Credit Repair | How To Fix Your Credit

Everyone would like to increase their credit scores, and the best way to do that is to engage in some form of credit repair.

Credit repair has a negative connotation because it’s associated with how to fix bad credit. But on the positive side, it involves a very similar strategy if you’re looking to improve an already good score.

Let’s take the topic of how to fix your credit in the most general sense, that way you can use it anytime you need to, whether you have good or bad credit.

credit repair

How Does Credit Repair Work?

The broadest meaning of credit repair is to improve your credit score. That can be accomplished either by improving negative credit information or by adding new and good credit entries to the mix.

In fact, it’s often easier to do when you start with bad credit, and you’re looking to make improvements. Because you’re starting with a low credit score base, increases come more quickly and easily. But when your credit score begins to move into the good or excellent range, improvements are harder to come by.

How do you know if you need credit repair? 

Naturally, the only way you’ll know if you need credit repair is if you regularly monitor your credit report and your credit scores. You can do both, but you’ll generally need more than one source to get the job done.

Start Monitoring Your Credit Score for Free

It’s best to start by monitoring your credit scores, and that can usually be done free of charge.

The best way is through your bank or credit union, or even credit card companies you work with. Most now offer monthly updated credit scores as a customer benefit. And best of all, the credit scores you’ll get from financial institutions are usually your official FICO scores. That’s the score used by lenders and the one that’s the most accurate.

If you don’t work with any financial institutions that provide your FICO scores, there are popular free credit score services. Two of the most prominent are Credit Karma and Credit Sesame. You’ll not only get regularly updated credit scores, but you’ll also get the detailed information that makes up the scores.

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The downside with the free credit score services is that they don’t use your actual FICO scores. Instead, they use VantageScores, which are informational only, and not used by lenders. However, since they parallel FICO scores and are compiled from your credit reports, significant changes in your scores can indicate major credit events, including credit errors.

Get Your Free Credit Report

Under federal law, you’re entitled to one free copy of your credit report each year from each of the three credit bureaus. You can obtain the information from each credit bureau individually by contacting them directly.

Contact information for all three is as follows:

You can also get one free copy of all three credit reports from the website AnnualCreditReport.com. It’s the only official source of all three credit reports from a single service provider.

There are a few points to be aware of where getting your credit report is concerned:

  • Your credit report will not include your credit score.
  • Even if you could get credit scores, there would be a different score for each of the three credit bureaus.
  • If you have bad credit, you may need access to your credit report more frequently than once a year.

If you do need regular access to your credit report, you can subscribe to all three of the major credit bureaus. There will be a fee in each case. But it will allow you to monitor the series of changes in your credit reports that will be necessary if you need to repair bad credit.

If you have to go that route, the best strategy will be to subscribe to your credit report from all three bureaus. Since the information reported on each credit report is at least somewhat different from the others, the only way to know for sure bad credit references or errors are being eliminated is by regularly reviewing all three credit reports. Credit information may be repaired on one credit report and not on the other two.

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Do-it-Yourself (DIY) Credit Repair

Once you get copies of your official credit reports from all three credit bureaus, and you’ve initiated some sort of credit score monitoring service, you’ll have built the foundation to begin the credit repair process.

Start by reviewing all three credit reports. Pay particular attention to any derogatory information that’s been reported, as well as the amount of money you owe.

If you have fair or poor credit, you probably have significant derogatory information. That includes late payments, negative information reported in error, past-due balances, excessive debt levels, or even a significant public record, like a bankruptcy or a tax lien. You’ll need to target each of these entries for correction, or at least minimization.

If you have good or excellent credit, and you’re looking to increase your credit score, you’ll need to look at both the amount of money you owe on your obligations, as well as the number of credit lines with outstanding balances.

If you’re going to go the DIY credit repair route, your approach will need to be different if you have fair or poor credit, compared to good or excellent credit.

How to Fix Bad Credit

Once again, if you have fair or poor credit, there are almost undoubtedly negative credit entries pulling your score down. Carefully analyze your credit reports and highlight any such entries. The biggest “bang for the buck” with credit repair will come from fixing as many of those entries as possible.

One crucial point to be aware of from the beginning is that legitimate negative credit information cannot be deleted. If the credit card company has reported you 3X30 days late in the past year, and you were late on each occasion, it’s not something you can fix.

But here are some entries you can and should try to repair:

If one or more late payments are inaccurate or reported in error, you’ll need to contact the creditor or the credit bureaus and dispute the information. Similarly, if collections or charge-offs are reported on accounts that have been paid, you’ll need to supply evidence of the payoff.
If your credit report shows legitimate collections or charge-offs, you should pay those off as quickly as possible. The information will remain on your credit report for up to seven years, but a paid charge-off or collection is always better than an open one. You should see some improvement in your score just by paying it off.
Your credit score is likely low because you owe too much on your loans and credit lines. If that’s the case, work out a plan to gradually reduce those balances. As the balances fall, your credit score will rise.

