Whether bad credit is new to you or you’ve been living with it for years, it’s never too early (or too late) to do something about it. Unfortunately, credit repair can be a confusing process. Can you really repair your credit on your own, or should you hire someone to do it for you? And either way, how does credit repair work? Below are answers to these and other commonly asked questions to help you navigate the process every step of the way.
- What’s bad credit?
- What causes bad credit?
- How does bad credit affect you?
- How can bad credit affect employment?
- When does bad credit go away?
Credit Repair Process
- What is credit repair?
- How does credit repair work?
- How long does the credit repair process take?
- Who can help with credit repair?
- Who can fix my credit report?
- Who can I contact to fix my credit?
- Can I repair my own credit?
- How do credit bureaus investigate disputes?
- How long do credit disputes take?
- What is debt validation?
- What constitutes debt validation?
Credit Repair Companies
- What are credit repair companies?
- When was the Credit Repair Organizations Act enacted?
- Are credit repair companies any good?
- What are credit repair services?
- How do credit repair services work?
- Are credit repair services legitimate?
- Are credit repair services worth it?
What’s bad credit?
Bad credit is when you’ve had numerous instances of not paying your bills on time. Bad credit causes numerous problems in your financial life. It’s typically measured by the number of negative listings in credit reports and low credit scores generated by those reports. Anything under a 620 credit score is generally considered bad. 620 is generally considered bad when you’re looking at the credit score range in the credit scoring models for which 850 ranks the highest and 300 ranks the lowest (for FICO and VantageScore 3.0 models). Back to Top
What causes bad credit?
Negative listings don’t cause bad credit, they are symptoms of bad financial habits. These listings tell a story of late payments, collections, charge-offs, foreclosures, liens, judgments, and bankruptcies. Only a lifestyle of living within your means, and habits that include attention to personal fiscal responsibilities can provide a lifetime of good credit. One other culprit? Identity theft can also cause bad credit when thieves open new credit accounts in your name or make changes to existing accounts. Until you get identity theft sorted out, you may have bad credit stemming from unpaid debts that can result from this situation. Back to Top
How does bad credit affect you?
Bad credit can result in:
- New credit being difficult, if not impossible, to be approved for
- Higher interest rates and deposits if you are approved for credit
- Higher deposits on car rentals
- Higher auto insurance premiums
- Difficulty qualifying for a house or apartment rental
- Difficulty qualifying for a job in which a credit check is required
How can bad credit affect employment?
Many employers look at credit reports when making hiring decisions. Some of them run credit checks on all job applicants, but most employers limit their credit checks to certain positions, as it generally costs money to do a credit check. For instance, if the job requires the handling of money or access to personal information, a credit check is likely. In any case, however, your written permission is required first. Back to Top
When does bad credit go away?
There are a few circumstances in which bad credit goes away:
- Negative listings naturally fall off your credit reports – most after 7 years, bankruptcies after 10 years
- Negative listings may be removed by disputing errors on your credit reports
- Besides disputing them, collections may be removed via debt validation or the pay for delete method
What is credit repair?
Credit repair is the process of improving your credit. This is accomplished by 1) disputing negative listings on your credit reports and 2) building a positive credit history. Though you can pay a credit repair company to do it for you, repairing your credit is something you can do on your own for free using our DIY credit repair guide. Back to Top
How does credit repair work?
The credit repair process includes:
- Sending dispute letters to credit bureaus, original creditors, or collectors
- Requesting debt validation for collections within 30 days of the initial collection notice
- Using the pay for delete method to settle old debts that cannot be resolved via credit dispute or debt validation
- Paying off high credit card balances
- Building a positive credit history
How long does the credit repair process take?
If you have errors on your credit reports that can be successfully disputed, you could see improvement in your credit in under 6 months. To the other extreme, if you have a lot of negative listings that are not in error and a lot of debt to pay off, credit repair could take years. In other words, It takes as long as it takes. Back to Top
Who can help with credit repair?
You can help yourself with credit repair or hire a credit repair company to do it for you. If you choose DIY credit repair (which we recommend you try first), refer to our free credit repair guide and forum. If you’re considering a credit repair company, find a legitimate credit repair company. Back to Top
Who can fix my credit report?
Though the credit repair process starts with you, it is the credit bureaus that ultimately make changes to your credit reports. So if you find an error in one of your credit reports, the first step is to send a credit dispute to the appropriate credit bureau (via regular mail with return receipt requested). Back to Top
Who can I contact to fix my credit?
