How to Do Credit Repair the Right Way

repair credit

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If you would like to jump down to specific topics then use the following table of contents to take you to the part of the page you need more information for:

  • Is Credit Repair Effective?
  • What to Do For Fast Credit Repair?
  • What to Do After You Establish Good Credit?
  • What to Do If You Are Trying to Repair Your Credit for the Long Run?
  • Steps on Ordering Your Free Credit Report
  • Reviewing Your Credit Report for Errors
  • Correcting Credit Report Errors
  • Use Credit Repair Services
  • Does Free Credit Repair Exist?
  • The Counterargument
  • Consumer Complaints

What is Credit Repair?

Without sugar coating it, credit repair is the process whereby a consumer hires a third party company to act as their proxy and attempt to get negative information removed from their credit reports.

The companies that provide these services are formally referred to as “Credit Repair Organizations” by the Credit Repair Organizations Act (hereinafter referred to as “CROA”), the Federal law that controls their advertising, billing, and contractual activities.

The traditional strategy of a credit repair organization is to send dispute letters to the credit bureaus challenging the validity of negative items.

Their hope is that either the credit bureau or the party furnishing data to the credit bureau (a lender or collection agency) drops the ball and doesn’t get the offending credit entry validated within the requisite 30-day period, and then has to remove it. If the item is validated as accurate the credit repair organization will simply re-dispute the item and the process starts over.

How does Credit Repair Work and is it Effective?

The answer to the question about the effectiveness of credit repair services is going to vary wildly depending on whom you ask. According to Citron, “Credit repair companies get millions of inaccurate items removed from consumer credit files every year.

You ask if they’re effective … the answer is undoubtedly yes. Our users have noted over 302,000 deletions in the first half of the year.” Lexington Law, a credit repair law firm, has statistics on their website that suggests they were able to get over 2.5 million items removed in 2011 and almost 780,000 items removed in the first quarter of 2012.

So, if you consider “deletion” to be synonymous with “success,” and in credit repair that is the bottom line, then the practice does appear to be effective.

What to Do For Fast Credit Repair?

When it comes to credit, most people fall into one of three groups. You’re either trying to build credit for the first time, maintain your existing credit score or bring bad credit back from the brink.

Regardless of what your goal is, you’ve got to have a solid plan for reaching it.

We’ve got a road-map for every stage of the way so read on to find out how to get there. Regardless of what your goal is, you’ve got to have a solid plan for reaching it. We’ve got a road-map for every stage of the way so read on to find out how to get there.

Before you start with our road map, the first thing to do is to monitor your credit score regularly and review the credit report summary to understand factors and behaviors affect your credit score.

To build your credit score, you need to get some credit but if it’s early in the game your options might be limited.

Here are four ways you can get the ball rolling:

1. Try a Credit Builder Loan

A credit builder loan is a short-term loan that you can use to establish credit. These loans are offered by banks and credit unions and they’re typically for a small amount, usually no more than $1,000.

Instead of actually getting the cash in hand, it’s parked in an interest-bearing account. Once you pay the loan off, you’ll get the money back along with any interest earned. Not only that, but you’ve also built up a positive payment history in the process.

2. Get a Secured Credit Card

A secured credit card is a stepping stone to building credit. With this kind of card, you have to put up a cash deposit to get a card.

You can use a secured card to build credit, but they’re not hassle-free. These cards tend to charge higher interest rates and fees compared to a traditional credit card so you need to make sure to review the rates and costs carefully before you settle on one.

3. Ask to Be an Authorized User

An authorized user is someone who has charging privileges on someone else’s credit card account, like a parent or a spouse. You get your own card with your name on it and you can reap some positive credit benefits even if you don’t use it.

The reason? The original cardholder’s account history for the card will get transplanted onto your credit report. If they’ve always paid on time and kept the balance low, it’ll help to bump up your score.

