How Credit Repair Works and Doesn’t Work
Anyone who is in debt, especially if it is a lot of debt, can easily fall prey to the wonderful advertisements of credit repair companies promising to clear your credit and boost your credit score. The question is, though, can they actually fulfill those promises? The truth is that there is not an easy answer.
Credit repair can benefit you greatly, but there is no way of knowing if it will or how much it can help until you actually try it. We are going to take a deeper look into credit repair so you can get a better understanding of it. Let’s dive in.
Credit Repair 101
Credit repair can be defined in two separate ways depending on who you are asking.
What Is Credit Repair?
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To some people, credit repair is about disputing errors and debts on your credit report- that is all.
For others, credit repair is the full process of fixing your credit, which includes disputes and legitimate fixes- a very comprehensive approach. For the sake of a thorough guide, we are going to discuss it as a comprehensive process. First, though, let’s talk a little more about how it does and does not work.
Not a Magical Solution
There is often some crazy idea that by disputing items on your credit report, your credit will just magically increase to a perfect score. A lot of less than stellar credit repair organizations will make promises such as “Get your score to a 700 in two weeks” or “We can improve your score by 100 points in 30 days”. Sorry, this simply is not true.
Credit repair is neither a magical solution nor a quick fix but rather an approach to cleaning up your credit. It takes time to fix issues and nothing can just be washed away that easily. I’m not saying you cannot get good results, but I am saying that it all depends on what is on your credit, how much of it is legitimate, what your current credit score is, and a lot more. There is no magical formula for it to be fixed and every situation is different.
Does Not Fix the Root of the Problem
You have to understand something very important: It is your actions or habits that have messed up your credit. Even if you completely clear everything off of your credit, you are just going to end up in the same situation unless you address the root of your problem.
For instance, if you break a leg due to carelessly jumping off a roof, you can get a cast to help the leg heal (No judgment here. I was quite the daredevil when I was younger). However, if you continue your risky behavior, you will likely end up with another broken bone.
The specifics of how you got into such a bad state might be different than the next person’s, but it all comes down to mismanaging your finances. Credit repair can help but if you do not start managing your finances better, you are simply wasting your time.
Something You Can Do On Your Own
Credit repair does not require you to hire anyone. You can do every bit of it by yourself for free. The only money you pay out if you do it yourself is the money you use to pay off debts.
Does Not Come With Guarantees
Credit repair- in the sense of disputing items- does not come with any guarantees. Just because you dispute something does not necessarily mean that those items will be erased. Everything is considered on a case by case basis, so there is no way to truly guarantee results.
Cannot Get Rid of Valid Debts
Disputes cannot get rid of debts that you actually owe that have been reported correctly. It is not a way to get out from under paying a debt that you actually owe unless it has been handled or reported inaccurately. The following items are the ones you will most likely get removed- if you can get any removed at all:
Out of Date Items
A simple credit repair fix is items that should have been gone already. Each type of hit has a maximum amount of time that it can stay on your credit report.
Once that maximum time has been reached, they should automatically disappear from your credit. If they do not, you can have them removed. Here are some time limits to look for:
Hard inquiries - Up to 2 years
Missed payments - Up to 7 years
Bankruptcies - Up to 10 years, depending on the type of bankruptcy
Foreclosures - Up to 7 years
Almost everything should be off by the seven-year mark, though a few will go longer, such as Chapter 7 bankruptcies. Inquiries are usually gone in just a few years.
When you look at your credit report, you will see a date for each debt in the details. That is the date the debt should be removed. If it is still there after that date, you can dispute it and there should be no problem removing it.
Fraudulent Items
Any charges made due to someone stealing your identity can be removed. Of course, you have to be able to prove the theft or at least get an investigation going, but as long as you did not make the charge, it can be removed.
This is one big reason it is important to regularly monitor your credit and immediately report any fraudulent activity you see in your finances.
Do not wait until it shows up on your credit report if you can help it. If you notice your credit card missing one day, report it right then. Do not wait until you are billed for charges you did not make or debts to show up on your credit, unless you do not notice it until then.
Basic Errors
This is probably the easiest thing to dispute. If you notice any incorrect spellings, inaccurate amounts, or other obvious mistakes, you can get them fixed or removed.
Unsubstantiated Items
If for some reason the creditor cannot prove that the debt belongs to you, it can be removed by the credit bureaus.
DIY Credit Repair
You can clean up your credit yourself. If you want to give it a go, here are the basic steps to follow:
Step 1: Get Your Credit Reports
The first step in credit repair is to get a copy of credit report from each of the three major credit bureaus. I say all the time that you do not know what to fix if you have no idea what’s wrong. Your credit reports are the beginning of awareness, and you need all three for a comprehensive review.
You can get your full official credit reports once a year from annualcreditreport.com at no cost. If you are denied for credit at any point, you can get another free copy of those reports within a certain amount of time. You can also get a good look at what is on your credit report on credit monitoring websites like Credit Karma and Credit Sesame.
