The Complete Guide to Credit Repair
I have been getting a lot of questions from the Black Health and Wealth readers on how to fix your credit and if you are wondering how to fix your credit, don’t worry, you are definitely not alone.
Life happens and anyone can have bad credit because of things beyond their control..
Damaged credit can happen because of everything from late payments on a credit card, to unpaid tax debt, to a streak of bad luck with cash flow and money management.
When these unfortunate things happen, your credit score and credit report – the information that lenders, employers, and insurance companies use to evaluate your financial character – take a significant hit.
It can be a challenge to repair credit given the countless factors that go into calculating your credit score, but it is possible to fix bad credit when it has gone south.
In this comprehensive guide, you will learn the ins and outs credit, how to fix bad credit, and how to find the best credit repair companies to help you along the way. First, let’s dive into what information and activities are included in your credit report that ultimately determines your credit score.
Credit Reporting and Credit Scores
When you apply for a new loan, credit card, mortgage, or any other financial account, details of your application are provided to the credit agencies as a record of your financial life.
When payments on credit accounts are missed, or you start using a large portion of your available credit limit, the credit agencies take note and adjust your credit score down.
The same happens when you have an account go into collections, file for bankruptcy, have a repossession of a vehicle, or a foreclosure on your home. Credit reporting agencies rely on information from credit companies, which is not a perfect system and errors can and do happen.
If incorrect information is reported on your behalf, it can be just as detrimental to your credit as accurate financial blunders. Each of these circumstances, whether fully in your control or not, end up as black marks on your credit report and chip away at your credit score.
Based on the information provided to the credit bureaus, a credit score between 300 and 850 is assigned to you – the higher it is, the better.
FICO credit scores are the most commonly used among lenders and other credits, and the calculation the company uses to create and adjust your credit score breaks down like this:
- 35% payment history – are you paying on time, late, or not at all?
- 30% amounts owed – what do you still owe in terms of loans or credit card balances in comparison to your credit limits?
- 10% new credit – how often are your applying for new credit accounts?
- 15% length of credit history – how long have you maintained credit accounts?
- 10% mix of credit – do you have different types of credit account that you manage well?
The factors that go into creating your credit score are comprehensive, and even a small misstep can bring your credit score crashing down.
If you have a low credit score because of one or more of these issues found in your credit report, it’s time to think about how to fix your credit score through credit repair.
Why Credit Repair is Necessary
The need to fix credit is not just about feeling great about having a higher credit score – it actually saves you money! Credit restoration that improves your overall credit report gives lenders more faith in your ability to repay your debts on time and in full.
When new creditors, like a credit card company, a loan provider, or even an employer peek at your credit history, they based their decision to extend a new account or a job to you based on how responsible you are with money.
Research shows that the past tends to repeat itself when it comes to money management, so any negative information on your credit file works against you.
If you have bad credit, most loan companies and credit card issuers will either decline your application for a new account altogether, or offer you the highest possible interest rate and inflexible repayment terms.
This helps protect their interest should you fail to pony up what you owe over time.
Similarly, despite your qualifications, employers may quickly pass on a candidate who has less than ideal credit because it makes then believe you aren’t responsible. So, understanding how to fix bad credit is an important step in the right direction.
Do It Yourself Credit Repair vs Credit Repair Companies and Credit Repair Services?
The term credit repair can be applied to either do-it-yourself methods or credit restoration with the help of credit repair services. In either case, credit repair is exactly what it sounds like – the process of improving your credit either due to prior bad acts in your financial life or errors reported in your credit file through no fault of your own.
Credit clean up is not an overnight process under either scenario, but taking steps to fix your credit can drastically improve your ability to move ahead in your financial life. Here’s how to repair your credit on your own or with the help of credit repair companies.
Do it Yourself Methods to Fix Credit
One of the first things you should do when considering how to repair your credit is getting a copy of your credit reports from Equifax, TransUnion, and Experian. Through this site, you can gain access to all three credit reports for free, once per year. Your credit report details all the information about your credit life, both past and present, and you can quickly see what may be an issue for potential creditors or employers in the future. Collections accounts, late payments and delinquencies, tax liens, and credit limits are listed within the pages of your credit reports for you to review. While you can’t lengthen your credit history or fix your payment mistakes quickly, there are things you can do to improve your credit score relatively quickly.
