If you've ever watched late-night television, chances are you heard or seen an ad for credit repair companies.
They claim to be able to repair your credit to improve your credit score, often making outlandish claims and it is just way too simple:
“We can remove negative items from your credit report forever!”
“Credit problems? No problem!”
“Credit really bad? We'll help you create a new identity – legally.”
Chances are if you hear any of these claims, they're likely signs of somethng that is just typically too good to be true.
Getting your credit in the basement didn't happen overnight, so bringing it back to the 700s isn't going to happen overnight.
Then what's someone to do when they need to repair their credit and increase their credit score? Understand there's no quick fix for creditworthiness. Let' dig into your rights, steps, and the best credit repair companies out there to separate from those late-night infomercials!
>> Start here to repair your credit score in 7 steps prior to ever using a company! You might be able to repair your credit score with a few adjustments to your money!
Our Fascination with Credit Score
Boy, do we love numbers, and tallies to help us feel comfortable and confident. Social media has made this a type of game for many of us. Who's collected the most likes, followers, or shares.
Our credit score is another one of those number indicators, but unlike social media, your credit score can have real-life consequences for you and your money. According to credit agency Experian here's the range of credit scores:
- 300-579 – Very Poor
- 580-669 – Fair
- 670-739 – Good
- 740-799 – Very Good
- 800-850 – Exceptional
Depending on where your score lands on this range will determine your risk level as a borrower, and whether you'll have access to Superprime, Prime and Subprime credit.
Subprime encompasses very poor and fair credit. Prime covers good and very good. And superprime is used to include the top tier of exceptional.
But what does this all mean? The higher your credit score, the better interest rates for credit cards and loans you'll have access to. Lenders use your credit score is used to check your creditworthiness, for things like renting an apartment, smartphone contracts, and insurance premiums.
This is a big deal because if you borrow money for a mortgage or car loan, having the best interest rates can save you thousands of dollars in interest payments over the life of the loan.
What is your credit score made of?
- Payment history – How reliable are you at making payments.
- Credit utilization – How much you own and how much available credit you have.
- Credit history length – How long you've had the credit.
- Credit mix – The different types, credit cards, student loans, etc.
- New credit – The older, the better.
Each of the above categories has a different factor in your overall score. If you need credit repair, you need to obtain a copy of your credit report and dig into the details.
Related: Stop Using Credit Cards, the free sub isn't worth it! 🙂
Your rights as a consumer
As a consumer, you have rights when it comes to your credit history and credit score. The Federal Trade Commission outlines these rights by law as:
- Each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report once every 12 months. All you need to do is ask for it.
- You're entitled to a free credit report if a company takes “adverse action” against you, like denying your application for credit, insurance, or employment. You have to ask for your report within 60 days of receiving notice of the action. The notice includes the name, address, and phone number of the consumer reporting company. You're also entitled to one free report a year if you're unemployed and plan to look for a job within 60 days; if you're on welfare; or if your report is inaccurate because of fraud, including identity theft.
- It doesn't cost anything to dispute mistakes or outdated items on your credit report. Both the credit reporting company and the information provider (the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information in your report.
No one can legally remove accurate and timely negative information from a credit report. These are often the claim credit repair companies make.
You have the right to ask for an investigation at no charge to you of information in your file that you dispute as inaccurate or incomplete.
Credit Repair Companies
If you're not disciplined enough to create a budget, work out a repayment plan with your creditors, or to keep track of your monthly bills, or simply don't have the time to do this work, you might consider contacting a credit repair company.
The Department of Justice (DOJ) has a list of approved credit repair companies at their web site. You can also check with your financial institute. Many banks offer credit consoling services for free for being a member.
Many credit repair companies are nonprofit and work with you to solve your financial problems. But beware that “nonprofit” status doesn't guarantee legitimate services. Some credit counseling organizations, even some that claim nonprofit status, may charge high fees or hide their fees by pressuring people to make “voluntary” contributions that only cause more debt.
So do your homework and research a company before you contact hem. Check the DOJ list, search the Better Business Bureau (BBB), ask for recommendations from a trusted source.
Two popular credit repair companies Lexington Law, and Sky Blue, don't even make the DOJ's list for approved companies. But Greenpath Inc is both on the DOJ's list and have an A+ BBB rating.
The Credit Repair Organization Act (CROA) makes it illegal for credit repair companies to lie about what they can do for you, and to charge you before they've performed their services. The CROA is enforced by the Federal Trade Commission and requires credit repair companies to explain:
- your legal rights in a written contract that also details the services they'll perform
- your three day right to cancel without any charge
- how long it will take to get results
- the total cost you will pay
- any guarantees
DIY Credit Repair Steps
Some people hire a credit repair company to investigate their credit report for them, but anything a credit repair company can do legally, you can do for yourself at little or no cost.
Step One – Review Your Credit Report
Obtain a copy of your credit report by contacting one of the big three credit reporting agencies, or another option is using Credit Karma. This free service offers credit scores, reports, and insights. The benefit of Credit Karma is that you can access it at any time.
Once you have the report, review it, and make notes on any information you believe to be inaccurate.
Step Two – Dispute Negative Marks
Once you identified and negative information that you believe to be incorrect, things like collection accounts or judgments you need to dispute this information. You can dispute errors through each credit bureau TransUnion, Equifax, and Experian.
Credit Karma also has an easy way to dispute incorrect information once you have an account set up.
Step Three – Dispute Incorrect Late-payment Information
A credit card company or mortgage lender can mark a payment late that was paid on time. Mistakes happen, so be sure to dispute the inaccuracies.
Now keep in mind, the time for them to review any of the disputes and get them corrected will vary.
Step Four – Be Polite and Patient
You can also call your creditors to ask them to update any incorrect information. Creditors can instruct credit bureaus to remove entries from your credit report at any time.
The key is to ask nicely, be persistent, and patient. Don't forget to leverage the time you been a customer with the creditor or the fact that late payment, maybe the only one in your history.
If the representative you speak to give you a “no” answer, ask for a supervisor. Asking them to remove incorrect information from your report might sound something like this:
“I've been a customer for over five years, and this is the only payment that's ever been late. Is there anything that you can do to correct this?”
Step Five – Work the System
After cleaning up negative marks and late payments, there one other thing you can do to boost your score. Credit utilization makes up 30% of your total score. Remember, credit utilization is how much you own and how much available credit you have.
So you have two ways to improve this. You can either aggressively pay down any of your balances on any open account or ask for a credit increase. So as an example, if you owe $5,000 on a card with a $10,000 limit, your debt to credit ratio is 50%. If you ask and get a limit increased to $12,500, your ratio instantly improves to 40%.
The credit line increase is probably the quickest way to boost your score, but remember, don't add additional debt.
Final Thoughts on Credit Repair Companies
Not all credit repair companies are created equal. Do your homework before signing a contract to work with a specific company. Many of the things credit repair companies offer you can do yourself with a little bit of time and patience.
- Obtain and review your credit report.
- Determine if you want to DIY or hire a credit repair company.
- Be polite, patient, and persistent when you call your creditors.
- Credit repair takes time.
- Enjoy your new score.
Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $300,000 in student loans with his wife in less than five years, Josh started Money Life Wax and has been featured on Forbes, Business Insider, Huffington Post, and many more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their newborn son, their chocolate lab named Morgan, working out, being outside, traveling, and helping others with their finances! In case you were wondering, Josh uses Personal Capital to track his net worth and his first investment account ever was an Acorns account 😎