Updated on 03.11.16

Credit Repair Manual

Saundra Latham

There are legitimate credit repair services out there, but they can't perform magic. Here's a six-step plan to fix your credit yourself.

If you have poor credit, it’s easy to be tempted by promises of quick fixes. Perhaps you’ve heard radio ads that say they can make your credit problems — even bankruptcies and liens — disappear. Others may say you can obtain a new credit identity, shedding your old one as easily as a snake skin.

Sounds too good to be true, right? That’s because it is. As the Federal Trade Commission cautions, companies that make these claims often want to scam desperate people out of their money when they need it the most.

What Do Credit Repair Companies Do?

Credit repair services such as CreditRepair.com or Lexington Law are typically going to do the following: Request your credit reports from each of the three main credit bureaus, work with you to determine whether any of the negative items are inaccurate or unverifiable, and contact the credit bureaus and/or your creditors to dispute those items. Some companies may offer packages that include credit report monitoring or credit counseling.

Generally, credit repair companies do not actually alter your existing debt load in any way — they simply aim to help you more effectively dispute questionable information.

If your credit is poor simply because you’re in over your head and can’t keep up with payments, you may want to look into debt management or debt settlement services. Debt management companies negotiate with creditors to lower your interest rates, monthly payments, or both, helping you stay afloat. They do not reduce your total debt. Debt settlement companies, on the other hand, negotiate with creditors to reduce the total principal you owe.

How to Tell If a Credit Repair Company Is a Scam

There are many legitimate credit repair services, but a few rotten apples mean you’ll need to be cautious of the whole barrel. Below, you’ll find seven ways to tell whether the company you’re considering may be a scam:

They want up-front payment: Federal law requires credit repair companies to render services before requiring payment. If you’re told otherwise, walk away immediately.

They say they can erase the black marks on your credit report: If the information is accurate, the only thing that can remove it is time. According to myFICO, it will take seven years for most negative information to drop off your credit report — 10 in the case of Chapter 7 bankruptcy.

They say you can create a new credit identity: You may be told you can start fresh by using a so-called “credit privacy number” or a business-related employer identification number in place of your Social Security number on credit applications. Sure you can — but it’s illegal. Misrepresenting your SSN on credit applications is fraud, plain and simple.

They say you’ll receive services you can’t perform on your own: Legitimate companies won’t make this claim, since credit repair companies don’t do anything you can’t do yourself, including disputing inaccuracies and negotiating lower payments. Some may also try to dissuade you from contacting the major credit bureaus — another red flag.

They don’t inform you of your rights, or ask you to waive them: You should receive a document that tells you your rights under state and federal law. If you don’t receive this document, or you’re asked to sign something that waives these rights instead of simply acknowledging them, you’re dealing with a scammer.

They don’t give you a copy of your contract, or the contract omits crucial information: Though it sounds like common sense, you should get a copy of your contract with your company before agreeing to any services. That contract should plainly state what services will be rendered, the time frame for rendering them, and what you’ll be charged.

They say you can’t cancel once you sign a contract: Under federal law, you have three business days to cancel a credit repair contract from the date you sign for any reason.

How to Repair Credit On Your Own: Six Steps

It’s possible to repair your own credit for free, of course. But — reality-check time — it isn’t a quick process, and it might not be the easiest, either. If that were the case, you probably wouldn’t consider credit-repair companies in the first place.

Here’s a six-step guide for anyone who needs both short-term help disputing inaccurate credit-report information and long-term help raising their credit score.

Step 1: Obtain your credit report

To start the credit-repair process, you need to know exactly what you’re dealing with. You’re legally entitled to one free credit report from all three credit major bureaus (Equifax, Experian, and TransUnion) every year. You can obtain these by heading to the federally approved AnnualCreditReport.com.

There are certain other circumstances that allow you to obtain a free credit report even if you’ve already obtained one from AnnualCreditReport.com. You’re entitled to a free report if:

  • A creditor, employer, insurer, or other entity denies your application based on information in your credit report. You will receive a notice giving you the credit bureau’s contact information, and you’ll have 60 days to contact that bureau for a free report.
  • You’re out of work but will be applying for jobs within 60 days.
  • You’re a welfare recipient.
  • You’ve been the victim of identity theft or other kinds of fraud.

If you’ve already accessed your allotted free report and aren’t otherwise entitled to one, you can pay for a copy directly with any of the credit bureaus or myFICO. I get more in-depth on these options in a previous article, What Is a Good Credit Score? You can expect to pay around $20 for a one-bureau report, or at least $40 for a three-bureau report.

There are other sites out there boasting free credit reports. The most reputable include Credit Karma, Credit Sesame, and Quizzle. While these sites give you a report for free, they don’t include your all-important FICO score — the credit score used by the vast majority of creditors. For that reason, you may want to view these sites as more of an educational tool or estimate.

Step 2: Know what to look for

You’ll generally find the following on your credit report: personal information, potentially negative information, accounts in good standing, and who has pulled your credit (also called credit inquiries).

First, don’t ignore the personal information listed on your credit report. It will likely include your name, address, previous address(es), birthday, Social Security number, phone number, and employer’s name(s). If something is amiss, it could be simple human error — or a sign of fraud such as identity theft.

