written contract
- Not being transparent and open about their services or pricing
- Promise to remove collection accounts completely if they are truly delinquent
Credit repair can help you improve your financial health and your ability to borrow when done correctly. Unfortunately, the industry is rife with scams, so it is crucial for you to vet any company you decide to work with carefully.
One way to improve your credit score is by dealing with your debt and improving your credit utilization. TurboDebt is a reputable and experienced debt relief company that can help you lower your debt burden and live a stress-free life.
Contact us for a free consultation today. Our team offers counseling, consultation, and planning services to help you find the right debt relief option that fits your financial situation.