If you’re repairing your own credit, contact:
- Credit bureaus to dispute credit report errors
- Original creditors to dispute errors unresolved by bureaus
- Collectors to request debt validation or settle debts
- The Federal Trade Commission (FTC) to submit complaints about issues unresolved by actions outlined above
- If you’d rather pay someone to fix your credit, you should contact a legitimate credit repair company.
Note: It’s not just about contacting someone though, it’s what you say when you contact them. This includes credit repair companies. Back to Top
Can I repair my own credit?
Absolutely. There is nothing a credit repair company can do for you that you cannot do for yourself, for free – from disputing listings on your credit reports to requesting debt validation from collectors, to the settling of old debts. Our DIY credit repair guide will walk you through the process every step of the way. Back to Top
How do credit bureaus investigate disputes?
When a credit bureau receives a dispute, they forward it to the data furnisher that provided the disputed information. The data furnisher is asked to verify its accuracy. If verified, the disputed item remains unchanged. If unverified, the credit bureau should correct it. For more details, here’s how the bureaus describe their dispute process: TransUnion, Experian, Equifax. Back to Top
How long do credit disputes take?
Once a credit bureau receives a credit dispute, they have 30 to 45 days to respond. If your dispute is successful, it should be corrected immediately. If it is not corrected and you receive no response, you may send a follow-up letter. If the correction is denied, you may dispute directly with the original creditor or collector. All this takes time. Back to Top
What is debt validation?
When you receive the initial communication from a collector trying to collect an unpaid debt from you, you have the right to request proof of the debt (provided you do so within 30 days of the initial communication). This is called debt validation. Unless they validate the debt, the collector cannot continue collection attempts. In some cases, this includes reporting the debt to the credit bureaus. Back to Top
What constitutes debt validation?
A debt validation letter from a collector should include:
- Proof the debt ever existed
- Proof you are the one who owes this debt
- Proof that this collector has the legal right to collect on it
The more times this debt has been sold over the years, the less likely the collector can fulfill all of these requirements. Debt validation can remove collections from your credit report. Back to Top
What are credit repair companies?
Credit repair companies get paid to help consumers clean up and restore their credit. What they can and cannot do is determined by the Credit Repair Organizations Act. While there are legitimate credit repair companies that follow these rules, there are many violators, which is why it is so important for you to watch out for red flags. Back to Top
When was the Credit Repair Organizations Act enacted?
The Credit Repair Organizations Act (CROA) was signed into law in 1996. The CROA prohibits credit repair companies from:
- Making untrue or misleading statements
- Advising consumers to make untrue or misleading statements
- Advising consumers to change their identity or lie about their credit history
- Demanding upfront payment for services that have yet to be completed
Are credit repair companies any good?
As with any industry, the quality of credit repair companies depends on which one you’re working with. In the best case scenario, the company you hire has qualified staff who have an in-depth understanding of credit repair techniques. Worst case scenario, the company has no clue what it’s doing and, in fact, ends up doing nothing at all, or actually makes things worse for you. Back to Top
What are credit repair services?
If you hire a credit repair company, the services they provide are similar to the techniques you would use if you were to repair your credit yourself:
- Pulling your credit reports
- Disputing listings with credit bureaus
- Requesting debt validation from collectors
- Asking collectors to cease and desist contact with you
- Sending goodwill letters to original creditors
- Credit monitoring
How do credit repair services work?
By law (under the CROA), credit repair companies can only collect fees from you for work that has already been completed. This means any credit repair company that wants to charge upfront fees – before doing any work for you – should be avoided. Note, though, it’s common to be charged an initial fee followed by a regular monthly fee for ongoing service. Back to Top
Are credit repair services legitimate?
It depends on the credit repair company. Unfortunately, there are plenty of scammers out there. It’s probably not legitimate if they:
- Want to charge upfront fees before doing work
- Make unrealistic promises; with credit repair, there are no guarantees
- Say they can remove bankruptcies, judgments, or liens from your reports
- Want to create a new identity for you
Are credit repair services worth it?
It is only worth paying for credit repair services if all the following are true:
- You have reviewed the DIY credit repair process
- You don’t have the time or interest to do it yourself
- You’ve found a legitimate credit repair company
- You’re prepared to pay them hundreds of dollars to do it for you