Spoiler alert: the answer is yes!
Credit repair is the process of fixing bad credit that may have gotten that way for a variety of reasons.
To repair your credit, you may need to dispute information on your credit report that you believe to be inaccurate, untimely, misleading, biased, incomplete, or unverifiable (“questionable”). It also may involve getting to the root of fundamental issues like poor spending habits and lack of budgeting.
This article is a great place to start the journey towards a better credit score and better financial opportunities in the future.
Credit 101
Before venturing down the path of credit repair, it’s important to have a base knowledge of credit itself. Depending on what your life goals are, credit can be extremely important.
What is Credit?
In simple terms, credit is your ability to obtain products and services before paying for them, based on the promise that you will make payments in the future.
If you have any plans for higher education, owning a home, or owning a car, your credit will play a major role in each of these scenarios. Whenever you need to borrow a large sum of money, creditors will look into your credit reports from the three credit reporting agencies – Experian, Equifax, and TransUnion.
The data found in your credit reports is then collected and compiled to create your credit score. The credit score given to an individual will be between 300 – 850, with the higher number representing where you want your credit score to be.
If you have shown a pattern of responsible money management, your score will be higher and will allow you to borrow money with lower interest rates. However, if you’re reading this article it may be safe to assume that your credit is not in perfect condition.
How Bad Credit Happens
There are quite a few ways you can harm your credit standing. If you miss a payment on your mortgage, max out a credit card, or even become a victim of identity theft, your credit score can be impacted negatively.
There are quite a few complexities when it comes to your credit, that’s why it can get confusing when you’re trying to fix your credit. Having a good understanding of what credit is and how it can impact your life is a good first step in the credit repair process.
Credit Repair 101
If your credit score has taken a major dive, not all hope is lost! There are many ways you can repair your credit and restore your financial standing.
Reviewing Your Credit Reports
At the center of credit repair is reviewing your credit reports. It will be next to impossible to repair your credit if you do not know where the root of the problem lies.
Analyzing your credit reports for inaccurate, untimely, misleading, biased, incomplete, or unverifiable (“questionable”) information is of the highest priority. This will determine your next move in the credit repair process.
You would be surprised by how many mistakes appear on credit reports. According to a recent study done by Consumer Reports, more than a third of the participants found at least one error on their credit report. We believe it is much higher if some of your outstanding debt has been turned over to collection agencies.
Even if your credit is in good standing, it’s worth it to review your reports and look for errors.
DIY Credit Repair vs Credit Repair Companies
You can embark on your credit repair journey by yourself or you have the option to hire a credit repair company. Either option can potentially increase your credit score. It’s a matter of how much time and money you want to spend on repairing your credit.
To understand more about your options, here’s an article evaluating both sides: Should I Hire A Credit Repair Company or Do It Myself?
The Credit Repair Process
After reviewing the basics, it’s time to get into what the credit repair process actually looks like. Here are 5 steps that you can plan on taking.
Step 1: Review Your Credit Report
The three major credit reporting agencies are Experian, Equifax, and TransUnion. The first step to credit repair is obtaining your credit reports from all three agencies. You can obtain your reports for free every 12 months or pay for them individually.
We recommend going to AnnualCreditReport.com for your free annual reports. Their services are trusted and secure.
Your credit reports contain important information that is used to make consequential lending, employment, and loan decisions. This step is crucial in the credit repair process because it allows you to pinpoint any possible issues that could prevent you from getting loans in the future.
Step 2: Identify Items For Dispute
Looking at all three credit reports is confusing, so let’s break down the 4 main areas of your credit reports you want to focus on. All three of your credit reports will show if you have inaccurate or negative items in these broad areas:
1. Personal Information. This includes your legal name, current and previous address, employment information and other details. It’s important this information be correct for two reasons. First, when you apply for credit and state your first name is “Cathy”, but your credit file shows the name as “Kathy” this may be a problem.
Second, there are times when personal information from your credit file is used to confirm your identity. If a previous address is missing or incorrect, verifying your identity may be a problem. You can request that the credit reporting agencies correct this information by using our Specialized Letters to Credit Bureaus.
2. Late Payments. In most credit reports, late payments will show up toward the bottom of each account listed on your account. If you have late payments, this will impact your credit score more than any other item so it is important to verify the validity of the information. Even if you suspect the information may be accurate, the FCRA gives you the right to challenge the creditor to verify the late payment(s).
3. Delinquent Accounts. These are accounts where a debt is so far behind (usually 150-180 days), the original creditor has charged-off the account and a collection agency is reporting the account as being in collections. Disputing these accounts is challenging, but consumers can and do utilize their rights under the FCRA to have accounts removed.
4. “Account Not Mine” or Fraudulent Accounts. While fraud happens, it is rare for most consumers. And the credit bureaus take it seriously. If you absolutely know there is a fraudulent account (the account does not belong to you) on your credit report, you will be required to file a police report and provide a copy of the report to the credit reports. Take this VERY seriously and do not dispute an account as fraud unless you KNOW the account is not yours
Step 3: Send Letters of Dispute
Once you’ve located items that may be inaccurate, untimely, misleading, incomplete, or unverifiable (“questionable”), write letters to each credit bureau that identify the disputed items. We provide step-by-step Free Credit Repair Letters To Fix Your Credit you should consider using.
The purpose of each letter is to highlight the inaccuracies in your credit report and request their subsequent removal. For each item, you can explain why you believe the item is an inaccurate representation of your credit standing and provide any supporting details.
