Repairing bad credit is a test of patience and discipline.
Whether you’re looking for ways you can restore your own credit or companies to do it for you, there are dozens of resources on the internet that can help you restore your credit.
Restoring credit doesn’t have to be difficult if you know what you’re doing, but it isn’t necessarily easy, either.
Bringing your score back up from an unfavorable number to a ‘good’ one takes time. It’s not an overnight process. That can be frustrating if you’re looking to make a big investment soon, such as buying a new car or new home. It probably feels like every second that ticks away while you struggle to make sense of your money is another nail in the coffin of your financial freedom. If you’re like most Americans, you don’t have the slightest clue how to answer the biggest question: “How does credit repair work?”
You may be seeking out a quality credit repair service or scouring the web for answers.
Fortunately, you’ve come to the right place. We’ll help you take the right steps to restore your credit score, teach you what the credit repair companies do, and how you can choose the best of them if you need a few extra hands.
Credit repair works by addressing several concerns on your credit report to boost your credit score back into an acceptable range. The professionals at a credit repair service can help you get and analyze your credit report to determine the factors that lowered your score.
Once you know what you need to work on, restoring credit becomes a little bit easier. The most common issues for many people lies in having too many or too few credit accounts, making too many late payments, mistakenly believing that closing out all of their credit cards to avoid spending will increase their score, or not noticing inaccurate information on their credit report that causes lenders to see them in a negative light. Some of these are very simple fixes!
Credit Cleanup – How to Restore Your Credit
While it’s true some companies will have a time advantage over some others, repairing your credit score still takes time. Depending on how poor your credit score is when hiring a company also effects the timeframe which you can expect your credit score to increase.
There are reputable credit repair services out there like Lexington Law if you are interested in hiring a company. If you’re searching for resources to do it yourself, you may find yourself browsing through our humble site (thank you!) The options seem endless when you’re looking for ways to restore your credit. See Your Personal Finance Tips’ credit repair reviews today.
Step 1: Check Your Reports
The first step in credit restoration is always to retrieve your credit report from any of the three major credit bureaus. Your credit report will give you an idea of what creditors see when they review your loan or credit card application.
There are many different bureaus, but the three major agencies are Experian, TransUnion, and Equifax. According to Experian, you are entitled to receive a copy of each of the major bureau’s report once per year.
Do you request them all at once or look at a different bureau every few months?
That depends on what your goals are. We typically suggest you look at all three of your credit reports at the same time of year so you can tackle any major problems or discrepancies you may find, as each report may have slight differences. This is especially important if you are planning to acquire a mortgage or a car loan soon, as these companies typically check multiple credit reports to determine your approval.
If you’re trying to improve your credit but are not planning on any major financing soon, it’s probably best to spread the reports out over the course of the year. This will help you monitor any issues that arise throughout the year and keep you up to date on your current credit score. This is a typical practice for many people who have restored their credit in the past and simply want to keep tabs on it.
Step 2: Eliminate Errors
Once you have a copy of your credit report, it’s important to look at every detail. It’s easy to assume the information will be correct – such as your date of birth or even your name – but sometimes credit bureaus make mistakes. When you get the report in, your job is to determine any possible inaccuracies, errors, or unverifiable information. You can dispute incorrect and unverifiable information through the bureaus and creditors. The bureau is obligated to remove any incorrect information after initiating an investigation. It is important to note that the bureau cannot remove accurate information, even if it is negative.
Step 3: Pay Off Old Debts
The next order of business in your credit clean-up is to catch up your delinquent accounts. Removing negative, false credit items on your credit report is only one piece in the puzzle. Establishing a positive recent payment history is essential to raising your credit score.
On average, your payment history makes up 35% of your score. At Your Personal Finance Tips, we believe this is why so many people find credit repair companies to be shams or knockoffs because they’re only taking care of part of the problem, not the whole, so they never see the best results they can.
With how dramatically a positive payment history can affect your credit, it’s no wonder why so many companies staff financial advisors to help their customers work on handling their money correctly. In the end, the sooner you get caught up on past-due, collections, and charge-off accounts, the faster you can start re-establishing your credit score.
Once you establish a stable payment history, you may want to apply for one or two low-limit cards to expand your credit file. This will help you establish a stronger positive credit history that is active, which shows creditors that you are currently in the clear and ready to take on new debts.
If you are still unable to get approved for regular credit cards due to credit inactivity, there’s a good chance your local bank or creditor may approve you for a secured credit card. A secured credit card is a type of card where you pay a security deposit to receive credit. You may even be eligible for a retail credit card, which is often extended to individuals with small or spotty credit histories.
The most important part of taking on a new credit card is this remembering to keep the balances low and the payments up to date. If you default on any of your payments, it has the potential to impact your credit score faster, undoing hard work spent reclaiming your score.
Take Advantage of Technology
Although many companies do still mail out paper statements and those pre-stamped envelopes for paying your bills the old-fashioned way, there’s no need to use them!
The care and planning necessary to pay debts by check or money order are admirable, however, sometimes this leads to late charges from post carrier delays or even forgetting to put the envelopes in the mailbox in time. Why bother with such hassle when you can make sure that your bills are paid on time, every time?
Restore credit with minimal effort by visiting your card carrier’s website to set up automatic billing and digital billing statements. There is even typically an option to always pay a specific dollar amount above the minimum payment.
Reduce Your Utilization Ratio
Also known as your credit utilization rate, the ratio between the amount of credit card debt you have and the total credit you have available is the second most important factor reporting agencies look at when creating your credit score.
From the lender’s perspective, if you aren’t maxing out your cards, the chances are that you’re a relatively responsible spender. Thus, to effectively restore credit, it’s vital to reduce your credit utilization rate as much as possible.
According to Experian, using no more than 30% of your available credit is best for reaching credit restoration goals. Paying down your bills and using your cards less is the best way to accomplish this. However, getting an increase in your credit limit can also help – instantly!
What Do The Credit Repair Companies Do?
If you have bad credit, you know that it can haunt you in nearly every aspect of your finances. If you’re in the market for a mortgage or a new car, you will most likely find getting an approval difficult. Any eventual approval is sure to have high interest rates as well. It can even affect your ability to find a job. A lot of consumers turn to credit repair services to assist them in bettering their credit. Do these companies work? Yes, as long as they’re reputable.
So, what do these companies do to restore your credit?
The honest answer is nothing that you can’t do yourself. Most of them follow these exact steps, but they have experience with it and can avoid pitfalls without hours of research. Lexington Law, one of the top reviewed credit repair companies are able to leverage their expertise in law.
Click here to see our review of the best credit repair companies on the market today.
Most companies offer their services as a subscription, paid on a monthly basis the same way your utility bills are. Many offer extra services, such as credit monitoring and counseling. These services can certainly be helpful if you have suffered from identity theft or need extra assistance with budgeting.
Most importantly, a reputable credit repair company will always be upfront about what services they offer and open about where they are in the process of working on your behalf.
You’ll find that a lot of credit repair companies claim that their services will pay for themselves through money saved in fees and interest from a high credit score. We find this is true in many cases as late fees, unapproved loans, and poor financing options can rack up a hefty bill in a very short time.
Not sure who to work with?
Visit Your Personal Finance Tips’ reviews section, where the best credit repair companies are reviewed and put to the test. Currently, the top name is Lexington Law.