How to Repair Your Credit the Right Way - Step-By-Step Instructions

How to Repair Your Credit the Right Way - Step-By-Step Instructions

What Is Credit Repair?

To tell the truth, credit repair is the process by which a consumer hires a third party to act as a proxy and their attempt to get negative information removed from their credit reports.

Businesses providing these services are officially referred to as "credit repair organizations" by the Credit Repair Organizations Act (hereinafter "CROA"), the federal law that controls your advertising, billing and contractual activities.

The traditional strategy of a credit repair organization is to send dispute letters to the credit bureaus to question the validity of negative elements.

Their hope is that the credit bureau or the party that supplies data to the credit bureau (a lender or collection agency) drops the ball and does not receive the validated infringing credit entry within the 30-day period requirement, and then has to remove it. If the item is validated as required the credit repair organization simply re-controversies the issue and the process begins again.

To build your credit score, what you need to get credit, but if it's early in the game your options may be limited.

Here are four ways you can get the ball:

1. Try a Credit Builder Loan

A credit builder loan is a short-term loan that you can use to establish credit. These loans are offered by banks and credit unions and are typically for a small amount, usually no more than $1,000.

Instead of actually getting cash on hand, it is parked in an interest-bearing account. Once you pay the loan off, you will get the money back along with the interest earned. Not only that, but you've also built up a positive repayment history in the process.

2. Get a Secured Credit Card

A secured credit card is a cornerstone for building credit. With this type of card, you have to put a cash deposit to get a card.

You can use a secured credit card to build, but you are not free of problems. These cards usually charge higher interest rates and rates compared to a traditional credit card you should be sure to review the rates and costs carefully before settling on one.

3. Ask to Be an Authorized User

An authorized user is someone who has privileges to charge another person's credit card, such as a parent's or spouse's account. You have your own card with your name on it and you can reap some positive credit benefits even if you are not going to use it.

The reason? The original account history of the cardholder will get transplanted into your credit report. If you have always paid on time and keep the balance low, it will help you raise your score.

4. Open a Store Credit Card

If you've gone shopping at a major retailer you've probably received a credit card offer from the store at some point. These are cards that are branded for stores like Macy's or Target.

These cards have some drawbacks, as they tend to have higher APRs and lower credit limits, but they are perfect for beginners who are trying to build credit. It's usually easier to get approval for a store card, even if you have a low credit score.

The fact that you have limited load power is also an advantage, as it prevents you from getting on top of your head with debt. Just remember to pay off your card in full each month, so you don't get dug on interest.

What to Do After Your Establish Good Credit?

Once you got your credit established, you just can't set it up and forget about it. If you're ready to increase your score by 100 points or more, here's what you need to do next.

1. Clean up Your Credit Card Balances

The fastest way to send your score shooting is to pay off your credit card debt. Carrying too much debt drags down your credit usage, which means how much of your total line of credit you're using.

The bottom of your balances, the better where your score is concerned.

2. Apply for More Credit

Aside from paying off your credit, you can also improve your credit usage by asking for a limit increase. This is complicated, however, since your credit card company will want to pull your credit report before it is approved.

Every time a lender checks your credit it hits a point or two on your score, so you want to avoid a new inquiry if you can.

3. Keep Your Accounts Open

Once you pay your cards and you could think of closing for good, but that could be a mistake. The older your account history, the better your score should be so you may want to consider keeping old accounts open and active.

Use your card every time in a while and then pay to keep the account active.

4. Slowing Down on New Credit Applications

Every time you apply for a new card, a new investigation hits your credit report and your score drops by a few points.

To keep your credit score from slipping too far, scale back on how often you open new accounts.

Carrying Overdue Accounts

Your current payment history is the only and most important one affecting your credit score. If you have a bad credit history because you missed payments or paid late on one or more of your accounts, the only way to repair the damage is to be consistent in moving forward and making your payments on time.

If you have outstanding bills, call all of your creditors and see if you can work out a payment plan. The faster you can get trapped things the easier it is to move on to the next stage.

2. Put Your Accounts on Autopilot

Once you're current on your accounts, you don't want to fall behind again. Setting up automatic payments through your bank is one way to keep track of your due dates. You can also link your accounts to a free budgeting app such as mint to receive notices when your accounts are rising.

Working toward credit rebuilding isn't once and doing something. You have to practice good financial habits on a regular basis. Wherever you are on the credit scale, your plan to work consistently and be financially responsible is key to moving up.

3. Fix and Dispute Errors in Your Credit Reports

If you are going to buy a new car loan, mortgage or credit card, having an error in your credit report can be costly. According to the FTC, one in four consumers have errors in their credit reports and those errors that could affect their credit score. And if you're looking to apply for credit, even a single point can be the difference between giving a "good" or the threshold being labeled "fair" or worse. However, experts say that a majority of consumers are unaware of errors in the credit report until it's too late.

In fact, the FTC study indicates that approximately one in 20 consumers had errors that resulted in the loss of more than 25 points from their credit score.

To increase your score and qualify for a loan or land an attractive interest rate, many consumers turn to credit repair companies to repair their credit. The problem is that they usually pay too much and get too little.

"You don't need to pay someone hundreds or thousands of dollars to repair your credit, you just need a plan to repair it yourself," says Todd Huettner, a mortgage broker in Denver, CO., "I still haven't found a customer who paid for credit repair and felt they got what they paid for. Some even ended up with other problems to solve as a result.

The popularly priced credit repair companies repair scores for every derogatory contender in your credit report, and essentially to bombard the credit bureaus with disputed letters. If the company that puts the derogatory element on your credit does not reply within 30 days to the deadlines established under the law, and provide proof that the negative element is, in fact, accurate, they have to extract the derogatory data.

Huettner says there are several problems with this approach.

"This is a shotgun approach that is often unsuccessful, you have to remove all disputed accounts on your credit report to get a mortgage loan because you can't have any of the disputed accounts and get approval for a loan," he says.

Despite what many credit repair companies promise, credit bureaus do not remove accurate negative information from your credit reports. If the negative information is correct, it will remain on your credit reports until it expires - usually after seven years. And if you're disputing every negative item on your credit reports, even those that are accurate, the credit bureau can mark your controversies as "frivolous" and ignore future controversies from you.

The bottom line? You don't have to pay a company to repair credit for you. In fact, if you want free credit repair, you can repair it yourself! It takes time and know how.

Gregory Weiss
Gregory Weiss July 25, 2020