What is credit repair?
Having bad credit is not the end of the road. Having bad credit is usually as a result of having defaulted or made late payments on your debt. This information usually refle poorly in your credit report giving you a low credit score and making it hard for lenders to trust you and consider you for credit approval. Credit repair involves any method used to fix your bad credit resulting from various reasons in order to improve your ability to borrow money. This term is also used to refer to the process of disputing errors and misinformation in your credit reports. It is vital to maintain good credit scores and know how to repair credit to make sure you stay appealing to credit companies. Having bad credit could be very restrictive as lenders steer clear of you once they get a hold of your credit report.
How to repair credit by yourself. What are the main ways?
Fixing bad credit may not be easy. Before star your credit repair process you may hear about credit repair services. They usually have appealing promises and you may consider using a credit repair company. However, their charges may be considerable. Negative but accurate information could take up to 7 years to remove from your credit report. But that doesn’t spell the end as you could consider DIY credit repair and start working towards a better credit history and raise your credit score. The process to fixing your credit by yourself will require patience but is absolutely worth the time and effort you put in. For a DIY credit repair you have to be ready to spend time reading through your credit reports in search of inaccuracies, contacting credit bureaus to report and make sure they are investigating your case. The first step in a DIY credit repair would be to obtain a copy of your credit report read through it and understand it. This will help you know where things started going awry in your report.
If you need help reading your report, you could consult online material or an expert. Reading through your report will also help you pinpoint inaccuracies and discrepancies enabling you to file a dispute. It is advisable to look for and be clear about basic inaccuracies and potentially fraudulent activity. Once you understand your report, the next step is to make sure all your accounts are current and you start making all your payments on time. This is geared towards improving your payment history that directly impacts your credit score. The larger the debts and the more the late or missed payments you have the more negativity is reflected onto your credit score.
It is important to note that credit scores also take into account how recent your debt was. It is also advisable that you know your credit utilization rate and how to reduce it. Credit companies usually look at your credit utilization rate to determine your credit worthiness. This credit utilization rate is usually given by a balance to limit ratio, put simply, how much you owe in comparison to your available credit. It is calculated by taking the sum of all revolving debt and dividing it by the total credit you have available. You can reduce your balance to limit ratio by paying off your account balances to reduce your debt and raising your credit limit or opening a new account to increase your total available credit. This option is however risky, especially if increasing your credit limit will lead you to taking more credit pushing you deeper into debt. Reduce the number of credit accounts you have by paying off some of them. However, once you have zeroed the debt on that account it is advisable to keep it open. Paid-off accounts that are kept open are counted as aged accounts in good standing. Also opening new accounts in a short span of time may seem risky to lenders and lower your credit score.
How long does it usually take to repair your credit?
Before starting this journey many want to know how long does it take to repair credit and how to make it fast. There is no standard time taken to fix bad credit. Time taken depends on the gravity of the mistakes and inaccuracies in your report and what credit score you aim to achieve at the end of the process. It may also depend on your goals once you have fixed your bad credit, whether to buy a house or a car.
Downloading and reading through your credit reports could take you up to 3 hours, especially if it is your first time. Writing dispute letters and assembling necessary documentation may take you between a few hours to days depending on the number of inaccuracies and availability of documentation. For DIY credit repairs you get to determine how long this takes as you are working for yourself.
On submission of your disputes to the credit bureau, they contact your creditors within 30 days and give you a response. Cred repair may generally take between 3 to 6 months as there is a constant back and forth among the involved parties. In order to expedite the process you are advised to start rebuilding your credit while you repair it. Rebuilding good credit in this case means adopting practices that will reflect positively in your credit report. This includes making all your accounts current, making payments on time and avoiding taking more credit as this will increase your credit utilization rate. Doing this is will speed up the process and make it easier to achieve good credit scores in a short time. This method however still requires patience.
What are credit repair services?
Depending on the degree of the problem credit repair may require the help of a legitimate legal and financial expert. A small problem may only require simple clearing up of inaccuracies while drastic problem may require professional intervention. If you are overwhelmed it is advisable to contact a credit counseling service. They may help you come up with a debt management plan and nego a reduction on your monthly payments. Over time, numerous firms have arisen claiming to provide credit repair companies. Each credit repair service has its own cost of service. Most credit repair services come with a starter fee and a monthly fee. Depending on the company, the initial fees may fall between $10 and $100. Monthly fees may fall between $30 and $100 and in some cases may be even higher. Before settling for a credit repair service it is important to look into how legitimate their services are y looking for testimonials. An advisory by the free trade commission advised that from a legal point of view credit repair services can’t do much more than an individual could do for themselves.
What is the Credit Repair Organization Act?
The Credit Repair Organization Act falls under another set of laws in the Consumer Credit Protection Act. The CROA was passed into law in 1996 with a strict requirement that credit repair companies should have truthful advertising and communicate honestly with their consumers. This was aimed at protecting consumers from predatory companies that were charging people money with false promises of getting negative data from their credit reports or pledge to dramatically increase low credit scores.
Credit scores can be improved for free by disputing inaccurate and negative information on people’s credit reports by contacting the credit bureau yourself. Consumers are free to choose credit repair organizations to carry the burden of credit repair for them but it is necessary to point out that this is something they can do on their own. When it comes to a bad credit reports there are no shortcuts or secrets to quick fixes. The Credit Repair Organization Act comes in to protect consumers by making it illegal for credit repair companies to their clients that they can offer their clients a new fresh start with a new credit profile. It also makes sure that before taking on a client, the credit repair company informs the client that they can repair their bad credit on their own. The CROA also aims to protect clients from extortion by restricting these companies from demanding for large payments from their clients before providing the said services.
Having a bad credit score is not the end. With the right information, tools and commitment a bad credit score can be turned around. Credit repair is possible, hence the need to know how to go about it. Credit repair services may seem appealing but it is highly recommended that one tries to work on their credit reports themselves. This gives you a sense of self responsibility that will motivate you to see through the whole pro and will also teach you good credit practices. The process of repairing bad credit is time consuming but can be sped up by rebuilding your credit as you repair it. Commit to the process and once you are done, you will enjoy the benefits of having good credit.