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How Does Credit Repair Work?

How Does Credit Repair Work

Bad credit spells tough life, period. And that is probably why you want to know how to regain a good credit standing. Whether you are already in bad credit, or you see yourself heading there, or even if you have no credit history at all, the information I’m just about to share will give you much insight on how credit repair works.

Before delving into the core of the matter, allow me to first show you how life gets tough with bad credit.

Negative effects of bad credit

Bad credit has far reaching consequences. It is just too bad that people find themselves in bad credit. If it were avoidable, well and good, nobody would be in such a mess. But life at times gets to a point you have to default a loan. Life pushes you to the corner and you have to skip that mortgage payment, not just for a month, but for 2 or even 10.

So you finally end up with this unimaginable credit score. You ask, what are the consequences of a bad credit score?

Let us look at the 5 most alarming ones.

1.   You will find it very difficult to start your own business

Setting up your own business requires some form of credit, unless you are overly financially endowed. Access to credit facilities also helps when you run into cash flow difficulties in the course of running the business. Bad credit denies you the much needed access to such credit facilities

2.  Limited access to utilities

The firms that deal with provision of utilities such as cable internet, electricity and phone network normally check your credit standing when you declare an intent to sign up for their services. Bad credit will force them to require you to pay huge deposits.

3.  High interest rates on credits

The financial society has already lost some trust in you. If financiers and suppliers decide to give you any credit, they will do so at higher interest rates than they offer to others. Sounds discriminatory, but that is the truth of the matter.

4.  Difficulties in securing rental houses

What Landlord would rent his apartment to you if he knows for sure you are a defaulter? Your guess is true – few. The real estate sector involves humongous investments and no home owner is ready to lose even a cent.

5.  No employment

Many employers will shy away from bringing on board a marked defaulter. They argue that your bad credit standing may negatively affect your job performance.  

This said, the aim of every individual in such a financial state should be to get out of the predicament and return to normal life. You may employ a variety of strategies. These include:

  1. Seeking the services of a credit repair company
  2. Do-It yourself credit repair
  3. Changing your spending habits
  4. Long Term strategy

Let me elaborate these strategies one by one:

Seeking services of a credit repair company

When in bad credit, you can contact credit repair companies to help you gey out of the mess. With a good search, you can find reputable companies that have mastered the art of improving people’s credit scores. How is this possible?

They do this in 3 simple steps:

  1. They first request for your credit report from the relevant credit bureaus, including Equifax, Experian and TransUnion
  2. They then identify negative items on your credit report which they can request to be removed. Your credit standing improves when these items are kicked out of the report
  3. The credit repair companies finally employ a number of strategies to see to it that the negative items on the report are removed. If negotiations fail, they move on to file a dispute against the creditors on the negative items in the report

Such companies have helped many individuals get out of their debts. The advice they give is also worth the try. Of course they require some monthly payment for you to enjoy their services. As an individual, you may not have the know how or the confidence to dispute certain items. Time may also be a constraint on your side. Think of moving from office to office to get all these issues dealt with. 

So go ahead and hire their services if you are such kind of a person. I am saying so because in the next strategy, I will disclose how you can personally do what these credit repair companies do.

When hiring the credit repair companies, make sure to closely examine the list of services they claim to offer. You will come across terms such as:

  • Bureau challenges
  • Creditor interventions
  • TransUnion alerts
  • InquiryAssist
  • Report watch
  • Cease & Desist Letters
  • Score Analysis
  • Credit rebuilding
  • Score assistance
  • Personal dispute managers
  • Personal finance and budgeting tools
  • Etc.

We will not get into the finer details of these services. We now move to the do-it-yourself strategy:

Do-it-yourself credit repair

The good news with bad credit is that you can handle it all on your own. Just depends on how handy and aggressive you are.

To do this, follow the 2 steps outlined below.

1.  Obtain your credit reports

This is the first thing you ought to do in your journey to recovery bad credit. You will need the full credit reports from the three credit bureaus – TransUnion, Experian and Equifax.

The AnnualCreditReport website offers the reports for free, but just once a year.

If you so wish, you may call the Telephone line 1-877-322-8228 to make inquiries.

There are also some apps on Google Playstore which are able to track your credit score. Such include the Credit Karma, CreditWise, myFICO, Experian, and Credit Sesame, among many others.

A credit score of 800 is very good. Anything above 700 is considered good. In case you fall below the 700 mark, your chances of qualifying for loans decreases. A score of below 600 is definitely bad. The worst score you can have is 300.

