Credit repair is the process of fixing poor credit scores that might have deteriorated for various reasons. Repairing credit standing may involve disputing mistakes in the credit report with the credit agencies. Other issues, such as identity theft, or accurate negative information in the report might require extensive credit repair work. Another method of credit repair is to deal with underlying financial issues like budgeting, and also start managing the legitimate concerns the lenders have.
With poor credit, you will struggle to qualify for mortgages, credit cards, or even get a personal loan. To assist you in being a better loan applicant, credit repair companies frequently promise to improve your credit in exchange for a fee. These credit companies typically offer to review your credit reports and address any negative issues that they can with the credit bureaus on behalf of you and also what your time is worth.
Here is how credit repair works, and if you are considering using a credit repair company, why should you get credit counseling first.
How does credit repair work?
Turning bad credit into good credit
Even though numerous companies claim they can help improve the poor credit reports, correcting erroneous data that appears on credit reports usually takes time and effort. A third party cannot remove and information cited by the credit reporting agencies. Instead, the details, if misrepresented or incorrect, can be disputed. Credit repair organizations may investigate this information, but so can the individual the report is evaluating. Individuals are entitled to free credit reports every twelve months from credit reporting companies. They are also entitled to a free credit report after they are denied credit based on the information on the report.
Disputes can be filled when incomplete or inaccurate information appears on the credit reports. Apart from correcting such information, or even catching fraudulent transactions on one’s credit, rebuilding and repairing credit can be affected profoundly by the usage of credit and credit activity.
Besides, the payment history of an individual can be a significant factor in their credit standing. Taking deliberate steps to ensure payments are up to date or improve the payment schedule for outstanding credit can significantly influence your credit score. The amount of credit used by the individual can also play a role. For example, if an individual is actively using large portions of credit available to them, even though they are maintaining minimum payments on time, the size of the debt they are carrying can negatively influence their credit rating. The problem is that their liquidity may be affected by the overall debt against them. By taking measures to decrease their total debt load, they might see improvements to their credit profile.
Repairing credit on your own
How do I repair my credit?
Below are some ways you can work on improving your credit on your own.
Review your credit reports for errors
The credit bureaus- Equifax, TransUnion, and Experian are required to give you a free copy of your report every year. All you have to do is ask.
Another method to check your credit reports is to use a free service such as Credit Karma. After you have signed up, you can see your credit scores and view the information contained in the reports. The entries on the different reports can be the same, but not always. For various reasons, credit reports are rarely identical.
Dispute incorrect information on your credit report
Ensure you get the most for your dispute efforts. Various factors weigh more heavily on your credit score than others. So pay attention to those items first.
Begin with derogatory marks such as collection accounts and judgments. It is not uncommon to have at least one collection account appear on your report. You can also dispute errors via each credit bureau.
Bear in mind some disputes will take longer than others. But that is okay. After you initiate, you are done. The credit bureaus are needed to investigate it and report the resolution.
Dispute incorrect late-payment entries
Errors happen. Your mortgage lender might have reported a payment was late that was paid on time. A credit card provider might also have failed to enter a payment correctly. You can dispute late payments- whether in accounts that are current or accounts that have been closed.
Take steps to build your credit in the long term
Your payment history is another element that weighs heavily on your credit score, so work hard to clean up those errors.
Open another credit card account
Another way to amplify your credit card utilization ratio is to open a new account. As long as you do not carry a balance on that card, your available credit immediately increases by that card’s limit.
Try to get a credit card that does not charge an annual fee. The best bet is via a bank where you already have an account. Granted cards with no yearly fee tend to charge higher interest rates. However, in case you never carry a balance, the interest rate is irrelevant.
However, you should be smart. Remember, the goal is not to get access to more money, but to improve your credit score. In case you think you will be tempted to run up a balance on a new account, do not open one.
Pay every bill on time
Your credit can take a hit with just one late payment. Do everything you can to pay your bill on time. And in case one month you are not able to pay everything on time, be smart enough to know which bills you pay late. For example, your mortgage lender or credit card provider will report a late payment of the credit bureaus. However, utilities and cell phone providers will likely not.
What is a credit repair company?
Credit repair companies explained
A credit repair organization is a company that offers to improve your credit in return for a fee. Credit companies frequently promise to manage all the heavy lifting of working with the credit reporting agencies.
Note that credit repair companies are different from credit counseling agencies, which are a free resource from nonprofit financial education companies that review your finances, debt, and credit reports to teach you to improve and manage your financial case.
