How To Repair Credit On Your Own
how to repair credit on your own? Fortunately, the answer is yes, you can repair your credit yourself. But it might not always be smooth sailing as you go through the process of fixing your damaged credit. Let’s dive into the details of DIY credit repair and whether it’s right for you.
What Does It Mean to Repair Your Credit?
A low credit score makes it difficult to qualify for mortgages, auto loans, personal loans and credit cards. Even if you qualify, you may have to pay a higher interest rate than someone with a better score. The term “credit repair” refers to a set of steps that can be used to increase your credit score, making it easier to qualify for loans and credit cards with favorable terms.
The Credit Repair Organizations Act, part of the Consumer Credit Protection Act, gives you the right to work directly with credit bureaus to challenge inaccurate items on your report. If your score needs a boost, you can try to repair your credit yourself, or you can have a reputable credit repair company manage disputes on your behalf.
6 Steps You Can Take to Start Repairing Your Credit
If you want to work on improving your credit, start by taking these six steps.
1. Review Your Credit Reports Thoroughly
The first step in repairing your credit is to order copies of your credit reports from the big three bureaus: Equifax, Experian and TransUnion. By law, you’re entitled to receive a free copy of each report every 12 months. To request a free report, visit AnnualCreditReport.com or call (877) 322-8228. Equifax, Experian and TransUnion offer free reports only through this website. If you request a report directly from one of the bureaus, you’ll have to pay a fee.
Once you receive your reports, check to see if they contain any errors. Look for incorrect Social Security numbers, names, account numbers, payment dates, addresses and payment amounts. It’s also important to check for incorrect employer names and birth dates.
2. Identify Inaccurate Items and Dispute Them
If you notice inaccurate information on one of your credit reports, you have the right to dispute it with the credit bureaus. Although some agencies give you the option of submitting an online dispute, it’s better to mail a hard copy. Online forms generally don’t provide enough room for you to add plenty of supporting details, and you may not be able to attach supporting documentation to an online dispute form.
The Federal Trade Commission offers a template that you can follow when drafting these letters. Send each one via certified mail to create a record of when it was mailed and when it was received by the credit bureau.
3. Keep Detailed Records and Follow Up
Before mailing your dispute letters, make copies for your records. Because credit bureaus have a limited amount of time to respond to your inquiries, it’s important to keep track of mailing dates and addresses. If you don’t receive a response from one of the agencies, write a second letter to follow up on your request.
4. Pay All of Your Bills on Time
Your FICO credit score is based on five factors: payment history, the amount of debt you have, the length of your credit history, your credit mix and the number of new accounts you’ve opened recently. Payment history accounts for 35% of your score, making it extremely important to pay your bills on time.
The effect of a late payment on your score depends on several factors, including how late the payment is and whether you manage to catch up on your payments before the account is charged off. For example, a 120-days-late payment has more of an effect on your score than a 30-days-late payment. As you repair your credit, the effect of a late payment starts to subside. Eventually, it stops affecting your score—as long as you don’t have any additional late payments.
5. Work to Reduce Your Debts
The amount of debt you have accounts for 30% of your FICO credit score. If your credit cards are maxed out or you have high loan balances, your score will be lower than the score of someone who has small loan balances or paid-off credit cards. To repair your credit, work on reducing your balances as fast as possible.
If you have any money left over after paying your bills, use it to make extra payments on your credit accounts. Not only will this bring down your balances, but you’ll also reduce the amount of interest you pay by paying off more of the principal balance each month.
If necessary, consider enrolling in a debt-management program to make it easier to repay your debts. This type of program helps increase your score because creditors agree to report each account “paid as agreed” as long as you make your scheduled payments to the debt-management plan each month. If you’re interested in debt management, look for a nonprofit service provider registered with the National Foundation for Credit Counseling.
6. Use Credit Responsibly
Several habits can affect your FICO score, including running up the balances on your credit cards, taking out large loans, doing frequent balance transfers or opening many new accounts in a short period of time. These activities hurt your score because they make it riskier for financial institutions to extend you credit.
If you have a credit card, use it to make one or two small purchases each month, and then pay them off before interest starts to accrue. Avoid opening multiple credit cards in rapid succession, as doing so can make creditors worry that you’ll max them out without paying off the balances.
Professional Credit Repair: A Good Alternative to DIY
Professional credit repair is a good alternative to the DIY version, especially if you’re busy and don’t have time to examine your credit reports, write dispute letters and follow up with the credit bureaus. If you go this route, it’s important to understand that there are legitimate and illegitimate credit repair companies out there. Research your options carefully to ensure you choose a reputable service provider. Never work with a company that promises 100% positive results.
The Pros Know the Ins and Outs of the Industry
It can be tricky to repair your credit yourself if you don’t know your rights under the various consumer protection laws. Credit repair professionals understand the ins and outs of the Fair Debt Collection Practices Act, Fair Credit Reporting Act and Fair Credit Billing Act, giving them insight into the best way to improve your score within the shortest possible time frame. Their knowledge of these laws also helps them avoid some of the mistakes made by amateurs, improving your chances of having negative items removed from your credit reports.
Investing in Better Credit Can Have Long-Term Benefits
Professional credit repair is an investment in your future, as spending a little money now can help you save thousands of dollars in interest over your lifetime. Lenders use your credit score to determine how much of a risk you represent. Borrowers with the highest scores, usually above 700, qualify for the lowest interest rates. According to financial experts from the Consumer Financial Protection Bureau, consumers with low scores—in the low to mid-600s—“generally pay the highest rates and have the fewest choices.”
Investing in credit repair now can help you qualify for lower rates in the future, helping you save thousands of dollars. If you repair your credit, you may also qualify for a broader range of financial products, making it possible to purchase a home or an automobile at just the right time. You can always cancel the service once your score has improved enough to meet your needs.