4. Open a Store Credit Card

If you’ve ever been shopping at a major retailer you’ve probably been offered a store credit card at some point. These are cards that are branded to specific stores like Macy’s or Target.

These cards have some drawbacks, since they usually have higher APRs and lower credit limits, but they’re great for newbies who are trying to build credit. It’s usually easier to get approved for a store card, even if you have a lower credit score.

The fact that you have limited charging power is also a plus since it keeps you from getting in over your head with debt. Just remember to pay your card off in full each month so you don’t get gouged on the interest.

What to Do After Your Establish Good Credit?

Once you’ve gotten your credit established, you can’t just set it and forget it. If you’re ready to amp up your score by 100 points or more, here’s what you need to do next.

1. Wipe out your credit card balances

The fastest way to send your score shooting up is to pay off your credit card debt. Carrying too much debt drags down your credit utilization, which means how much of your total credit line you’re using.

The lower your balances are, the better where your score is concerned.

2. Ask for more credit

Aside from paying down your credit you can also improve your credit utilization by asking for a limit increase. This is tricky, however, since your credit card company might want to pull your credit report before they approve you.

Every time a lender checks your credit it knocks a point or two off your score so you want to avoid a new inquiry if you can.

3. Keep your accounts open

Once you pay off your cards you might think of just closing them for good but that could be a mistake. The older your account history is, the better your score should be so you may want to consider keeping old accounts open and active.

Use your card every once in awhile and then pay it off to keep the account active.

4. Slow down on new credit applications

Every time you apply for a new card, a new inquiry hits your credit report and your score drops by a few points.

To keep your credit score from slipping too much, scale back on how often you open new accounts.

What to Do If You Are Trying to Repair Your Credit for the Long Run?

It might There are lots of things that can cause your credit score to tank but it’s not the end of the world. It might be an uphill battle to start but it’s possible to work your way back towards a good score if you know what to do.

If you filed bankruptcy or lost a home to foreclosure, then the cause of your bad credit is pretty clear cut but it’s not always obvious.

That’s why it’s so important to know what’s on your credit report. If there’s an error you missed, someone is opening fraudulent accounts in your name or your credit utilization is just too high you’re not going to be able to fix if it you don’t know about it.

1. Bring past due accounts current

Your payment history is the single most important thing that impacts your credit score. If you’ve got bad credit because you missed payments or paid late on one or more of your accounts, the only way to fix the damage is to be consistent going forward and make your payments on-time.

If you have bills outstanding, call up all of your creditors and see if you can work out a payment plan. The faster you can get things caught up the easier it is to move on to the next step.

2. Put your bills on autopilot

Once you’re current on your bills, you don’t want to fall behind again. Setting up automatic payments through your bank is one way to keep track of your due dates. You can also link up your accounts to a free budgeting app like Mint to get reminders of when your bills are coming up.

Working towards rebuilding credit isn’t a once and done thing. You have to practice good financial habits on a regular basis. Wherever you’re at on the credit scale, working your plan consistently and being financially responsible is a key to moving up.

3. Fix and dispute errors on your credit reports

If you’re shopping for a new car loan, mortgage or credit card, having an error on your credit report can be costly. According to the FTC, one in four consumers have errors on their credit reports and those errors could affect your credit score. And if you’re looking to apply for credit, even one point can be the difference between hitting a “good” threshold or being labeled “fair” or worse. Yet experts say a majority of consumers aren’t aware of credit report errors until it’s too late.

In fact, the FTC study says approximately one in 20 consumers had errors that resulted in losing more than 25 points from their credit score.

Credit Repair Services

To boost their score and qualify for a loan or land an attractive interest rate, many consumers turn to credit repair companies to fix their credit. The problem is they usually pay too much and get far too little.

“You do not need to pay someone hundreds or thousands of dollars to fix your credit, you simply need a plan to fix it yourself,” says Todd Huettner, a mortgage broker in Denver, CO. “I have yet to meet a client who paid for credit repair and felt they got what they paid for. Some even wound up with other problems to fix as a result.”