Taking a look at your credit report is helpful in the credit repair process because it reveals any errors that were reported over time. A credit error can be as simple as an incorrect previous address, or as big as an account in your name that you never applied for or accepted. Credit reporting errors happen to millions of people each year, and getting them removed is your first line of defense against bad credit moving forward. To fix your credit when there are errors involved, you can visit each credit bureau site and submit a dispute form online, or in writing. Under the law, credit reporting agencies have between 30 and 45 days to investigate the error directly with your creditor. If it’s found that the negative entry is indeed wrong, it will be removed from your credit report shortly after the investigation is done. Clearing off late payments or over the limit entries that aren’t accurate helps fix your credit score in the short-term.
Credit Repair Companies
If you think that the do-it-yourself method to credit repair is too daunting, you have alternative options. Credit repair companies and credit repair services offer to do the work for you, disputing inaccurate information found in your credit report on your behalf. The best credit repair companies start the process of credit clean up by doing a full review of your credit report and talking with you about what is accurate and what isn’t. From there, credit repair companies work with the credit reporting agencies and your creditors to remove incorrect information to help fix your credit. After they have successfully cleared the errors from your credit report, you pay for their expert help. There are also a handful of non-profit organizations that provide credit counseling at either little or no cost, but these services are focused on personal financial management strategies to improve your credit moving forward. Either resource can be helpful in the process of credit repair.
Take note, though, that there are some less than credible credit repair services out there. Any company or individual who asks for a hefty upfront fee, or promises to repair your credit in a few days isn’t a smart choice for credit help. The process of how to fix bad credit is not one that happens overnight, so pack your patience and don’t be fooled by quick-fix schemes.
How to Repair Credit Beyond Errors
Getting errors removed from your credit report, either on your own or with the help of a credit repair company, is the fastest way to a credit fix, but there are other long-term steps you can take to fix your credit. First, make good on the accounts that are outstanding as soon as you are able. If you have a small account in collections, for instance, contact the collection agency (that information is listed on your credit report) to see how you can get that off the books. Likewise, any late payments on credit cards, mortgages, or car loans should be up to date if you want to fix credit moving forward. If you cannot pay the full amount due, contact your creditors to see if a payment plan can be arranged or if you can negotiate a lower amount or a break from interest accumulation so you can get caught up. Creditors are more willing to work with you the earlier you contact them, so keep that in mind as you determine how to fix your credit.
Once your late payments or collection accounts are brought up to date, it may be time to consider opening a new credit account. That may sound like the wrong move, especially if you’ve had issues with keeping tabs on credit cards or loan payments in the past, but a new credit account helps to reset your track record. Lenders won’t be all that excited to offer you a shiny new credit card or personal loan without some protection against default, so you may need to start with a secured credit card or a small loan to get things off the ground.
A secured credit card is tied to a bank account, like a checking or savings, and your credit limit is only as high as the balance of that account (i.e. $250 or $500). As you show the credit card company that you can be responsible with a small credit limit, you can request an increase and a release of the linked bank account funds over time. Secured personal loans work in a similar fashion, but instead, provide you a lump sum that is paid in monthly increments over six months or more. Either is a great option to help fix credit for the long term since it creates a record of on-time bill payment.
Credit Repair Steps
Thinking about how to fix your credit score and repair credit history can be a bit overwhelming at first. Fortunately, there are simple steps you can take to get the ball rolling in the right direction.
- Start by understanding what bad credit costs you – higher interest rates, application declines, and lost job opportunities.
- Then, focus on getting rid of the errors on your credit report through a reputable credit repair company or on your own through the credit reporting agencies.
- Finally, commit to being responsible with your credit accounts moving forward, and hit the refresh button on your payment track record if possible.
The combination of these activities will let you answer the question, how can I fix my credit, in the most efficient way possible.