You’ll need to dispute errors in writing, supported by documentation. You can either do this by contacting the creditor directly or by going through the credit bureau. But either process will take at least 30 days, and frequently much longer.

How to Improve on Good or Excellent Credit

To anyone who has fair or poor credit, this may seem like an unnecessary effort. But interest rates you’ll pay on both new and existing credit are affected by your credit score. Raising it by 30, 40, or 50 points can lower your monthly payments.

If you have good or excellent credit, the main strategy will likely be to either lower the amount you owe on each of your accounts or pay off a few loans.

Improve Your Credit Utilization Ratio

Paying down loan balances will improve your credit utilization ratio. This ratio is calculated by dividing the amount of money you owe on credit cards by the total amount of your credit limits.

The credit scoring models favor a credit utilization ratio of less than 30%. If yours is higher than this, paying down your credit cards is one of the best ways to improve your credit score. For example, if your total credit limits are $20,000 and you owe $12,000, your credit utilization ratio 60%. Dropping down below 30% will make a noticeable improvement in your credit score.

The same is true with installment loans. If you took out a $30,000 car loan recently, and you still owe $28,500 on it, it will have a negative impact on your credit score. The credit scoring models consider a high balance on installment loans to be an indication of a recent obligation. The lack of payment history is viewed as a risk factor. By paying down your installment loans, you should see improvement in your credit scores.

Pay Off Small Balances

If you have small loan balances, pay those off as quickly as possible. The credit scoring models prefer when you have five credit accounts with open balances rather than eight. Your score should rise with each one you pay off.

Credit Repair Made Easier with Credit Repair Software

Even though I just described the general parameters of DIY credit repair, it’s not an approach I recommend lightly.

Yes, it is possible for anyone to improve their credit. Just paying your bills on time every month and gradually paying down your loan amounts will help move you in that direction. But if you have serious credit problems, or difficult credit errors, fixing them on your own can be a complicated process.

It may be possible to make credit repair easier with credit repair software. There are specific programs available that will provide you with a general credit repair strategy, and even provide templates for dispute letters and other important documents. That’s valuable in and of itself since it will prevent you from having to “reinvent the wheel.”

Believe it or not, learning how to fix your credit is a fairly standard process. Sometimes all you need is a general strategy and the right documents.

But with that said, it’s important to understand that while credit repair software will help you through the process, they won’t get the job done for you. You can use the strategies and tools provided, but it will be up to you to take any necessary action. If you don’t feel you can, then credit repair software won’t help much.

Credit Repair Services

This is an industry group that has a questionable reputation. While there are some solid service providers, there’s more than a few that will take your money and do very little.

But if you feel that you’re not capable of DIY credit repair, this is an option you’ll need to seriously consider. Not everybody has a sufficient understanding of the credit system to get the job done. And perhaps more importantly, not everyone has the personality for it.

Dealing with creditors is never a pleasant experience. Not only do they not make it easy for you to get the job done, but the people you’re dealing with on the other end are a lot more experienced at playing the game. This puts you at a built-in disadvantage from the very beginning.

If you feel you’re unable to be tough (or even firm) in dealing with your creditors, you may need to bring in professional help. Credit repair services can provide that help. Much like the creditors, they employ people who work in the field and know the ropes. It always helps to have a third-party working on your behalf versus going up against an organization by yourself.

You’ll need to be very selective in choosing the right credit repair service. A good one will enable you to fix your credit in less time than you can on your own. But a bad one has the potential to make your credit situation even worse.

Beware of False Advertisements for Credit Repair

Whatever you do, avoid any credit repair services that promise to make your bad credit go away, raise your credit score by 100 points in 30 days, or any claims remotely close. That may sound like exactly what you’re looking for, but they’re all bogus.

What they do is dispute your negative credit with the credit bureaus, which temporarily removes those entries from your credit report. That may cause your score to rise dramatically, but it will fall again at the end of the dispute period because the disputes were never valid in the first place.

For really tough credit situations, your best choice may be a credit repair service that’s a law firm. Since lawyers have a firm command of credit law, they can often intimidate uncooperative creditors into being more agreeable.

Repairing Your Credit Possible

As you can see, the whole process of how to repair credit is a series of steps.

You might want to start using the DIY credit repair approach, taking advantage of good credit repair software. But if that starts to break down, or you feel that you’d rather not take on the task yourself, choose one of the reputable credit repair services.

Grant Sabatier

Creator of Millennial Money and Author of Financial Freedom (Penguin Random House). Dubbed "The Millennial Millionaire" by CNBC, Grant went from $2.26 to over $1 million in 5 years, reaching financial independence at age 30. Grant has been featured in The New York Times, Wall Street Journal, BBC, NPR, Money Magazine and many others. He uses Personal Capital to manage his money in 10 minutes a month.

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