Step 4: Negotiate With Your Creditors
If you go through the dispute process and some of the negative items on our credit report are removed… then the process worked for you. Congratulations! But there will be some negative items that are verified by the creditor or collection agency and the credit bureau will not remove those items. In that case, you may want to negotiate with the creditor or collection agency.
In our article, Specialized Letters to Credit Bureaus, Creditors, and Collectors, we cover the various tactics you can deploy to negotiate the removal or modification of a negative item.
Those tactics come under two broad categories. First, a letter of goodwill requesting the creditor mark the account “paid as agreed” based on extenuating circumstances. This is usually done with late payments in an account you are still making payments on.
The second is called a “pay-for-delete” letter. This is where to negotiate to pay all or a portion of the amount owed if the creditor or collector will delete the negative account. This strategy has been popular in the past, but the credit bureaus are cracking down on creditors or collectors removing negative information if a payment is made. It’s basically the creditor or collector saying that their previous negative information was an error.
A word of caution: negotiating with collection agencies is fraught with problems and, in our experience, has more downside than upside.
Even though these negotiations with creditors are not always successful, it’s still an important step in the credit repair process.
Step 5: Be Patient
Have patience.
The credit repair process is lengthy, averaging a few months to upwards of a year.
You will want to use this time to monitor your credit accounts and set up alerts for suspicious activity. You may want to set up a bi-annual calendar reminder to review your credit statements and an annual reminder to obtain and analyze your credit reports.
Another option is to opt for credit monitoring services that provide you with periodic updates regarding your credit report.
Being proactive can make all the difference in your ability to avoid major headaches on your credit reports.
Other Ways To Improve Your Credit
Credit repair may not be available to you, or may only raise your credit score so much. If that is the case, there are alternatives to help improve your credit score:
Become an Authorized User
If the state of your credit doesn’t allow you to open a credit card of your own, it may be worthwhile to become an authorized user on someone else’s account. This could be a trusted friend or relative with a healthy credit score.
For example, if your older sister has a credit card with a credit limit of $5,000 and she pays the outstanding balance monthly, you might consider approaching her to see if she would authorize you to become an authorized user on her account. You name would appear on the account as an authorized user and you would receive a card.
This is a pretty big ask and must be done thoughtfully. Your sister may be nervous that you’ll get the new card and run up expenses while leaving her in the lurch to pay for the charges. If there isn’t an element of trust between you, she may hesitate or say no. Another approach would be to explain your situation and tell your sister you will turn the card over to her when it arrives and never use it. This will give her much more peace of mind.
And in the end, your credit file will show a new credit account of $5,000 and payments being made each month… all because of the creditworthiness of your sister. Now for the downside: if your sister gets behind on her payments or doesn’t make her payments on time those negative items can show up on credit report. If that ever happens, you can use our Authorized User Removal Letter to Creditors to have the account removed from your credit report.
Becoming an authorized user on a family member or friend’s credit card will only benefit you if their accounts are paid on time every month.
Open a Credit Builder Loan
A credit builder loan works inversely to a conventional loan. With this type of account, the money you wish to borrow is set aside in a bank account. You are obligated to make monthly payments into that account until you reach the amount you wish to borrow, plus applicable interest.
Once the payments are complete, you receive the full amount. Your payment activity is reported to the three credit reporting agencies each month and can be a great tool for building your credit score through on-time payments.
Considering that 35% of your FICO credit score is derived from on-time payments, this is a powerful way to improve your credit.
Open a Secured Credit Card
A secured credit card differs from a traditional credit card in that you must deposit your initial credit limit. You may deposit a few hundred dollars, to a few thousand dollars, which then acts as your account balance. Paying the balance each month will gradually build your credit score.
For more on secured credit cards, check out this article.
Take Out a Secured Personal Loan
A secured personal loan is a credit line that requires collateral, such as physical property, for the lender to take possession of should you fail to repay the loan. This is a riskier method of building credit than using a secured credit card, but another option nonetheless.
Take Out an Unsecured Personal Loan
An unsecured personal loan is not backed by collateral. Instead, it may have a higher interest rate and a more robust application process.
Your credit score is considered when issuing an unsecured personal loan but is only part of the equation for approving your loan application. Unsecured personal loan lenders look at your entire financial situation rather than your credit score. As long as you make all payments on time, your score should increase.
Final Thoughts
Credit is a valuable tool to increase immediate purchasing power, based on the trust that you will repay your debt in the future. Credit reports and credit reporting agencies were created to measure consumer credit trustworthiness.
Although a great tool, credit reports have been plagued by reporting inaccuracies since their inception. Unfortunately, the responsibility falls on you to report inaccuracies found in your credit report.
That’s where credit repair comes in.
Credit repair is the process to correct and improve your credit score report and credit score. It requires collecting your credit reports from the three major credit bureaus: Experian, Equifax, and TransUnion. By law, you are allowed to obtain one credit report per bureau for free every 12 months.
Credit repair involves reviewing your credit reports for inaccurate, untimely, misleading, incomplete, or unverifiable (“questionable”) information you believe may not have been reported accurately.
Dispute letters are then sent to each of the three bureaus and negotiations begin with each creditor to remove negative credit items like late payment fees in exchange for a partial payment of the amount due. Be patient, as the credit repair process can take some time.
Alternative methods to build credit when you have no credit, or bad credit, are available. Each has its benefits and drawbacks.
Credit repair, in its many forms, can help you improve your credit score by fixing the not-so-great aspects of your credit. If you put the time and effort into optimizing your score, you will be able to enjoy the many benefits that come with having a solid financial standing.