After you have your credit reports in hand, you need to take a good look at them. Do this with a highlighter, pen, notebook paper, and maybe even some sticky notes. As you go through your report, you can highlight and make notes on anything you need to look into, fix, or pay off. No one else needs to see your copy of your reports, so you can highlight the whole thing if you need to.
Before you move on to working on your credit, I want to point something out. If you owe a bill from a long time ago, there is a good chance that it has been sent through several collections agencies. Over time, the original creditor originally gets left off. If you see any debts on your credit report that you do not remember, call the agency that is listed as the creditor now. Explain that you do not recognize it and have them send you the original information.
Step 2: Fix Errors
Check for any potential errors, such as inaccurate addresses, inaccurate amounts, incorrect spellings, and so on. If you notice anything like this, have them fixed immediately. I noticed that there were a few addresses on my credit report that I had not lived at as well as some inaccurate phone numbers. They were very easy to remove.
Step 3: Dispute Other Items
Check for anything that should be removed due to the date, anything that does not look familiar, and anything that shows up on your report twice, which is something I have had happen before. Though you once had to send in disputes in writing, that is no longer the case. You can do it online now straight through each credit bureau’s websites.
You can also do this through credit assistance websites. In my opinion, one of the best credit report sites is Credit Karma. I use it to monitor my credit, get recommendations for building my credit, and a lot more. It also allows me to dispute items directly through the website. It is not the only option for doing all of this, but it is a rather good one. No matter what tool you use, dispute anything that you have a reason to before moving on.
Step 4: Check the Date and Prioritize
We talked earlier about the date when the debt should be removed from your credit report. This date is going to be very important in helping you decide not only what to dispute but also how to prioritize the rest.
For now, let’s just talk about upcoming dates. If it says it should be removed in the next year or less, you can put it to the side for now. By the time you finish working on your other debts, it will probably be removed anyway. You want to work on the debts that are affecting your credit the most first.
Here’s the thing: Anything that is on your credit report has the greatest impact in the first two years it is there. After that, they start to lose their impact. The first debts you should focus on are those that have been on your credit report for less than two years, and the less time, the more attention they need.
Step 5: Bust a Move
After you have taken care of those debts, you can put the remainder in any order you choose. Most people list them in order by amount, either smallest to largest or largest to smallest. Regardless, start plucking away at them one at a time.
Step 6: Address Root Causes
If you have not yet done so, you need to be sure you are addressing the reason you got into debt in the first place. Fixing your credit is doing nothing more than fixing the symptoms or putting a bandage over a wound. You need to fix the problem.
The way to do so really depends on how you got where you are. If you shop because you are depressed, consider seeking counseling. If you simply do not know how to manage money effectively, take a course, do some research, or ask an educated friend or family member for help.
Some people simply cannot fight the temptation of having money to spend. If that is the case with you, make it hard on yourself to spend money. Cut up your credit cards or hide them in a safety deposit box at your bank. When you go shopping, take a list and only the amount of money you need. If you need to, find someone to hold you accountable.
Whatever the reason is for your debt, you have to face it head-on and deal with it. Otherwise, you will simply find yourself in the same trouble. You will be working hard to fix your credit only to mess it right back up.
Hiring a Credit Repair Company
Some people choose to hire a credit repair company to do the work for them. This is a personal choice and you are welcome to make it if you choose. However, there are some things that you should understand before you do.
The most important thing to understand is that you will be paying them for doing the same exact things that you can do yourself. They have no magical power. They will not get any results that you cannot get.
Overall, I am not a fan of paying someone else to do things that I can do. However, I do see the value in it sometimes. For instance, I am perfectly capable of cleaning my home, but I completely see the value in letting someone else do it so that I can spend my time on more important things.
My point is that if you want to hire a company to do it just so you do not have to, that is totally up to you. I just do not want you to do it with the belief that they can do something you cannot.
You should also know that credit repair companies focus mostly- if not completely- on disputing items on your credit. I am not aware of any credit repair companies that also offer credit counseling as well as helping you pay off debts. Their job is to challenge inaccuracies or negative items.
The point I am trying to make with this is that while a credit repair company might be able to help you get items removed from your report, the rest is up to you. You will still have to address the root cause of debt on your own and work to rebuild your credit.
Finally,
Monitoring your credit and going through the process of credit repair are important steps to financial security. Make them a priority and get to work on them as soon as you possibly can. Also, be sure that you regularly monitor your credit so that you can keep it in good standing after you repair it.
Remember, you do not need anyone to do it for you because you can do it all yourself in just a couple of hours. However, if you choose to hire a company to do it for you, it is completely up to you. Check for any reviews for companies you are looking into and keep in mind that they cannot guarantee you anything, so do not fall into a trap. Protect yourself and your credit as best as you can.