How to Repair Credit In Easy Steps: All You Need To Know

Ruchi Jaiswal  - Content Editor At The Island Now

TransUnion, Experian, and Equifax, the major credit bureaus in the US, consider a credit score of 669 bad, between 669 to 580 fair, and below  580 bad. These bureaus gather data on your spending habits and use it to calculate your credit score. They then issue a credit report, which you can get from platforms such as AnnualCreditReport.com.

Fret not if your credit scores are poor or bad because you can live with it. However, note that getting loans from conventional banks will be hard. In addition, some transactions like utilities being turned on your name will attract a deposit. Therefore, you must learn how to repair your credit scores and improve your credit history.

We have compiled this article to help you fix your credit scores. The three ways of successfully repairing these scores include doing it yourself, hiring a credit repair company, or getting help from a credit counseling agency. We have covered all ways to help you understand the various options that will get you a good credit score. But let’s first expound on the importance of this process.

Importance of Credit Repair

Good credit scores are extremely helpful when it comes to applying for whether it’s a personal loan or home loan. In addition, a better credit score goes a long way in securing employment if you present a pristine credit report. A better credit score can also help your business since you can borrow to boost it if needed. Therefore, you should repair your credit scores as early as possible, regardless of age. Below are the ways to repair the scores.

How to Repair the Credit Score Yourself

Repairing the credit scores yourself is arguably one of the best ways, and this is because you will learn and save money in the process. In addition, you will avert the hassle of finding a reputable credit repair service or a reputable credit counseling agency. Here is how to fix your credit score.

Check Your Credit Report and Credit Score

Firstly, you will read your credit report to understand the negative terms affecting your credit score. By the Fair Credit Reporting Act, you should get free weekly credit reports from the platform AnnualCreditReport.com. The three major credit bureaus sponsor this platform, and its information can help you repair your credit score.

Alternatively, you can obtain the credit report from each credit bureau, but delivery will be slightly different. For example, you will receive your credit report every 30 days when you register for an Experian account. The same case is similar to when you sign up for a myEqifax account. However, TransUnion will direct you to the above-mentioned platform and charge you if you opt for TransUnion’s credit report.

Certain conditions qualify you for a free credit report regardless of the credit bureaus. These conditions include if you are turned down a loan due to something in your credit report or if you are unemployed and planning to apply for a job. Additionally, receiving government assistance and investigating cases of identity theft or fraud qualifies you for the free credit report.

It will be best to order a credit report from all three credit bureaus because some lenders or creditors only report to a single bureau. And since they don’t share information, you might miss a crucial part of your credit history if you only order from one credit bureau. Doing so will help you repair the credit scores in all bureaus.

Carefully Review Your Credit Reports for Errors and Dispute Any If Present

Once you have received your credit reports, you will carefully review them for errors. Note that your report might be several pages if you have a long credit history. Nevertheless, reviewing the whole document and checking for errors will be best. This is because, according to a report by Federal Trade Commission, one in every five Americans has errors in their credit reports.

In a nutshell, the credit reports will contain your identity information, the history of your credit accounts, and any information on public records such as bankruptcy. In addition, the report will contain account time, age, payments made, and missed payments. It also contains any hard check by a financial institution. While at it, you should check incorrect information like credit accounts that aren’t yours and payments that you made on time and have been incorrectly reported.

You should dispute any wrong information you find in your credit report with the credit reporting agencies. The wrong information can be incomplete, inaccurate, or unverifiable. There are several ways to make disputes, including online, through the mail, or by phone. Using the phone or online is easier, but the mail is the most suitable because it leaves a paper trail you can refer to in the future.

Note that you should send a copy of the credit report highlighting what you are disputing when sending the dispute. You should also include a copy of the proof, such as payment receipts supporting your dispute. The credit bureau might decline to investigate your dispute or update your credit report if you fail to attach the proof.

