You’ve seen the advertisements for credit repair at every turn. And maybe you’ve given them a second glance because your credit isn’t quite up to par and you could use some help.
Well, you’re not alone, considering millions of consumers use credit repair companies in hopes of boosting their score and leaving their troubled financial past. But is credit repair worth the investment?
It depends. In fact, you should take some time to access your credit report and review it to determine what’s holding your score down. And once you’ve done so, the next step is to decide on the best course of action for your situation.
Perhaps you have an issue that can be solved with a little elbow grease and that doesn’t require you to hire a full-fledged credit agency. Or maybe you can take a stab at handling the credit repair process on your own. But if you do hire a company, you want to make sure they’re reputable and offer solutions tailored to fit your needs.
Either way, you’ll want to start by knowing what’s in your credit report as it includes all the insight you’ll need when devising a plan to fix your credit.
What’s In My Credit Report?
Unless you’re always on top of your finances and credit health, chances are you didn’t quite realize you had a problem until you were denied for credit or given a ridiculous interest rate because your score was too low. Or maybe you didn’t land that dream job because the employer didn’t like what they saw in your credit report. And there’s always a possibility that you were fully aware issues existed, but were too afraid to face them head-on.
Now that you’ve decided to consider repairing your credit, you’ll have to be brave enough to visit AnnualCreditReport.com to pull a copy of your credit report.
Your credit report contains the following sections:
- Identifying information: includes your name, address, Social Security number, and date of birth. This section also contains information about your employer, which is obtained by the credit bureaus, along with all the other information listed, when you apply for credit.
- Accounts: includes the name of the account, type (i.e. revolving or installment debt), the date the account was opened, credit line or loan amount, current outstanding balance, and monthly payment history. If the account is delinquent, you will see it noted in this section.
- Negative items: includes collection accounts (i.e. items that have been turned over to collection agencies for nonpayment) and public records (i.e. bankruptcies, judgments)
But what about your credit score?
While it is important, you should start with your credit report because it contains the information that is used to generate your score (excluding personal identifying information). And after you’ve identified key issues with your report, the next step will be to take a closer look at a breakdown of the FICO score. More on that in the next section.
How Is My Credit Score Calculated?
Have an idea of why your credit score is in the trenches? The next step is to take a closer look at how the credit bureaus use the information in your report to generate your credit score. By doing so, you’ll quickly discover which issues with your credit report should be a top priority when repairing your credit.
Your FICO score is comprised of five components:
- Payment history (35 percent)– Do you make timely payments on your outstanding debt obligations? Payments that are a few days late aren’t the end of the world, but once an account reaches 30 days, it may be reported and could tank your credit score by 90 to 115 points.
- Amounts owed (30 percent)– Is the utilization on your revolving debt low relative to the total credit line? Lenders like to see your credit utilization at 30 percent or lower. So, if your credit limits across the board total $10,000, it’s most ideal to keep your balances at $3,000 or lower.
- Length of credit history (15 percent)– How long have you had credit? An established track record of managing credit is most favorable to lenders.
- New Credit (10 percent)– How often do you apply for credit? Each time you submit an application, a hard inquiry is generated and drops your score by two to five points.
- Account Mix (10 percent)– Do you have a healthy mix of revolving (i.e. credit cards) and installment (i.e. loans) debt?
The Truth About Credit Repair
Ready to get started with the credit repair process? Before moving forward, it’s important to understand that credit repair isn’t necessarily a quick fix to make your credit issues vanish into thin air. Unfortunately, some companies advertise that they can be miracle workers for just a small fee, but that’s far from true.
In fact, the Federal Trade Commission (FTC) states that “no one can legally remove accurate and timely information from a credit report. [However], you can ask for an investigation – at no charge to you – of information in your file that you dispute as inaccurate or incomplete.
And that’s the gist of credit repair. Either you or a credit repair company can petition the credit bureaus to remove negative information on the grounds of it being incorrect, questionable, or dated. This can be done by using dispute letters or more advanced methods, like goodwill adjustments or pay-for-deletion letters.
Credit Repair Options
You have three options:
- The DIY Method: So, you’ve decided to tackle your credit woes on your own? That’s great news (and you’ll probably save a bundle of cash).
