How Credit Repair Works | Credit Cards | US News – US News & World Report Money | Vette Leader

If you don’t have good credit, you may have trouble getting loans or credit cards, or you may only qualify for high interest rates. It makes sense to want to improve your situation right away, but repairing your credit takes patience.

Companies may offer paid credit repair services, but with time and the right information, you can figure out how to repair credit yourself.

“The difference is in the time and the education,” says Stephanie Yates, director of the Regions Institute for Financial Education and chair of the Department of Accounting and Finance at the University of Alabama at Birmingham. “Honestly, some less reputable companies make that much money – by taking advantage of that lack of knowledge and time.”

Should You Hire a Credit Repair Firm?

When considering a credit repair company, be on the lookout for scams. Even a legitimate company could charge you hundreds of dollars for services you could have performed yourself.

“Often these organizations charge for things that consumers can do themselves, and there’s nothing that really replaces just smart lending habits,” such as B. Making payments on time, says Barry Coleman, vice president for program management and education at the National Foundation for Credit Counseling.

When a company takes action, such as B. Requiring payment before providing services or instructing you not to contact the credit bureaus directly, the company is selling a scam, according to the Federal Trade Commission. The Credit Repair Organization Act prohibits credit repair companies, among other things, from charging fees before providing services and making misleading claims about your creditworthiness.

Firms could also use a “jamming technique,” where credit bureaus are overloaded with disputes, Yates says. Credit bureaus typically have 30 days to investigate disputes, according to the Consumer Financial Protection Bureau. “If the credit bureau can’t verify the derogatory information, they need to remove it,” says Yates, and this can provide a window when a consumer’s credit looks better than it should. “But if the creditor just sends another file with this derogatory information, then it just goes on again.”

As a result, this strategy only provides short-term results. It’s also illegal to knowingly provide false information to credit bureaus, Yates says.

You can also use the funds you would have paid the credit repair company to pay off your debt. “That in itself will improve your credit rating by itself. It just takes a little time,” says Jorge Soriano, founder and CEO of Financial Optimist, a financial planning firm.

How to repair your credit yourself

You can work on your credit without having to involve a credit repair company. The following steps may help you get started.

Check your credit report and score

For now, you can get a free copy of any of your credit reports from the big three credit bureaus once a week at AnnualCreditReport.com. After that, you can receive each of the reports once a year.

“We always recommend that anyone curious about their financial situation starts by getting copies of their credit reports,” says Coleman.

Your credit report includes information about your accounts, payment history, and more, but not a credit score — the number between 300 and 850 that lenders use to evaluate loan applications. There are multiple possibilities Check your credit score free, including through your monthly statement from most major credit card issuers.

Dispute information about your report as needed

The Fair Credit Reporting Act gives consumers the right to challenge errors in their credit reports. Errors can include duplicate accounts, unauthorized credit requests, or accounts incorrectly listed as late.

To find errors, Yates recommends printing out your report and examining it line by line. You can file disputes with any of the three major credit reporting agencies online, by mail, or by phone. You should also get in touch with the source of the incorrect information – according to the CFPB, this could be, for example, your bank or your mobile operator.

If consumers see late payments in their report that they don’t remember or aren’t sure are correct, they can dispute them as well. “You can say, ‘I’m just not sure; can you prove to me that I was late?’ And it’s worth it,” says Yates.

Get in touch with your creditors

In some cases, you can have potentially harmful information removed from your report, even if it’s correct. For example, if your report shows a credit card payment 60 days late, you can call the credit card company and ask if the payment can be removed. You have better odds if the account is open, and even better odds if it’s in good standing, says Yates. “If it’s a closed account or it’s gone into collections, there really isn’t much incentive for the company to help you, but that still doesn’t mean it’s not worth trying.”

If you have an unpaid collections account, you can try to negotiate with the collection agency to pay less than the total amount owed. “Once it’s clear, whatever you’re negotiating, they might be willing to remove it from your credit report, too,” Yates says. “At the very least, you don’t want it to show up as unpaid, and if it’s paid, it’s still worth asking them if they’d be willing to take it because they got their money.”

Write an explanation

Consumers whose credit problems are related to a circumstance such as a medical crisis or divorce can add a brief statement to their credit report that explains the situation. This doesn’t usually help you with instant credit decisions, but can be useful if someone is reviewing your report in detail, e.g. B. for a mortgage, says Yates.

Practice good credit habits

Beyond these steps, you should also practice good credit habits, including making payments on time and reducing your credit load. Make sure you understand what factors make up your credit score as you work to improve it.

How do you get help with your loan?

If you need help balancing your finances, you can turn to a nonprofit credit counseling service.

“Nonprofit credit counseling organizations like NFCC members will conduct a comprehensive review of a consumer’s financial status,” says Coleman. “We would help them look at their income, debt and cost of living, and then based on what we see, make recommendations to improve their situation.”

Recommendations could be to increase income through part-time or new employment or to reduce unnecessary expenses. Coleman also points to the CFPB and the FTC as reliable government sources for information consumers can use to improve their financial situation.

Consumers can also consider programs like Experian Boost, Yates says. Experian Boost is a free service from the credit bureau Experian that allows payments like cell phone and utility bills to be factored into your credit score. “That would be something someone could do if they want to boost their credit score quickly — just add to the payments that go into calculating their score,” says Yates.

How long does it take to repair your credit?

In many cases, your credit score increases after bugs are fixed on your report, according to myFICO.com.

After correcting all the mistakes, it will take time to improve your score. “Unfortunately, there are no quick fixes,” says Coleman. “It takes time. But typically after six months to a year of on-time payments and lower balances, they will see some improvement, and then it will continue to improve over time.”

Most negative information stays on your credit report for seven years, but newer items have a greater impact. “The items listed on the credit report that have been reported in the last 24 months are usually given the highest weighting, so if (consumers) start improving them today, they will see the results sooner rather than later,” says Coleman.

With patience and perseverance, you will begin to see changes. “Don’t lose confidence, don’t lose hope that it will take a few extra months or that it won’t be fixed as quickly as you would like,” says Soriano.

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