The popular fee-based credit repair companies repair scores by disputing every derogatory item on your credit report, and essentially bombarding the credit bureaus with dispute letters. If the company who put the derogatory item on your credit does not reply within the 30 day time frame outlined under the law, and provide proof that the negative item is in fact accurate, they have to remove the derogatory data.

Huettner says there are several problems with this approach.

“This is a shotgun approach that is often unsuccessful and you then have to remove all the accounts in dispute on your credit report to get a mortgage loan because you cannot have any accounts in dispute and get approved for a loan,” he says.

Despite what many credit repair companies promise, the credit bureaus won’t remove accurate negative information from your credit reports. If the negative information is accurate, it will remain in your credit reports until it expires — typically after seven years. And if you’re disputing every negative item in your credit reports, even those that are accurate, the credit bureau may flag your disputes as “frivolous” and ignore future disputes from you.
The bottom line? You don’t have to pay a company to repair credit for you. In fact if you want free credit repair, you can fix it yourself! It just takes time and know how.

Steps on Ordering Your Free Credit Reports

By law, the Fair Credit Reporting Act entitles everyone to one free copy of our credit reports from each of the three credit reporting agencies (TransUnion, Experian and Equifax) once a year. To order your free credit reports simply visit the federally mandated website at www.annualcreditreport.com.

It’s important to note that the three main credit reporting agencies are separate competing companies and do not share their data. For this reason, you’ll want to check all three of your credit reports for errors. If you do find errors, you’ll need to file a dispute directly with the credit reporting agency where the error is being reported.

Reviewing Your Credit Reports for Errors

Once you’ve obtained copies of your credit reports it’s time to review them for errors. Each of your credit reports are broken down into the following sections:

1. Identifying information. This is where your name, address, date of birth, Social Security number and other identifying information is listed. Most reports also have a section for “aliases,” or other names, such as names with or without a middle initial, and maiden names.

Review this information carefully to be sure the information is accurate. If it is not, you could be held responsible for debts that are not yours.

2. Creditor information. This lists any current or previous credit accounts you have had, with information about the lender, how much you owe, whether the account is current or past due, whether it is open or closed, and other status information. Accounts will include mortgages, revolving accounts like credit cards and installment loans.

Review the entire section carefully, ensuring that each account belongs to you and that all information is accurate and up to date. Some common errors are misreported late payments or payments inaccurately shown as being missed or past.

3. Collection accounts. Review this to ensure for accuracy. If you don’t have (or never had) any accounts in collection, this section should be empty or might not be shown at all.

If an account listed is not yours, or you paid off an account still shown as unpaid, contact the agency to send a letter to you and the credit bureaus stating the correction.

4. Public records. This section contains information about public financial records such as bankruptcy, judgments, liens and overdue child support.

Review it for accuracy. If you have had a serious financial problem and/or bankruptcy filing, it could remain in this section for seven to 10 years.

Do it Yourself Credit Repair – Correcting Credit Report Errors

If you find errors in your report, the Fair Credit Reporting Act requires credit bureaus to provide a procedure for consumers to dispute any inaccuracies. The easiest way to file a dispute is online, directly with each of the credit reporting agencies on their websites.

However, the easiest way isn’t always the most effective way.

For one, the online dispute process provides a limited number options under the reasons for disputing the error. There are also character limits to how much you can write to explain your dispute.

Credit Repair Letters for Disputes

For the best results, you’ll want to file your credit report dispute the old fashioned way, via regular mail — certified, return receipt requested so that you have proof that the dispute was recieved. This also allows you to send copies of any evidence proving the error (cancelled checks, a letter from a collection agency saying a debt is paid, etc.) There are free credit repair letters available around the web that you can take a look at and download. You will obviously need to modify any credit repair letter to fit your own specific situation that you are trying to correct.