- Hire a credit repair company: You’ll spend a little, but you’ll also have a team working on your behalf to handle the credit repair process from start to finish.
- Credit repair software: If you don’t want to do the legwork on your own but aren’t quite interested in hiring a credit repair company either, consider credit repair software. These programs usually include pre-written templates drafted up by attorneys and other educational resources to help you rebuild your credit score. Even better, credit repair software allows you to repair your credit at a fraction of the cost that you would pay a company for a monthly membership.
The Credit Repair Process
If you’ve decided on the DIY approach, here’s how to move forward:
File Disputes to Have Errors and Outdated Information Removed
- Step 1: Use a template from FTC.gov to write a dispute letter. Be sure to include the following information in your letter: your name, address, the item in dispute, why it’s inaccurate or untimely, a formal request for it to be removed. (Quick note: only dispute one item per letter).
- Step 2: Mail a copy of your dispute letter, along with any supporting documentation, to each of the credit bureaus. Be sure to request a confirmation receipt so you’ll know when it is received. (Quick note: sending a dispute online is never a good idea as it waives your right to re-dispute the item if the credit bureau does not rule in your favor).
- Step 3: Notify the creditor or collection agency of your dispute. They may be able to resolve your issue before the dispute letter and documentation even makes it to their office.
- Step 4: Await a response. The credit bureaus have 30 days to respond to your dispute or the item in question must be removed from your credit report.
Devise a Plan of Action to Deal with Other Negative Items
There are several types of negative items that can appear on your credit report and impact your score for up to seven or 10 years.
The chart below provides a brief description of each item, along with possible ways to have them removed from your credit report:
|Negative Item||Possible Solutions|
|Charge-off: reported when an account is written off as a bad debt by the creditor because they have deemed it as uncollectible. Remains on your credit report for seven years.||Start by writing letters to the credit bureaus requesting that the collection agency validate the debt (or prove you owe what they say you owe)If the debt has been sold over and over again, there’s a possibility the collection agency doesn’t have the documentation to validate the debt, which means you are not obligated to pay them. You also want to use this approach if the debt is listed multiple times.
Once the collection agency has validated the debt, request a pay for deletion agreement, which states that they’ll remove the item in exchange for payment. This amount could be for a fraction of what you owe, but just be sure to get the arrangement in writing.
|Collection account: reported when an account is turned over to a collection agency for nonpayment. Remains on your credit report for seven years.||Same as charge-offs|
|Late payment: reported when an account reaches 30-days past due. Remains on your credit report for seven years.||Reach out to the creditor and request a goodwill adjustment to have the late payment removed. Keep in mind that this approach usually only works for non-recurring mistakes. If your account has been past due for some time or late payments are a common thing, the creditor will usually deny your request right away.|
|Public records: include bankruptcies, evictions, judgments, repossessions, and tax liens. All remain on your credit report for seven years, with the exception of bankruptcies, which can remain for 10 years, and tax liens, which can remain indefinitely.||Only dispute if inaccuracies exist because they are the most difficult to have removed. Therefore, it’s better to focus on other areas of your credit report first. And if you do decide to move forward with disputes, don’t be surprised if you don’t get the results you want right away, unless you’re dealing with a professional that knows the loopholes and can navigate them for you.|
How Quickly Will You See Results?
Unfortunately, it only takes a few minutes to destroy your credit. But it could take several years to undo the damage.
So, the amount of time that it will take to see results will depend on your unique situation. Some have seen results in under 30 days, but others have waited several months for items to be removed. To illustrate, someone that has a credit report inundated with old collection accounts that shouldn’t be there will probably see a jump in their credit score much quicker than someone with six late payments and two recent collection accounts. You get the idea.
So, when embarking on the credit repair journey, keep the following in mind when gauging if the efforts are working:
- The status of the items you’re addressing. Are the accounts open but past due, charged-off as collection accounts, or judgments?
- The age of the items you’re addressing. The longer a negative item sits on your credit report, the less severe of an impact it has as the damage to your score will dwindle over time. So, having it removed may not give you the increase you expected in your FICO score. However, older collection items are sometimes easier to come off if they’ve passed through many hands and the documentation has been misplaced or the collection agency has no desire to respond to the dispute.