You’ll want to focus most on the section of your credit report that shows potentially negative information. This might be called something slightly different depending on the credit bureau, but it will include the following, if applicable:

Accounts in collections: Any time a creditor decides to turn over an unpaid account to a collection agency, it will end up here. These might include serious outstanding debts such as student loans or medical bills, but you may also see things like debt related to unpaid electric bills or parking tickets.

Details include account status (paid or unpaid), the date the account was opened, your recent balance and any recent payment. Even if you ultimately pay the past-due amount, the account will still be listed here.

Accounts with late payments: If an account shows late payments but hasn’t been escalated to collections, you’ll probably find it here. The report will specify how often you’ve paid late and how late you were (30, 60, or 90+ days).

Public records: This is the most serious stuff: If the courts have had to get involved in your finances, you’ll see the proof here. Bankruptcies, civil judgments, and tax liens will be listed. Details will include the plaintiff’s name, claim amount, date filed, and status of the claim (paid or unpaid).

Information on your credit report will only update as fast as the credit bureau receives new details. As Credit.com notes, normal credit accounts typically update monthly, but public records can be notoriously slow to change. Collection information is also vulnerable to errors since your debt may be sold several times to new collectors.

credit - repair manual

If only fixing your credit was as straightforward as fixing a car. Photo: Eric Brockmeyer

Step 3: Dispute inaccurate or unverifiable information

Good news: If something is inaccurate or unverifiable on your credit report, you can dispute it yourself — no middleman required.

You’ll want to file any dispute in writing in order to create a paper trail. You can use this sample letter from the Federal Trade Commission and fill in the blanks as necessary to dispute information with the credit bureaus, and this letter to dispute information directly with the creditor in question.

Include copies of any relevant documents that help prove your case, and make sure you also keep the letter and any documents on file. The FTC recommends sending your dispute via certified mail so you can be certain when it was received.

Step 4: Wait for a response

The waiting is the hardest part, as they say, but you don’t have a choice. Once you’ve filed a dispute, the credit bureau typically has 30 days to investigate, and you’ll be notified of the results in writing.

If you’re successful, you’ll receive a new copy of your unblemished credit report, and you can also have the new report sent to creditors or employers that may have recently relied on the faulty information.

If you aren’t successful, the information in question will remain on your credit report. However, the FTC recommends that you amend your credit report with a statement regarding the dispute. You may also opt to pay to have the credit bureau send your statement to any party that recently accessed your report.

Step 5: Create good habits going forward

Perhaps you checked your credit report and found minor inaccuracies — or none at all. As I mentioned above, any accurate negative information will linger on your report for seven years, or 10 in the case of Chapter 7 bankruptcy.

Fortunately, as that information ages, it will become less important to potential creditors, and it won’t drag down your credit score as much, according to myFICO.

While you’re waiting for the bad stuff to fall off your credit report, you also have the opportunity to get a fresh start by forming responsible credit habits going forward. Here are some of the most important things you can do:

Continue to monitor your credit: You don’t necessarily need to sign up for a credit monitoring service unless you’re concerned about identity theft, but you should still keep tabs on your credit reports every year. Remember, you can get them for free via AnnualCreditReport.com.

Leave those old accounts alone: Now that you’ve seen your credit, you suddenly remember that you still have that dusty old credit card from college, or the store card from a place where you never shop. Keep these accounts open — a long credit history helps boost your credit score, and so does not using a huge portion of the credit you have available.

Pay your bills on time, every time: If you haven’t already automated your payments, now is the time. You may even get a small interest-rate break for signing up for automatic e-payments.

Prioritize certain debt: Attack your highest balances first. The largest chunk of your credit score is based on debt utilization — that is, how much of your available credit you’re using. So if you have an $8,000 balance on a credit card with a $10,000 credit limit, that’s a high debt utilization ratio. Experts also recommend paying down credit-card debt before tackling installment loans (such as mortgages and car loans).

Consider a secured credit card or other bad-credit loans: If your credit score is low, you usually aren’t going to be completely shut out from the chance to form responsible habits with new credit accounts. A secured credit card can help you rebuild your credit by showing you’ve turned over a new leaf — and remember, the most recent accounts are the ones that impact your credit most heavily.

A bad credit auto loan will have a higher interest rate, but should still be relatively easy to obtain. A general bad credit loan will be a bit trickier to obtain — you may have to deal not only with higher APRs but offer some form of collateral in order to protect the lender. Steer clear of title loans, payday loans, or any any other form of predatory lending.

Step 6: Recognize when you need help

If you’ve overextended your budget and simply can’t afford to pay all your bills each month, you’ll need to consider your options. One common way to better manage multiple bills is by getting a debt consolidation loan that lowers your monthly payments and allows you to pay a single lender. Keep in mind that you will likely pay more in the long term, though, since you’re extending the payment term in order to lower your payments.

Though the idea might make you uncomfortable, you could try to negotiate a lower interest rate or more manageable payment plan with your creditors. Most have a vested interest in keeping you as a customer, and chances are they don’t want to waste their time and resources taking legal action over debt that you could still pay within a reasonable time period.

If you simply can’t see yourself screwing up the courage to negotiate, or you can’t spare the time, you may want to consider hiring a debt management company to do it for you. This isn’t a decision to make lightly, as there are substantial drawbacks to the process, but it may be a way to stay afloat when other options are limited.

For truly last-resort situations, you may want to weigh debt settlement, in which a company negotiates a reduced principal, or, if all else fails, bankruptcy.

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