Nobody is perfect. We all make mistakes that can impact our credit score. A missed payment or two...or three. Having a bill go to collections. Maxing out credit cards or overextending ourselves. We’ve all been there at one time or another.
Some of these mistakes you just have to live with until they no longer show up on your credit report. Others you can do something about. That’s where the idea of credit repair comes in, which is simply combing through your credit reports and fixing errors.
Here’s a look at what’s really involved with credit repair — and the five important things you should know before jumping into the process.
First, what exactly is credit repair?
You may have heard about credit repair before, sometimes in conjunction with debt management or debt consolidation. Credit repair is nothing more or less than removing inaccurate or outdated information from your credit reports. These items may be negatively influencing your credit score, and if they don’t belong on your reports, you have the right to have them removed.
“People often choose to enroll in credit repair when they’re feeling as though they need additional help or guidance in getting their credit back on track or improving their score,” says Leslie Tayne, a financial attorney and author of Life & Debt. “This may be because they’re planning to take out a large loan, such as a mortgage, or because they are simply trying to improve their overall financial health.”
You can repair your credit on your own, or you can hire a company to help you through the process. But before you decide on either path, consider the following:
Credit repair can take a long time
Credit scores don’t change overnight, and the process of identifying and disputing entries on your credit reports takes time. Start by requesting credit reports from all three credit bureaus: Experian, Equifax, and TransUnion. You can make this request and get your reports for free at AnnualCreditReport.com, which will save you some time.
If you find information on your reports that’s inaccurate or should have been removed, you’ll need to contact either the bureau or creditor to dispute the item. There will be an investigation, and if it’s determined that the information should indeed be removed, processing that will take more time. A debt validation may also need to be provided, which involves contacting a debt collector in writing and asking for proof of what you owe and your liability for that debt.
It can take even more time for your credit reports to get updated and then more again for your credit scores to be affected. The bottom line is that credit repair is not an instant fix.
Not all negative information can just go away
There can be information on your credit report that is negative but accurate or not able to be removed. Disputing accurate information will end up being a wasted effort on your part. The dispute process isn't meant to remove all negative info, just inaccurate info. So, if the negative remarks are true, you will just have to wait for them to fade from your credit report. This can take up to seven years.
Among such negative items are bankruptcies, foreclosures, and even some late payments and collections. If these resulted from your own actions, they are accurate and will likely not be removed after investigation. The good news is that the older the negative information on your credit report is, the less impact it has on your score.
Even if you do credit repair, you might not end up with a great credit score
Unfortunately, credit repair is about removing inaccurate information, not rewriting your credit history or debt settlement. If most of the negative information on your credit report is accurate, there may be little you can do to in terms of credit repair.
Even if you’re able to have some negative entries removed from your reports, you may only see a modest increase in your credit score. For each hard inquiry that is removed, you're likely to see a 5-10 point increase in your credit score. When it comes to paid collections (a past due account that was sent to collections and then paid off), having them removed can increase your score by 10-50 points on average.
Credit repair companies will do the work for you (for a fee)
There are companies that offer credit repair services. They can often do the work needed to dispute inaccuracies on your credit reports faster, but they will also charge you fees for their labor. You can expect a start-up fee of around $50 to $100 and then a monthly fee for as long as you’re using the service, according to Nathan Grant, credit industry analyst with Credit Card Insider.
“Legit credit repair companies exist to ensure that your credit reports are as accurate as possible, helping you get the best possible credit scores for your situation,” Grant says. “Because the weight of managing complex financial information can be a burden, having a professional assist you with checking the accuracy of your reports can be a helpful asset.”
He warns, though, that there are many companies claiming they can erase your debts and remove valid negative items from your credit reports — all of which is untrue. The Credit Repair Organizations Act (CROA) was created to regulate credit repair companies to help prevent consumers from being scammed, but that doesn’t mean there aren’t still scammers out there.
The Consumer Financial Protection Bureau says to look out for the following warning signs when considering a credit repair service:
- Pressures you to pay upfront
- Promises to remove negative credit information
- Asks you to dispute accurate information
- Doesn’t explain your rights under the CROA and Fair Credit Reporting Act
- Tells you not to contact the credit bureaus personally
You can do all your own credit repair (for free)
Anything that a credit repair company can do, you can do yourself. Though this process may take longer to produce results and requires much more action from you, going it on your own is also free.
Start with requesting your credit reports from all three agencies. Then review them for items that are old or inaccurate. These can include hard inquiries made without your permission, collections that have already been resolved, multiple listings for the same thing, late payments that were actually made on time, accounts you’ve closed that still show a balance, etc.
When you find something negative that you want to dispute, contact the credit bureau to file a dispute in writing. You can do this either online (each bureau has an online dispute center) or through certified mail (the Federal Trade Commission has a sample dispute letter you can use).
Credit bureaus have to investigate every dispute and contact the creditors in question to find out if the information is inaccurate. If it is, the creditor must update all three credit agencies with accurate information. You should be notified in writing about the results of your dispute.
Your credit score is always in your control
Credit repair alone will only get you so far in raising your credit score. Focusing on adopting healthy financial habits, such as making payments on time and checking your reports regularly, is a smart next step to take. This can help you avoid having to go through credit repair in the future and keep you on the path toward earning that great score you’re after.