Is Credit Repair Expensive?
There is a cost associated with credit repair if you hire a company to do the work for you. And for some, it may be considered a bit much, especially if they’re cash-strapped. But if repairing your credit means you’ll attain a significantly higher credit score and more competitive loan products, is it really as expensive as it seems compared to what you’d be paying in interest with a low score?
Most credit repair companies assess what’s called a first-work fee, and then they bill a set amount each month. Another perk is that you can typically cancel your subscription at any time if you’re completely satisfied with their services.
Here’s a fee-breakdown from some of the reputable key players in the credit repair industry:
|Company Name||First-Work Fee||Monthly Fee|
|Lexington Law||Same price as the monthly fee
(QuickStart My Case fee of $14.99 will also apply if you opt-in)
|Concord Standard- $89.95
Concord Premier- $109.95
|Ovation Credit Repair||$114.00||Essentials- $69.00
Essentials Plus- $99.00
|Sky Blue Credit||$69.00 or $99.00 (couples only)||$69.00
$99.00 (couples only)
|The Credit People||$39.00||$89.00|
Is It a Smart Investment to Hire a Credit Repair Company?
That’s for you to decide based on your financial situation and whether or not you’re comfortable with handling the credit repair process on your own. But if you do decide to go forward with a credit repair company, you want to ensure that they are reputable so you won’t lose your hard-earned money. Some important considerations when exploring your options:
- Does their pricing structure seem comparable to others in the industry? Pricing that’s relatively higher should be justified by a higher caliber of services. And if the pricing is too low, that could indicate that you’ll be doing a lot of the legwork on your own or even worse, that their staff isn’t experienced or their services aren’t up to par.
- What are former and current customers saying about their services? Online reviews will give you an idea of how the company does business and if they are going the extra mile to meet or exceed their customer’s needs. But if all the reviews sound the same or a bit too fluffy, you may want to take them with a grain of salt and dig a little deeper as they were probably created in-house.
- Do they have representatives standing by to assist you with your needs? If you’re forking over your hard earned money each month, they owe you the decency to take your calls if you have a question or need clarity on an issue.
- Do they offer educational resources to help you enhance your credit education? What’s even more important than repairing your credit is making sure that you don’t let history repeat itself by making the same mistakes with your credit.
- Is there a fee to cancel services? You shouldn’t feel obligated to stick around if the services aren’t quite working out for you.
- Is there a 100 percent money-back guarantee? This isn’t common, but some credit repair companies do offer the luxury if you’re not completely satisfied with their services.
- Are they accredited by the Better Business Bureau? If so, what is their rating?
How to Avoid Credit Repair Scams
When researching credit repair companies, there’s a high possibility that you’ll encounter a con artist running a fraudulent operation. There’s no surefire way to avoid this, but you can minimize your chances of being duped by doing your research.
The FTC also warns consumers to be on the lookout for credit repair companies that make false claims like the following:
- “Create a new credit identity – legally.”
- “Credit problems? No problem!”
- “We can erase your bad credit – 100% guaranteed.”
- “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”
- The company uses harsh or deceptive tactics in an effort to get you to sign up for their credit repair services.
- The company requires that you pay up-front for services, which is a direct violation of the Credit Repair Organizations Act.
- The company encourages you to dispute accurately and timely information on your credit report.
- The company promises to give you a new identity or clean slate.
- The company encourages you to falsify information on applications for loan or credit card products.
Other Ways to Start Rebuilding Your Credit
Credit repair addresses past issues with your debts, but there are actions you can take from this point and onward to boost your overall credit health and score. These include:
- Making timely payments on your debts.
- Making payment arrangements with creditors if your account is delinquent so you can get back on track.
- Decreasing your credit card balances to improve your credit utilization ratio.
- Only applying for new credit as needed. Too many applications for credit in a short window of time generates multiple inquiries and is damaging to your credit score.
- Refraining from closing old credit cards as this could hurt your length of credit history, which accounts for 15 percent of your credit score. Doing so will also cause your credit utilization ratio to increase, which has negative implications for your credit score.
- Maintaining a healthy mix of revolving and installment credit.
- Considering a secured credit card or credit-builder loan.