The ads are pretty hard to miss… on TV, radio, online and even billboards. There seems to be no shortage of companies eager to help you “repair” your credit and boost your credit score. But what specifically are they proposing to do? What actually is “credit repair”?
Credit repair is limited to fixing errors or omissions on your credit report that impact your credit score. If your credit score is suffering because of information in your credit report that is inaccurate, missing or outdated, then that is a situation that must be addressed. But to be clear, no one — not you, not a company you hire — can remove information that is negative but true.
If your score is low because of data in your credit report that is unfavorable but indeed accurate, the only real repair is time and balancing that bad old information with new good information. Negative information will stay on your report for up to 7 years (10 years for bankruptcies). However, the effect of this negative information will diminish over time. A late payment or collection action that happened 5 years ago has much less effect on your score than a late payment last month.
Your first step in your credit repair journey is to get a free copy of all 3 of your credit reports here. If you see any information that is factually wrong (for example, an account that shows you have missed payments when you did not, or a collection action that you paid off but is still reported as open), each credit reporting bureau will have an established procedure for you to follow to dispute that information. You may need to provide evidence as to why the information is inaccurate. The Consumer Financial Protection Bureau even has sample dispute letters that you can use. Under the Fair Credit Reporting Act, the credit bureau must correct or remove “inaccurate, incomplete, or unverifiable information” within 30 days.
With that done, let’s review a few basic credit score “recovery” tactics:
- The most important determinant of your credit score is payment history. The best way to improve your credit score is to make every payment going forward complete and on time. Consistently adding new good information to your credit history file each month will begin to outweigh old bad information.
- As you make payments to your existing credit card accounts, your score will also benefit if you do not continue to use the card, making sure that the balance drops each month. The second biggest determinant of your credit score is “credit utilization” i.e. the amount of “open space” between your credit limit and your outstanding balance. Driving down that balance each month will increase your credit score.
- If you no longer have access to any credit account with which to establish that new good track record, you could consider a secured credit card or credit builder loan. These are financial products designed specifically for people with poor or no credit history to demonstrate their ability to use credit responsibly. In both cases, you will need to deposit a sum of money (perhaps $500) in a bank account; your loan or credit limit is secured by this deposit which is not available to you to spend.
- Some credit scoring models are starting to incorporate “alternative” information, such as rent and utility payments. If you are a renter, reach out to your property manager or landlord and ask if they will report your rent payments to one or more of the credit bureaus.
Unfortunately, the credit repair industry is rife with fraud. Ultimately, there is nothing that a credit repair company can do for you that you cannot do for yourself, for free. There is a role for credit counselors and financial coaches who can provide guidance on how to improve your credit score as part of a holistic plan to improve your financial wellbeing. The task of “credit repair” is only one step of a longer journey.
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