When you send the dispute be sure to clearly identify each item that you are disputing and clearly explain why a correction is warranted. The FTC offers a sample dispute letter on their website. You may also wish to enclose a copy of your report with the items in question circled to help the bureau quickly identify and investigate the error.

Be patient this can be a quick credit repair option, but it’s not going . Once the credit bureau receives your dispute, they will open an investigation with the lender or creditor that reported the error. By law, the creditor must investigate the dispute and report the results to the credit bureau within 30 days. If there was an error, the creditor must send correction updates to all three credit bureaus.

You can ask the creditor to send correction notices to anyone who received your report in the past six months. If an investigation does not resolve your dispute, you can draft a statement of dispute and ask the bureau to include it in your file and in future reports.

Make sure to verify the fix. “Monitor your report to ensure the bureaus correct each error,” says Huettner. “And get a dated letter on the creditor’s letterhead including their address, phone number, a contact name and explanation of the error and resolution for your files in the event you need it as proof down the line.”

Use Credit Repair Services

Our credit expert, John Ulizheimer, has answered questions about whether or not credit repair services work, are legitimate and are worth the price. Credit repair is certainly a lightening rod topic. The Federal Trade Commission and the credit reporting industry don’t care for credit repair business. Conversely, credit repair organizations say they get a bad rap, and that their services are valuable.

Credit Repair Services

To boost their score and qualify for a loan or land an attractive interest rate, many consumers turn to credit repair companies to fix their credit. The problem is they usually pay too much and get far too little. This is what’s known as bad credit repair.

“You do not need to pay someone hundreds or thousands of dollars to fix your credit, you simply need a plan to fix it yourself,” says Todd Huettner, a mortgage broker in Denver, CO. “I have yet to meet a client who paid for credit repair and felt they got what they paid for. Some even wound up with other problems to fix as a result.”

The popular fee-based credit repair companies repair scores by disputing every derogatory item on your credit report, and essentially bombarding the credit bureaus with dispute letters. If the company who put the derogatory item on your credit does not reply within the 30 day time frame outlined under the law, and provide proof that the negative item is in fact accurate, they have to remove the derogatory data.

Huettner says there are several problems with this approach.

“This is a shotgun approach that is often unsuccessful and you then have to remove all the accounts in dispute on your credit report to get a mortgage loan because you cannot have any accounts in dispute and get approved for a loan,” he says.

Despite what many credit repair companies promise, the credit bureaus won’t remove accurate negative information from your credit reports. If the negative information is accurate, it will remain in your credit reports until it expires — typically after seven years. And if you’re disputing every negative item in your credit reports, even those that are accurate, the credit bureau may flag your disputes as “frivolous” and ignore future disputes from you.
The bottom line? You don’t have to pay a company to repair credit for you. In fact if you want free credit repair, you can fix it yourself! It just takes time and know how.

The consumer pays the credit repair agencies in one of three ways:

1. Subscription. The credit repair company will get a credit card number from you and keep it on file. Every 30 days they’ll charge you an amount to cover the work performed during the previous month. That amount varies from company to company but it is usually in the $29 to $79 range.

2. Flat Fee. The credit repair company assesses the amount of work they believe they’ll have to do for their client and charges them one lump sum fee when their work has been completed.

3. Pay-Per-Delete. The pay per delete model is a brainchild of Mike Citron, CEO of DisputeSuite, a credit repair software company. Pay per delete is, as it sounds, where the credit repair company charges you on a line item by line item basis as they’re able to get items removed from your credit reports. According to Citron, “The CROA makes it illegal for a credit repair company to charge in advance of services being rendered so charging the client after an item has been successfully removed is a great way to comply with that provision of the statute.”

You can find the best credit repair agency online by doing a few searches. Your best bet is to go local or even try an online service that will be able to guide your through the process.

Does Free Credit Repair Exist?