The Federal Trade Commission suggests the credit repair industry is fraught with scams. To help in removing scammers, it is essential to research any credit repair company before agreeing to work with them.
Can a credit repair company really help?
How do credit repair companies help improve your credit?
Most credit repair companies begin by requesting a copy of your credit report from all the three major consumer credit bureaus- Experian, Equifax, and TransUnion.
The credit company will then review your credit report for derogatory marks such as,
- Tax liens
After that, the company will set off a plan for disputing and negotiating with creditors or get rid of those items. That plan might incorporate sending:
- Letters to dispute erroneous negative marks
- Requests to validate the information
- Cease and desist letters to debt collectors on your behalf
The credit company may also recommend applying for new accounts to add positive information to your reports. Be cautious here, though. In case you had trouble controlling credit in the past, a new account may not be the best option. Moreover, it is not a good idea to take on more credit if you do not require it.
How do you verify a credit repair company?
How to avoid credit repair scams?
Following a 2016 notice from the CFPB, more than half of the complaints received according to credit repair involved alleged scams or fraud. Even though you find an organization that you are comfortable with, the services may not work for your case. Besides, you would likely save money if you disputed incorrect info in your credit reports yourself.
There are many ways to vet a credit repair company. Below is somewhere to start:
Step 1: Read a review of the organization on the Better Business Bureau website
Step 2: Search the Consumer Financial Protection Bureau’s complaint database
Step 3: Search extra review sites for helpful user reviews
Step 4: In case a credit repair company refuses to answer your queries, that should tell you there is something wrong with the company.
It is also good to steer clear of credit companies that appear to be too good to be true. Note that in case the company claims it can do any of the following, it is a red flag and probably a sign of a scam:
- Get rid of accurate negative information from your credit reports
- Legally build a new credit identity for you
- Guarantee improved credit
- The organization requests you to pay before it offers services
It is worth to seek out a credit counselor first. Credit counseling can give you a better idea of what is in your credit reports and how to improve your financial situation long-term.
How much does it cost to repair credit?
Credit Repair Cost
The amount you will pay for credit repair and how it will be calculated will vary based on the credit company. However, there is a principle they have to follow. Credit repair companies can not request or receive payment until they deliver the promised results.
Based on the company, you may pay a one-time, flat fee, or pay for every negative mark the company removes from each of your reports. This might cost around $35 for each deletion and could range to $750 or more.
The credit company may also charge per month, ranging from $50 to $130 or more. You may also pay setup fees or a fee for accessing your credit reports.
Typically, think about how much work your reports need. In case there are just one or two negative things, you will likely be better off applying any fees towards paying down debt and disputing any errors in your credit report by yourself.
It is essential to weigh what you are getting in return. In accordance with the Federal Trade Commission, credit repair firms cannot legally do anything for you that you can not do yourself. You simply have to be willing to spend time reviewing your credit reports for inaccurate or negative information, reaching out to the credit bureaus to dispute that info, and following up on those disputes to ensure they are being investigated.
How long does credit repair take?
Typically, the credit bureau has thirty days after receiving your dispute to investigate and verify the information. The credit bureau will then contact the organization that offered the information and ask them to investigate. The credit bureau is required to send you the results of the investigation within five business days of the completion of the investigation.
However, in case the credit bureau determines the dispute is frivolous, it can decide not to investigate as long as it communicates that you within five days.
Best credit repair companies
Top 3 credit repair companies
In case your disputes are more involved, it might be easy to hire an experienced credit repair company to act on your behalf. This can be mainly true in situations where you need to present significant proof to back up your dispute. Some of the top-rated credit repair companies include:
Below are facts about Lexington Law:
- Has most results of any credit repair law firm
- Free consultation
- You can cancel the credit repair anytime
- Have more than 500,000 credit repair clients assisted since 2004
- Clients saw over nine million negative items ejected from their credit reports in 2016
Below are facts about credit repair.com
- Comes with a free consultation
- Has online tools to assist customers in tracking results
- A three-step plan for checking, changing and challenging your credit report
- Free credit to your credit report summary
- Average forty-point increases in the Transunion credit score during the first four months.
Sky blue credit repair
Below are facts about Sky blue credit repair
- Comes with a free consultation
- Has been in the business since 1989
- Ninety-day one hundred percent money-back guarantee
- Quice pace: Typically, Sky Blue disputes 15 items monthly, track your progress 24/7
- Low $79 cost to start, cancel, or pause your membership any period.