Alternatively, you can send the dispute directly to the creditor or lender that wrongly listed your information in the credit report. The entities have a legal obligation to investigate your dispute. If you are correct, the business that listed you will update your credit history and inform the credit bureaus. Once the bureaus update the credit information, you will receive an updated credit report.

Set a Budget and Cultivate Positive Financial Habits

After settling your credit dispute, you will set and follow a budget to improve your credit score. You will also have to cultivate positive habits such as paying your bills on time to have a good payment history. Note that a single late payment will remain in your credit report for seven years. Setting up auto-payments on your accounts will be best to ensure you don’t miss any monthly payments.

Suppose you can’t autopay, such as in medical bills, ensure that you pay as soon as you receive them. And if you aren’t in a position to do so, contact the relevant office to formulate a favorable payment plan. This also goes to credit card balances; you should pay the credit card debt every month until you clear it. And to avoid late payments, contact your credit card company to send reminders when the payment date is due through your phone.

If you are already in debt, it will be best to have a practical payment plan for your credit repair process. You can use the debt avalanche or the snowball method, depending on your ability to follow it to the end. In the former, you will work on clearing debts with the highest interest rates to save some money on the rates. In the latter, you will pay off the smallest balances as you build momentum to clear the bigger ones. To build a good payment history, you should be consistent in the payments since it makes up 35% of your credit score.

Maintain Your Credit Utilization Ratio Below 30%

You should also maintain a credit utilization ratio below 30% of your available credit limit. This ratio compares your total debts to the overall credit card limit, which is also a big factor affecting your overall credit score. In addition, lenders use this ratio to gauge how well you are good at managing your finances. It would be best if you strived to maintain the credit utilization ratio at less than 30% and greater than 10% of your credit limit. For instance, if you have a credit limit of $5,000 on your card, don’t spend over $1,500 monthly.

Suppose you have maxed out cards; you should strive to bring it below the credit limit because it costs you credit score points. You can then work on paying the credit card balances completely. The same applies to loan balances such as revolving debt.

The credit score calculation compares your current loan balance to the original amount you borrowed; your credit score is adversely affected if the figures are close. Therefore, you should balance other accounts like car loans and revolving credit accounts such as credit cards for bad credit scores. Doing so will improve your credit utilization rate and credit score.

Note that for you to be safe, you should prioritize getting most of your credit accounts current. You will do this by first paying the accounts about to become past due. Closely following should be the accounts already sent to a debt collection agency. You should pay all your accounts, even if it’s a minimum amount.

Acquire New Credit Card Account

Lastly, you will ensure that the positive information is added to your credit report after resolving the negative ones and then reestablish your credit after keeping the balances at a reasonable level and paying your bills on time. You will apply for a new credit card, but note that you won’t be approved for a major credit card. In addition, you should keep the application at two as you work on your credit score. Doing so will keep credit inquiries low. Credit inquiries make up part of the credit report, and many inquiries negatively affect your credit score.

Using Credit Consumer Counseling

You may sometimes find the process of repairing poor credit overwhelming. In that case, it will be best to use credit counseling. Most credit counseling agencies are nonprofit and will offer you consultation services for free. The best part of using such agencies is the availability of qualified credit counselors. The counselors will give you valuable advice that fits your financial situation without being insensible.

In most cases, the counselors will help you create a budget and manage your finances as you work on improving your credit score. Furthermore, the professionals can help you organize a debt management plan to cater for missed payments and other debts in your accounts. This plan requires you to make a monthly payment to the agency, which will pay each of your creditors. It will be best to note that these counselors can’t negotiate with the creditors to reduce your debt and can only request your creditor to extend the repayment terms or waive some fees.

You can get a reputable credit counseling agency at National Foundation for Credit Counseling(NFCC). This is a nonprofit network that enlists qualified financial counselors. Alternatively, you can search at the Department of Justice. Check whether the credit counselor is affiliated with NFCC or the Financial Counseling Association of America (FCAA ) for legitimacy.

