Credit Repair 101: How to “Fix” Your Credit By Yourself

It’s a common misconception that credit repair services have more power than the average person when it comes to fixing credit reports. In reality, anything they can do, you can do yourself for little to no cost. And why pay hundreds or even thousands of dollars for something you can do on your own?

Although the idea of delegating the task of repairing your credit to a credit repair company might seem appealing, it’s crucial to understand their limitations and take action yourself beforehand. Before you consider spending your hard-earned money on their fees, make sure to follow some initial steps on your own.

What Is the Credit Repair Organizations Act?

Credit Repair 101: How to “Fix” Your Credit By Yourself

Credit repair companies like Crediitpro are known for challenging unfavorable information that appears on your credit reports. However, there have been instances in the past where these companies have exaggerated their ability to assist consumers, in order to attract more business.

The Credit Repair Organizations Act (CROA) is a federal law that was implemented on April 1, 1997, as a response to numerous instances of credit repair fraud that had negatively affected consumers. The law serves to guarantee that credit repair service providers:

credit repair service providers are not allowed to receive payment from a consumer until they have fulfilled the services they have committed to providing.
Required to provide consumers with a written contract stating all the services to be provided as well as the terms and conditions of payment. Under the law, consumers have three days to withdraw from the contract.
Prohibited from requesting or advising consumers to deceive credit reporting agencies regarding their credit accounts or to modify their identity in an attempt to modify their credit history.
Not allowed to make false or misleading statements regarding the services they are capable of providing.
Not permitted to ask consumers to sign any document that relinquishes their rights under the Credit Repair Organizations Act (CROA). Furthermore, any waiver that a consumer signs in this regard cannot be enforced.

The Credit Repair Organizations Act (CROA) has been instrumental in bringing transparency and due diligence to the credit repair process, thereby reducing the risk of consumers falling victim to deceitful practices. Nonetheless, regulatory bodies have identified instances of misconduct among credit repair companies.

Over the years, the Consumer Financial Protection Bureau (CFPB) has taken legal action against numerous credit repair companies for violating the law, including requesting prohibited upfront fees and making false or exaggerated claims regarding their ability to improve credit scores.

Can You Pay to Have Your Credit Fixed?

If you believe that your credit report contains inaccurate information, credit repair companies may offer to dispute the information with the credit reporting agencies on your behalf. Typically, these companies charge a monthly fee for the work they perform during the preceding month, or a flat fee for each item that is successfully removed from your credit report.

It’s important to understand that credit repair is not a universal remedy, and in some instances, credit repair companies may engage in unethical or illegal practices by attempting to remove information that has been accurately reported to the credit bureaus. Although these companies may try to dispute every negative piece of information on your credit reports, it’s improbable that accurate information reported by your lenders will be removed.

It’s worth noting that credit repair companies cannot perform any actions that you cannot do yourself without charge. Consequently, it may be wise to attempt to improve your credit on your own before considering engaging the services of a credit repair company.

How to “Fix” Your Credit by Yourself

It’s essential to acknowledge that there is no rapid solution for repairing your credit. Adverse but truthful information (such as missed payments, charge-offs, or collection accounts) will remain on your credit report for a period of seven to ten years. Nevertheless, there are measures you can take to begin building a more favorable credit history and enhance your personal credit score progressively.

Suppose you identify any inaccuracies in your credit report. In that case, you can initiate a dispute with the credit reporting agency that issued the report, providing evidence supporting your claim. Additionally, it’s recommended that you reach out to the lender that provided the incorrect information and ask them to rectify their records.

Check Your Credit Report

It is recommended to review your credit report to get a clearer understanding of your credit standing and what lenders can see. You can learn how to read your Experian credit report to understand the information it contains. This can help you identify areas where you can make changes to improve your scores.

If you find information that is incorrect, you can file a dispute with the credit reporting agency on whose report you found it. You should also contact the lender that is reporting the incorrect information directly and ask them to correct their records.

Improve Your Payment History

Your payment history is a crucial factor in determining your credit scores according to FICO® scoring models. Late payments or missed payments can have a negative impact on your credit scores, while more serious issues such as bankruptcies and collections can cause even greater damage. It’s important to note that negative information can remain on your credit report for seven to 10 years, and during that time it will continue to affect your credit scores.

Credit scoring models consider various factors related to your debt, including your credit utilization ratio, which is the amount of credit you’re using compared to your credit limit. High utilization can lower your credit scores, so it’s important to try to keep your balances low relative to your limits.

Know Your Credit Utilization Ratio

Credit scoring models commonly consider the credit utilization ratio, which is the amount of credit you have available compared to how much you owe.

Your credit utilization ratio is calculated by dividing your total revolving debt, such as credit card balances, by your total available credit, or credit limits. The result is then multiplied by 100 to get a percentage. For instance, if you have $6,000 in credit card balances and a total credit limit of $60,000, your utilization ratio is 10%.

Having a high credit utilization can have a negative effect on your credit scores. It’s generally recommended to keep your credit utilization ratio below 30%. However, there is no fixed rule and the lower the utilization, the better it is for your credit scores.

