How Credit Repair Works | Credit card

If you don’t have a good credit rating, you may have difficulty getting approved for loans or credit cards, or you may only qualify for high interest rates. It makes sense to want to improve your situation right away, but repairing your credit takes patience.

Companies may offer paid credit repair services, but with time and the right information, you can figure out how to repair credit yourself.

“The difference is time and education,” says Stephanie Yates, director of the Regions Institute for Financial Education and chair of the accounting and finance department at the University of Alabama at Birmingham. “Frankly, that’s how some less reputable companies make a lot of money – kind of taking advantage of that lack of knowledge and time.”

Should you use a credit repair company?

If you are considering a credit repair company, you need to be on the lookout for scams. Even a legitimate company could charge you hundreds of dollars for services you could have performed yourself.

“A lot of times these organizations charge for things that consumers can do themselves, and there’s really no substitute for good credit habits,” like making payments on time, says Barry Coleman, vice president of program management and education at the National Foundation for Credit. Tips.

According to Federal Trade Commission. The Credit Repair Organizations Act prohibits credit repair companies from charging you before providing services and from making misleading statements about your credit, among other practices.

Firms could also use a “garbled technique,” ​​which involves overloading credit bureaus with disputes, Yates says. Credit bureaus generally have 30 days to investigate disputes, according to the Consumer Financial Protection Bureau. “If the credit bureau can’t verify derogatory information, it should remove it,” Yates says, and that can provide a window when a consumer’s credit may look better than it should. “But if the creditor sends a new file again with this derogatory information, then it starts again immediately.”

Therefore, this strategy only provides short-term results. Additionally, knowingly providing false information to credit bureaus is illegal, Yates says.

You can also use the funds you would have paid to the credit repair company to pay off your debts. “That in itself will improve your credit score. It just takes a little time,” says Jorge Soriano, founder and CEO of Financial Optimist, a financial planning company.

How to fix your credit on your own

You can work on your credit without involving a credit repair company. The following steps can help you get started.

Check your credit report and score

For now, you can get a free copy of each of your credit reports from the three major credit bureaus once a week at AnnualCreditReport.com. After that, you can get each of the reports once a year.

“We always recommend that if someone is curious about their financial situation, they start by getting copies of their credit report,” Coleman says.

Your credit report contains information about your accounts, payment history, and more, but it doesn’t include a credit score — the number between 300 and 850 that lenders use to assess credit applications. There are several ways to check your credit score for free, including via your monthly statement from most major credit card issuers.

Dispute the information on your report, if necessary

The Fair Credit Reporting Act gives consumers the right to dispute errors in their credit reports. Errors can include duplicate accounts, unauthorized credit requests, or accounts incorrectly listed as overdue.

To find errors, Yates recommends printing your report and reviewing it line by line. You can file disputes with any of the three major credit bureaus online, by mail, or by phone. You will also want to get in touch with the source of the incorrect information – this could be your bank or cell phone company, for example, depending on the CFPB.

If consumers see late payments on their report that they can’t remember or aren’t sure are accurate, they can also dispute them. “You can say, ‘I’m just not sure; can you prove to me that I was late?’ And so it’s also worth it,” Yates says.

Get in touch with your creditors

In some cases, you may be able to have harmful information removed from your report, even if it is accurate. For example, if your report notes a credit card payment that is 60 days late, you can call the credit card company and ask if it can be removed. You’ll have a better chance if the account is open, and an even better chance if it’s in good standing, Yates says. “If it’s a closed account or it’s gone to collections, there really isn’t a lot of incentive for the company to help you, but that still doesn’t mean it won’t wouldn’t be worth trying.”

If you have an unpaid account in collections, you can try to negotiate with the debt collector to pay less than the full amount owed. “Once it’s cleared, whatever you negotiate, they may also be willing to remove it from your credit report,” Yates says. “At a minimum, you don’t want it to show up as unpaid, and if it’s paid, it’s always worth asking them if they’d be willing to take it off, because they got their money back.”

Write a statement

Consumers whose credit problems are related to a circumstance such as a medical crisis or divorce can add a brief statement to their credit report explaining the situation. This generally won’t help you make instant credit decisions, but can be useful when someone is looking at your report in detail, such as for a mortgage, Yates says.

Adopt good credit habits

Beyond these steps, you’ll also want to adopt good credit habits, including making on-time payments and reducing your credit usage. Make sure you know the factors that make up your credit score when working to improve it.

How can you get help with your credit?

If you need help getting your finances in order, you can consult a nonprofit credit counselor.

“Non-profit credit counseling organizations such as NFCC members will perform a comprehensive review of a consumer’s financial situation,” Coleman said. “We would help them look at their income, their debts, their living expenses, and then we would make recommendations based on what we saw to improve their situation.”

Recommendations might include increasing income with a part-time job or new job or cutting unnecessary expenses. Coleman also points to the CFPB and FTC as trusted government sources of information that consumers can use to improve their financial situation.

Consumers can also consider programs such as Experian Boost, Yates says. Experian Boost is a free service from the Experian credit bureau that allows payments such as cell phone and utility bills to count towards your credit score. “That would be something someone can do if they’re looking to boost their credit score quickly — just expand the payments considered when calculating their score,” Yates said.

How long does it take to repair your credit?

In many cases, your credit score will increase after errors on your report are resolved, according to myFICO.com.

After correcting the errors, it will take time for your score to improve. “Unfortunately, there is no silver bullet,” Coleman says. “It takes time. But typically, after six months to a year of on-time payments and keeping those balances low, they’ll start to see some improvement, and then it will continue to improve over time.”

Most negative information stays on your credit report for seven years, but more recent items have a greater effect. “Items on the credit report that have been reported in the past 24 months or so are usually the most weighted, and so if (consumers) start improving it today, they will see results sooner rather than later. “, says Coleman.

With patience and perseverance, you will begin to see changes. “Don’t lose faith, don’t lose hope that it will take a few more months or that it won’t be fixed as quickly as you would have liked,” says Soriano.

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