Using Credit Repair Companies

Numerous companies offer credit card repair services to help with your bad credit score. However, it would be best to be careful when using these services. This is because some are scams and engage in cyber crimes like identity theft. You should only seek the services of a credit repair company if there are multiple errors in your credit report and you aren’t certain of how to clear them. And for safety and accuracy, only use companies that adhere to the credit repair organization act.

What is the Credit Repair Organizations Act?

Credit Organization Act (CROA) is a federal law that came into effect in 1997 following a surge in credit repair scams. The law prohibited credit repair companies from taking payment before correcting they fix your credit report. It also made it mandatory for the companies offering these credit repair services to issue you a written contract. The contract contained the company’s services and payment terms and conditions.

This contract further forbids credit repair companies from knowingly making false claims, such as clearing all the negative information from your credit report. In addition, this act makes it illegal for the companies to suggest that you mislead credit reporting companies. The same goes for altering your identity to change your credit history.

And lastly, CROA ensures that a credit repair company can’t ask you to sign any document forfeiting your rights under this federal act. However, some credit repair companies still engage in the wrongdoing that CROA prohibits. Other bodies like Consumer Financial Protection Board have since stepped in to enhance transparency in the credit repair process.

How Legitimate Credit Repair Companies Work

The secret to better credit repair services is using legitimate credit repair companies, and here is how they work:

Consultation

Most of these companies offer free consultations. During the process, the company will pull credit reports and go through each one of them. They may also offer you other financial advice regarding repairing your credit score. After a thorough review, the professionals will mark errors that need dispute in each credit report in readiness for the next step.

Written consent

 The attorney will then write to you a consent that gives them limited power of attorney. This contract will give them legal rights to work on your behalf. However, you will still need to be in touch to provide proof of payments.

Challenging the errors

Once you sign the contract, the company representative will dispute the inaccurate information in your credit report. They will notify the credit reporting agencies and give 30 days to complete the process. The creditors and credit bureaus will then update the information in your report once they have confirmed the errors.

Issuing progress report

 Reliable credit repair companies will keep you updated throughout the entire process. The representative will send you the progressive reports accompanied by an updated copy of your credit report. This will enable you to review the changes and give you room to raise any further issues.  

Factors to Consider When Choosing a Credit Repair Company

The secret to better credit repair services is using genuine credit repair companies, and here is how they work:

Compliance

It will be best to consider compliance before engaging a credit repair service provider. The company should be compliant with the CROA guidelines. Most importantly, the company should operate with your consent. You are free to terminate the contract within three days if you suspect misconduct.

Reviews and rating

Reviews of previous customers are also essential, and you should consider them. You can get reviews on the company’s website or forums like Yelp. In addition, you can also search on social media to find out if there are complaints about the credit repair company’s conduct. For the ratings, you should check if the company is registered with Better Business Bureau and the ratings. Only choose established and highly rated companies.

Complaints with the regulatory agencies

Thanks to tight regulations, there is sanity in the credit repair industry. But that doesn’t mean that there is no misconduct. Therefore, you should also check for complaints against the service provider. You will check this information on the database of the Consumer Financial Protection Bureau. Alternatively, you can check if the company has ever violated the Federal Trade Commission (FTC) regulations. Any complaints of scams and cases of identity theft should be a red flag.

Fees and turnaround time

Legitimate credit repair companies will list the amount it charges to remove errors in your credit file and improve your credit score. In addition, such companies have reasonable turnaround times to help resolve the problem as quickly as possible. So, when choosing the service provider, ensure they are transparent about their charges.

Warning Signs of a Credit Repair Scams

The online nature of these businesses makes it difficult to tell which ones are legitimate credit repair services and which are running scams. But here are the signs to look out for:

Asking for payment upfront

There is no reason why a credit repair service provider should ask for payment upfront. Remember that you get free credit reports and shouldn’t be duped into paying for them. Any company asking for payment before fixing your credit score will probably stress you out with excuses as you proceed. It will be best to avoid such companies and look for better alternatives.