2.  Identify the errors in the credit report and dispute them

Take time to scrutinize your credit reports for errors. The reports are certainly not error proof – it humans who compile them, and human is to err.

Start with your identity information, including your name, address and social security number.

Move on to your list of credit cards and ensure that all items recorded therein are captured correctly. Highlight all errors as you come across them. Remember you need to have solid proof that the such and such entries are a mistake. This will require the support of bank statements or other utility bills.

You can now use the above evidence to file a dispute with the credit bureaus.

Change your spending habits

This is a long journey you should embark on after the negative items on your credit report are resolved. The three sure ways of improving your credit scores are:

  1. Pay all your bills on time
  2. Pay all credit card debts
  3. Keep away from credit

To achieve the above three, you need to purposefully change your spending habits. It all starts with a budget! Yes!

Get to know your monthly income after after tax deductions. You may wish to refer to this as the net pay. Now make all deductions made on your income on items such rent, mortgage, car loans, health insurance, life assurance, etc.

What do you remain with? How much can you spare for groceries? How much are you willing and able to dedicate to entertainment? What of gym membership, trips, investment?

Write out all this stuff on paper and purpose to follow it to the letter. Always resist impulse buying whenever you are out in full display of hundreds of attractive merchandise.

In addition to disciplined spending, make sure you pay all bills on time. Every bill on your table definitely has a deadline. Whether it means setting reminders or physically displaying the pending bills on notices, do all you can to meet the deadlines.

This requires some bit of planning on your end, so that you have the funds available every time you need to pay out some bill.

Another thing to look at is the credit card balances. What is your outstanding debt? How much can you pay off every month? Focus on clearing all debts, even if it is after 1 year.

In this change-of-life moment, restrain yourself from applying for new credit. I understand how tempting it is especially when the offer comes with discounts n purchases. Such may be beneficial, but in times of debt, they are a trap to drive you further into credit worthlessness.

As you work on the above, keep checking your credit score on any of the apps I suggested above. I guess you will notice the figure rising bit by bit. Be patient in this process – it is never an overnight thing.

At this juncture, let us look at the cost implications of credit repair.

How much does credit repair cost?

If you choose to go the credit repair company way, be ready to spend between and 0, or even higher, every month as service fees. Most companies offer packages in which you pay a specified monthly figure until your credit standing improves to the level you wished. 

As usual, the more costly the package, the more the services you will be offered. Always compare and contrast different packages and companies to get the best bargain for your money. It is funny how you have to spend more money to get out of debts.

And this leads us to the scam question: Are credit repair companies a scam?

No and Yes.

Of course, as in any other industry, we have the genuine ones, and the scammers. The genuine credit repair companies will diligently walk you through the steps of improving your credit. I cannot deny that scammers have infiltrated this market.

Such are the companies that will jog your mind with technical lies just so to ensure you pay the monthly fee for the longest time possible.

Others will guarantee you positive results, whereas we clearly know that credit repair is a trial and error undertaking, especially on the section of removing bad items from the credit report. Yes you venture into it but you are never sure of the outcome.

Do your homework well. Search diligently for the best company whose rates you can afford. Read tons of reviews on the shortlisted companies and have the general feeling of the customer experiences with those companies.

If you choose to go the do-it-yourself way, you have no professional fees to pay. Just remember that you may have to travel and pitch camp from office to office as you seek to sort things out.

Let us now wind up this discussion with a look at some of the misconceptions of credit repair.

Misconceptions of credit repair

1.  Only open accounts are included in a person’s credit report

This rumour has found place in many a people’s hearts. So they take to closing their credit accounts with the hope that the bad elements in that account will be stripped from the overall report.

In many cases, closing such a stubborn account ends up further hurting your crdit score. What more, the bad details will remain on your report, and it may be hard to follow up on them because you no longer have access to the account.

If you have behaved well with a given account for some good amount of time, closing it in the wake of bad credit is not sensible enough. Think of how you can improve your credit score through working on the accounts

2.  Opening many lines of credit will improve your credit score

Let us get this right. Your ability to operate multiple accounts and handle multiple bills does not translate to a higher credit score. This may in fact turn out risky and lower your credit score.

3.  Paying off loans earlier than the deadline will improve your credit standing

This is not entirely true. The credit reporting system has no reward for prepayment of loans. They just consider the payment deadline. Quite interesting!

Endeavor to have an excellent credit standing for your own good.

Credit Repair Attorney Free Consultation

When you need legal help to repair your credit, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506