There are a few different ways you can reduce your credit utilization rate:

Start by paying down your account balances. Additionally, you can increase your total available credit by opening a new credit card account or requesting a credit limit increase on an existing card.
Consolidate your credit card debt with a personal loan, which is not included in your credit utilization rate calculation.
While increasing your credit limit may seem attractive, it can be risky as it may encourage you to overspend, leading to more debt. Moreover, applying for a new credit card may result in a hard inquiry on your credit report, temporarily lowering your credit score by a few points.

Consolidating your debt with a personal loan can lower your utilization rate to zero quickly. However, if your credit score is poor, it may be difficult to get approved for a loan with a reasonable interest rate.

Paying down the balances on your credit cards and other revolving credit accounts is often the best option to improve your credit utilization rate and subsequently your credit scores.

Consider How Many Credit Accounts You Have

Many people aim to pay down their credit card debt, but it’s important to consider keeping the account open even after the balance has been paid off. Closing the account can actually hurt your credit score by eliminating that available credit and increasing your credit utilization ratio

Think About Your Credit History

Credit scoring models, such as those developed by FICO®, typically consider the age of your oldest account as well as the average age of all your accounts. This means that individuals with longer credit histories may be rewarded with higher credit scores. Therefore, before closing a credit card account, it’s important to consider the impact on your credit history. It may be beneficial to keep a credit card open, even if you have paid it off and don’t plan on using it in the future.

It’s important to remember that everyone’s financial situation is different, and what works for one person may not work for another. While keeping credit accounts open can be beneficial for your credit history, it’s important to consider your own spending habits and potential for accruing more debt. Ultimately, you should carefully evaluate your situation and make the decision that works best for you.

Be Wary of New Credit

It’s important to note that opening multiple credit accounts within a short period of time can be seen as a red flag by lenders, which can harm your credit scores. Therefore, before applying for a new credit card or loan, you should consider the potential impact on your credit.

It’s important to note that when you’re shopping for a car or a mortgage and making multiple inquiries within a short period of time, those inquiries may be grouped together and counted as a single inquiry for the purpose of credit scoring. However, recent inquiries can still have a negative impact on your credit scores, as they typically have a greater effect than older inquiries. It’s also worth noting that inquiries generally only appear on your credit report for a period of 24 months.

 

Credit Repair 101: How to “Fix” Your Credit By Yourself

How Long Does It Take to Rebuild Credit?

It’s difficult to determine a specific timeline for rebuilding credit since every individual’s credit history is unique. The amount of time it takes to recover your credit score may depend on the severity of the negative information in your credit report and how long ago it occurred. While certain actions, such as paying down credit card balances, may have an immediate effect on your score, other actions may take several months to have a noticeable positive impact.

If you find inaccurate or fraudulent information on your credit report and submit a dispute, it can take up to 30 days for the credit reporting agency to investigate. If the dispute is found to be valid, the agency will remove the inaccurate information from your report. Your credit score will reflect the change as soon as it is calculated again.

If you’re in the process of making payments or reducing your credit card balances, it’s important to keep in mind that your credit report may not be updated immediately. Creditors typically report to credit reporting agencies like Experian on a regular basis, usually monthly. As a result, it can take 30 days or more for your account status to be updated, depending on when in the month your creditor or lender reports their updates.

Regularly checking your credit score is crucial to monitor your progress and ensure that accurate information is being reported over time. As you establish a positive credit history, your credit scores will likely improve, increasing your chances of qualifying for favorable credit terms when you need to borrow money again.

How to Get Extra Help With Your Credit and Debt

If you’re in the process of making payments or reducing your credit card balances, it’s important to keep in mind that your credit report may not be updated immediately. Creditors typically report to credit reporting agencies like Experian on a regular basis, usually monthly. As a result, it can take 30 days or more for your account status to be updated, depending on when in the month your creditor or lender reports their updates.

If you find yourself in a difficult financial situation with overwhelming debt and poor credit, seeking the help of a reputable credit counseling agency can be a valuable option. Nonprofit agencies are available, and many offer consultations with personalized advice at no cost. They can help you create a budget, negotiate with creditors to lower interest rates and payments, and create a debt management plan that fits your needs and goals.

Credit counseling agencies can assist you in creating a debt management plan (DMP) to address your unsecured debts, such as credit cards. With a DMP, you will make monthly payments to the credit counseling agency, and they will distribute the funds to your creditors. The agency may also negotiate lower interest rates and monthly payments on your behalf.

It’s important to note that using a DMP to negotiate settled amounts may have a negative impact on your credit score, as your credit report may indicate that accounts were not paid as originally agreed. However, as long as you continue to make payments on time under the new terms, it may not have a significant long-term impact on your credit history. It’s important to weigh the pros and cons of a DMP and consult with a reputable credit counseling agency before making any decisions.

Keep Track of Your Credit After You’ve Reached Your Goal

After you have put in the effort to rebuild your credit history, it can be tempting to shift your focus elsewhere. However, it’s important to continue monitoring your credit score even after you have achieved your desired result.

Regularly monitoring your credit can help you identify any possible problems that may negatively affect your credit score in the future. Additionally, it can alert you if someone steals your identity, enabling you to address the issue before it escalates.