How Repairing Credit Works | Credit Cards

If you don’t have a good credit score, you may have trouble getting approved for 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 fixing your credit requires patience.

Companies may offer paid services for repairing credit, but they are frequently untrustworthy. Armed with time and the right information, you can figure out how to fix credit yourself.

“The difference is 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. “Frankly, that’s how some less reputable firms make a lot of money – kind of preying on that lack of knowledge and lack of time.”

You can work on your credit without getting a credit repair company involved. The following steps can help you get started.

“We always recommend that if someone is curious about their financial situation that they start with getting copies of their credit report,” says Barry Coleman, vice president of program management and education at the National Foundation for Credit Counseling.

Your credit report features information about your accounts, payment history and more, but it does not include a credit score – the number between 300 and 850 that lenders use to evaluate credit applications. There are several ways to check your credit score for free, including through your monthly statement from most major credit card issuers.

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

To find errors, Yates recommends printing out your report and reviewing it line by line. You can file disputes with each of the three major credit bureaus online, by mail or by phone. You’ll also want to get in touch with the source of the incorrect information – this could be your bank or your cellphone company, for example, according to the CFPB.

If consumers see late payments on their report that they don’t remember or aren’t sure are accurate, they can dispute those as well. “You can say, ‘I’m just not sure; can you prove to me that I was late?’ And so that’s worthwhile also,” Yates says.

In some cases, you may be able to get damaging information removed from your report even if it is accurate. For example, if your report notes a credit card payment that was 60 days late, you can call the credit card company and ask if it can be removed. You’ll have better chances if the account is open, and even stronger odds if it is in good standing, Yates says. “If it’s a closed account or it’s gone to collections, there’s really not a lot of incentive for the company to help you, but it still doesn’t mean it wouldn’t be worth trying.”

If you have an unpaid account in collections, you can try to negotiate with the debt collector to pay less than the total amount owed. “Once it’s cleared, whatever you negotiate, they may be willing to remove it from your credit report as well,” Yates says. “At a minimum, you don’t want it to be showing as unpaid, and if it is paid, it’s still worth it to ask them if they’d be willing to take it off, because they got their money.”

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 explaining the situation. This typically won’t help you with instant credit decisions but can be useful when someone reviews your report in detail, such as for a mortgage, Yates says.

Beyond these steps, you’ll also want to practice good credit habits, including making on-time payments and lowering your credit utilization. Make sure you know what factors make up your credit score as you work to improve it.

In many cases, your credit score will go up after mistakes on your report are resolved, according to myFICO.com.

After you correct any errors, improving your score will take time. “Unfortunately, there are no quick fixes,” Coleman says. “It does take time. But usually after six months to a year of on-time payments and keeping those balances low, they’ll start to see some improvement, and then it will continue to improve over time.”

Most negative information stays on your credit report for seven years, but more recent items have a bigger effect. “The items that are on the credit report that were reported in the last 24 months or so usually are weighed the highest, and so if (consumers) start today towards improving it, they will see the results sooner than later,” Coleman says.

With patience and persistence, you will start to see changes. “Don’t lose confidence, don’t lose hope that it’s taking a couple of extra months or that it’s not getting fixed as quickly as you had desired,” Soriano says.

If you are considering a credit repair company, you should be on the lookout for scams. Even a company that is legitimate could charge you hundreds of dollars for services you could have performed on your own.

“Oftentimes, these organizations charge for things that consumers can do themselves, and there’s nothing that really replaces just wise credit habits” such as making on-time payments, says Coleman.

Scammers know people with bad credit may feel desperate about getting it fixed. They take advantage of that desperation by offering fake services that will only end up putting you in direr straits. Here are a few signs that can help you differentiate between a legitimate credit repair service and a scam.

If you notice any of these signs, stop all communications with the company and report your experience to the attorney general’s office for your state and file a complaint with the Federal Trade Commission.

If you need outside help, consider turning to a nonprofit organization instead of a credit repair company.

“Nonprofit credit counseling organizations such as NFCC members will do a comprehensive review of a consumer’s financial situation,” Coleman says. “We’d help them look at their income, their debts, their living expenses, and then make recommendations based on what we see for improvements to their situation.”

Recommendations could include increasing income with part-time or new employment or cutting back on unnecessary expenses. Coleman also points to the CFPB and the FTC as reliable government sources for information consumers can use to improve their financial situations.

Consumers can also consider programs such as Experian Boost, Yates says. Experian Boost is a free service from the credit bureau Experian that allows payments such as cellphone and utility bills to factor into your credit score. “That would be something that someone can do if they’re looking to increase their credit score quickly – just broaden the payments that are considered when calculating their score,” Yates says.