Making unrealistic promises

Unrealistic promises like a new credit identity are the telltale signs of a credit repair scam. Some will promise to remove all the negative information from a credit report. Note that these promises are illegal and unachievable. You should avoid any credit repair company promising you such.

It doesn’t work with a written consent

The written consent is the only document that gives the service provider legal authority to represent you. Without it, the credit repair company will be targeting your money without offering any service. Therefore, you should take note of such companies.

Asking for credit card information

Carding is a rampant online scam, and a cybercriminal can go to great lengths to convince you to fall for it. Never give out your credit card information, even if it’s for a promise of a raised credit limit. In fact, it will be best if you promptly report such companies.

Valuable Credit Repair Tips You Keep in Mind

 After correcting all the errors in your credit reports, it will be best to use the following tips for a better credit score:

Don’t sacrifice accounts with good standings

Chances are that some of your credit accounts are in good standing, and it will be best if you don’t sacrifice them as you prioritize the ones with bad credit. Instead, you should continue with your monthly payments and balance them.

Reconsider closing your credit card account

Closing your credit card account rarely improves your credit score, and in most cases, it worsens the scores. The best approach is to keep it open and occasionally use it to keep it active. If the account has a balance, closing it will hurt your account further.   

Solve the disputes in intervals

If you are disputing several items, it will be best to pursue one dispute at a time. Putting them all in one dispute will jeopardize your credit repair plan since the credit  

File the bankruptcy sooner if it’s inevitable

Sometimes bankruptcy is inevitable. So, if you feel that your debt situation is out of hand, it will be best to file for bankruptcy and start afresh. But before you do that, evaluate your credit report information to ascertain if your credit repair plan won’t work.

Frequently Asked Questions

1. What items can you remove from your credit file?

The items that you or a credit repair company can remove are limited to errors such as omissions of payments you made, overstatements, and bills that aren’t yours. So, as you fix your credit, it will be best to note that some items will remain in the file.

2. How does the major credit bureau investigate your disputes?

When you dispute an item in your credit report, the bureau will forward it to the business that provided the data. The credit bureau will then request the business to verify the information. It will remain the same if correct, but the bureau will correct the information if unverified. You will receive an updated copy of the credit report with proof of correction.

3. How long does credit repair take?

It takes no definite duration to repair credit and depends on your credit score and other setbacks. Sometimes, it might take 30 days, but the score won’t change instantly. It takes nearly two years to move the scores from fair to excellent. A negative listing will take seven years to fall off your credit report, while bankruptcy takes 10 years. You need to be patient and continue your credit repair plan until you attain a better credit score.

4. What is the cost of credit repair?

Credit repair costs vary depending on the number of errors in your credit report. How poor your credit score is may also affect the cost since it will take longer. On average, you will pay around $70 to 150 dollars. However, note that services like credit counseling are free.

5. At what age should you repair your credit?

There is no age to start repairing your credit. Provided you are of legal age, you can request free credit reports from the three major credit bureaus and check. Suppose you can start checking for discrepancies and file a dispute for correction. The earlier you start this process, the better. This is because you might accumulate bills as you grow in life, which can make the process longer than if you started when you are from college.

6. What is considered a good credit score?

Most credit bureaus consider 720 a good credit score, and they will categorize you as a super-prime borrower if you attain it. However, a credit score of 660 isn’t badly off if you were previously below the score. You are a prime borrower at that level, and many creditors can lend you. 

Next Steps: Check Your Credit Scores Regularly

Credit repair is a gradual process that will take time. Once you start, it will be best to use this article’s information and regularly check your credit scores. The end goal is to have a high credit score which shows lenders that you are good at managing money. If you find the process tedious, you can hire a credit repair company to help you. But for future sake, ensure you get credit counseling because, without it, you can still end up in debt and with a bad credit score.

Conclusion: Repairing A Credit Score Is Vital? 

Credit score plays an important role especially when it comes to buying a house. One should always maintain a good credit score ranging from  580 to 669 is considered fair; 670 to 739 are considered good; 740 to 799 are considered very good, and 800 and up are considered excellent.

 

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