Finding free credit repair services isn’t likely going to happen – we get this question a lot. Most services that will do an excellent job at getting your credit back into top shape will charge you, as mentioned above. Companies will give advice and inform your about their programs that they offer, but that’s as far as you will get without paying anything.

If you do not have the budget for it your best bet for credit repair help is to go through a do-it-yourself option and follow the advice we mentioned here to get started. You can do most of the action items yourself, but it will require some planning, analyzing, and actual doing – most miss the last step when it comes to the plan!

The Counterargument

The Federal Trade Commission has pulled no punches when it comes to credit repair. They’ve described credit repair companies as being a “credit repair scams” and strongly warn consumers not to use their services.

The Consumer Data Industry Association (CDIA), the trade association of the credit reporting agencies, also has their issues with credit repair. Stuart Pratt, President of the CDIA, has said that credit repair companies try to “break the system” by flooding the credit reporting agencies with dispute letters that “most often end up in failure.”

Pratt also says that around 30 percent of the disputes received by the credit bureaus are being generated by credit repair organizations.

The two most compelling arguments against credit repair:

You may be breaking the law. According to the Federal Trade Commission, “It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.

You could be charged and prosecuted for mail or wire fraud if you use the mail, telephone, or Internet to apply for credit and provide false information.” What they’re addressing is a particularly nefarious credit repair strategy whereby the credit repair company tries to get you to use an EIN (also known as a tax ID) to establish a new credit history rather than your Social Security Number. Tax ID numbers, like Social Security Numbers, are also 9 digits.

You can do it yourself for free. There is no charge if you want to submit a dispute to the credit reporting agencies, other than the commitment in time. The credit repair counterargument is that you can also do your own taxes, cut your own hair and change your own oil, but that you might be better off letting a professional handle the task.

There is no data to suggest credit repair is any more or less effective at getting negative information removed from your credit reports than a consumer filing their own disputes.

Consumer Complaints

If you think consumers are filing countless complaints against credit repair scams, you’d be mistaken. According to the Federal Trade Commission’s 2011 Sentinel report, credit repair complaints make up no more than 3% of the complaints to the FTC, the FBI’s Internet Crime Complaint Center, the Better Business Bureau, the US Postal Service, the Canadian Anti-Fraud Centre and several state agencies.

And even for that report, credit repair was lumped together with advance fee loan scams and credit card balance protection services. An advance fee loan scam is a promise of a loan or credit card that requires you to pay a fee in advance. Credit card balance protection is quasi-insurance that purports to pay your credit card balance if you lose your income. Point being, the 3% of complaints isn’t all credit repair specific considering with it’s being paired with.

5 responses to “How to Do Credit Repair the Right Way”

  1. Tiffany M. Douglass says:

    I tried to use lighthouse credit repair and was less than satisfied with the results. I should have read this article sooner to learn how to repair your credit yourself – it would have saved me both money and stress!

    • Darrel says:

      I agree! Any credit repair franchise is pretty much a scam. People always ask is credit repair legal and it is, but that doesn’t mean it works. It’s just a ploy playing on people’s laziness. If you really care about your credit than take the time to fix it yourself!!

      • Matilda Gawshock says:

        Are there credit repair classes that one can take to learn how to fix their credit themselves? I agree that it’s silly to pay someone else to do something that you could do for free, but I’m just not confident in my ability to fix my credit without professional help.

  2. Tomas says:

    Is a credit repair lawyer different from professional credit repair agencies? I feel like if I hired an independent lawyer I would get better results than if I just went through an agency that has hundreds of clients to work with…

  3. Robbie says:

    I think it would be helpful to include some of the best legal credit repair reviews as opposed to simply saying credit repair agencies don’t work. I personally had credit repair assistance from an agency and they helped increase my score by 50 points! I know this isn’t the case for everyone, but if you could provide a trusted list of credit repair resources I’m sure your users would be grateful. Credit is a tricky topic to understand so it’s no wonder that credit repair agencies are so prevalent in the US.

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