Your credit can affect many aspects of your life such as being able to purchase a home or even rent an apartment. Having bad credit can make these milestones harder to achieve or set your timeline back. And even if you happen to get approved for a car or home loan, you could get stuck with a high-interest rate which makes your loan more expensive. So once you’ve progressed to fixing your credit, maintaining it moving forward is important to avoid getting into this situation again.
How Can You Fix Your Credit?
When your credit is poor, it takes time and effort to fix it. The work can be done on your own or you can turn to a reputable credit repair company. These businesses have the experience and knowledge to help repair your credit. In return for their services, you are charged a fee. They might be able to deliver results more effectively and faster because they know what to look for.
So if you would prefer that an experienced credit repair specialist work on your behalf, consider using a credit repair company. Don’t get them confused with credit counseling agencies. These organizations are typically not-for-profits that provide advice and education to those who are struggling with debt and bad credit.
Here are the three biggest aspects of what credit repair companies do, which also represent the functions you can do yourself to clean up your credit.
Find Errors Found on Your Credit Reports
Errors in your credit report are more common than you would think. These inaccuracies can wreak havoc on your credit, especially ones like having a collection account reported on your report that’s not actually yours. That’s why credit repair companies focus on finding these errors on your behalf.
Credit repair companies will receive a copy of your credit report from all three credit bureau reporting agencies: Experian, Equifax, and TransUnion. They will spot these obvious and those not-so-obvious errors. For example, certain negative accounts can only stay on your credit report for a specified period of time.
Once these errors have been identified, they must be disputed to each reporting agency the error shows upon. If you dispute these yourself, you will have to submit and sort these out separately. Credit repair companies have a dispute letter format that they will use for disputes which they have used effectively in the past.
Dispute Negative Items
The federal government protects consumers from unverified negative items that show up on their credit reports. That means it is up to the creditor to justify why they have reported a negative item. There is a 30-day window from the time that a consumer or entity working on the consumer’s behalf files a dispute for the creditor to respond.
Even if the item is legitimate, some businesses do not have the efficiency to respond in this timeframe. That’s why credit repair companies will typically dispute all the negative items on your credit reports.
Negotiate for a Lesser Negative Item
Some creditors are willing to change how an item is reporting your credit report if you’re willing to settle or pay a past-due balance. It’s tough to know which creditors may be open to this approach and what conditions might be considered.
A good credit repair company will often know these things and be able to approach a creditor with an arrangement for your case. For example, they may discuss whether the creditor is willing to remove negative late payments if the account is paid.
How Long Does Credit Take to Fix?
There is really no expected timeline of when to expect your credit to be fixed. That is because it varies by your personal credit history. However, you can use credit reporting laws to give you at least a ballpark.
The Fair Credit Reporting Act (FCRA) mandates that credit bureaus must investigate disputes within 30 days to verify their legitimacy. That timeline gets extended to 45 days if you send more information in the middle of the dispute or dispute an item after receiving your annual credit report. Every situation is different, but upon successful disputes, credit scores tend to rise in about three months.
Steps to Take to Maintain a Good Credit Score After Credit Repair
Once you or a credit repair company have submitted disputes on your behalf, there are actions you need to take to set yourself up for success. You could easily sabotage yourself if you make poor decisions and wind up back in the same situation.
There are five factors that affect your credit score: Payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%). These weights are for the calculation of your FICO(R) credit score, though other scoring models are similar. To maintain or continue improving your credit after it’s fixed, focus on the two heaviest factors.
Payment History
Making your credit and loan payments on time is one of the key indicators that lenders use to determine whether or not you are a good candidate. Keeping your accounts in good standing will help you build a solid, healthy history.
It only takes on late payment to lower your credit score. It’s possible that all your work with submitting those disputes could be in vain with just a few missed payments. A late payment will stay on your credit report for a full seven years. Luckily the negative impact does fade over time. But once there is a late payment reported, there isn’t anything you can really do but give it time to fall off your credit report.
Set up reminders for yourself if you have trouble remembering to pay your bills on time. This includes your utilities and cell phone payments too. Better yet, sign up for autopay so you’re covered even if you forget.
Amounts Owed
Known as your credit utilization ratio, this is how much debt you have relative to your credit limit. For example, let’s say you have four credit cards with a balance of $300, $2500, $850, and $3000. Your credit limit for each respective account is $1000, $5000, $1000, and $5000. Your total debt is $6,650 against your total credit limit of $12,000. That’s about a 55% credit utilization ratio on your total credit. Note, you should also look at this from the perspective of how much debt you have on each card versus the credit limit.
Ideally, you want this ratio to be as close to zero as possible. This is done by paying off your entire balance each month on your credit card. That also avoids expensive interest charges. If this is not possible, work on reducing your debt to getting it below 30% first.
