Having a low credit score can make your financial life difficult. It’s much harder to obtain loans and mortgages, and you’re not likely to be eligible for credit cards with low-interest rates and rewards.
If this sounds like you, don’t despair. There are many simple, practical steps that you can take to repair bad credit and increase your rating.
While repairing your credit yourself may seem like a lot of work, it’s worth doing — you just need to know where to start. There’s an overwhelming amount of information on how to fix low ratings and — even worse — scams that can land you in even more debt when trying to improve your score.
For that reason, we’ve created this helpful guide for fixing your credit problems. The best news? Much of it is possible without costing you anything! Here, we’ll discuss the process of DIY credit repair and the steps involved in clearing bad credit.
1. Understand Your Credit Situation
For your DIY credit repair to work, you need to know what’s gone wrong in the first place. You can request your reports from three major bureaus:
These bureaus are under a legal obligation to offer you one free report per year due to the Fair Crediting Report Act (FCRA). It’s best to request all three reports, as some creditors may not provide your information with all the bureaus. By accessing all three reports, you get the best overview of your credit history and current situation.
2. Examine Reports and Check for Inaccuracies
You should look through each of your reports in detail. This overview should show you what’s bringing down your score. From there, you can decide which items require immediate action.
It’s crucial to check for any inaccuracies in your reports, as they could be bringing your score down unfairly. You have a legal right to dispute inaccuracies, and the credit bureau must investigate your case and remove any inaccurate information. Look out for:
- Inaccurate personal information (e.g. addresses, social security number, employer details)
- Accounts you didn’t open
- Accounts sent to collections
- Outstanding balances of which you may have had no knowledge
- Whether your account balances are correct
If you spot any problems with these, dispute them immediately. This step is one of the most critical in DIY credit repair. It may boost your score if you can get the bureau to remote an inaccurate, negative item. However, the bureaus will not remove negative items if they correctly reflect your financial history. Even if deletion doesn’t boost your score, you should still make sure your report is accurate to avoid any future problems.
To dispute an entry on your report, locate the bureau that is reporting errors and send a 609 dispute letter to the relevant bureau. By law, the bureaus must address the dispute within 30 days. You may have to wait longer for the changes to reflect in your account, but the bureaus will remove any incorrect information if they cannot verify it or find it to be inaccurate.
3. Manage Existing Credit and Debts
If you have bad credit, you mustn’t add to your debts and financial issues. When you find yourself in a financial rut, it can be hard to face up to it and all too tempting to avoid your creditors.
Unfortunately, this can make your financial problems even worse. It can straddle you with long-term debt and make it more challenging to improve your credit in the future. It may be difficult, but the best thing to do is to reach out to your creditors and make them aware of your financial situation. In most cases, creditors will try to work with you and provide you with different options to help pay off any money owed.
Different types of creditors will offer various solutions. For example, credit card companies may allow you to change your payment due date or lower your interest rate temporarily. Meanwhile, mortgage lenders may make changes to the terms of your loan or alter your interest rate. They may even offer you the option to add any unmet payments to the end of your loan.
4. Understand How Negative Items Impact Your Credit Score
It’s vital to know how negative items affect your score. Delinquencies can have a lasting impact on your report.
Charge-offs, late payments, bankruptcies, and collections all cause your score to dip, and each negative item could cost you up to 100 points. Here is an outline of the periods that different types of negative marks can affect your score:
- Bankruptcy: Between seven and ten years
- Late car payment: Seven years (dated from the first missed/late payment)
- Foreclosure: Seven years
- Collections: Debt sent to collections will last seven years on your report
- Unpaid tax liens: Ten years (but could be longer if unresolved)
- Paid tax liens: Seven years
Not only does this show that bad credit history is enduring, but it also shows why it’s critical to get any inaccurate items removed from your reports.
5. Build New Credit Wisely
Let’s say you’ve begun to pay off any existing debts and spoken to your creditors and made suitable arrangements for making payments owed. Now, the next stage of DIY credit repair is to start thinking about building new credit to have a positive impact on your score.
You should only consider this option if you’ve also had any inaccurate information on your reports addressed. You also need a solid grasp on how to manage your credit in the future.
Here, we take a look at just some many ways you can sensibly build new credit. These methods are generally suitable for people who have low scores.
Credit Builder Loans
Credit builder loans are loans specifically designed for building and repairing credit. Rather than receiving the cash up front, you make equal monthly payments over the loan duration and receive the money after you’ve paid your balance in full. Most credit builder loans come with a fee, and you tend to pay interest on them. However, neither of these rates are particularly high.
Open a Credit Card
Even with a low credit score, you may still qualify for a secured credit card. These accounts don’t offer benefits and rewards, and you may have to secure it with a refundable deposit. Nevertheless, credit cards are one of the best tools for building good credit.
Always remember that applying for a new card requires a hard credit check, which will make your score dip. This impact is usually small, and using a credit card responsibly over time should outweigh the dip caused by the hard inquiry. Make sure you are in a position to make regular monthly payments on your card before taking one out.
Become an Authorized User
An authorized user is someone who has received approval to use another person’s credit card account. It can affect your score because the payment information on the account will generally appear on your report.
Let’s say you have a trusted family member or friend who has a strong credit history. You could ask them to add you as an authorized user on their account, which will mean that their positive score may boost yours.
You can become an authorized user with a card to make use of the account, or you can have your name added but not have access to the account. Do keep in mind that there may be some requirements to become an authorized user, but this doesn’t tend to involve credit checks.
6. Enlist the Help of a Credit Repair Company or Use Credit Software
If you’re feeling weighed down by the pressure of DIY credit repair, there are plenty of options for help. Depending on the complexity and severity of your situation, you may consider using a credit repair company or repair software to help you along the way. Here we take a look at each in more detail.
Credit Repair Companies
Credit repair companies will review your reports for you and handle the process of addressing negative issues with bureaus on your behalf. They aim to improve your score in exchange for a fee.
One of the main benefits of using a professional agency is that they have experience in dealing with creditors and bureaus. Often, they may be able to handle any issues more efficiently than you could alone. The downside is that they cost money, so you must be sure that you can afford it and that the benefits outweigh the costs.
There are many scammers out there (which we’ll address in the next section), so take time to research any company you are thinking of using thoroughly. The Better Business Bureau is an excellent place to check that a company is legitimate and read reviews of their services.
If you want to enlist a credit repair company, check out our list of the best credit repair companies of 2020 for more information and advice.
Credit Repair Software
If you feel that you can handle DIY credit repair but could use some time-saving tools, consider credit repair software tools. These are available at many different price points. They offer helpful features, such as step-by-step guides and templates for you to alter and use.
These programs tend to work by scanning through your reports and allowing you to select any items you want to dispute. When it has identified those entries, the software can handle the rest of the process. Depending on the program, it can do anything from tracking and managing the dispute to generating your correspondence with credit bureaus.
The extent to which you can get these processes automated depends on the quality of the software you use. Some can cost over $500, but may well be worth the investment if you’ve got a complicated history or negative report. Always check that any software you consider purchasing is legitimate and suitable for your purposes.
7. Avoid Scam Credit Repair Offers
When searching online for DIY credit repair advice, you may come across scam companies. They will claim that they can remove negative items from your history.
If this seems too good to be true, it’s because it is. If the negative items on your report are inaccurate, you can have them removed. However, it is illegal and impossible to remove valid negative items from your account.
Even if you feel desperate to repair your credit, think clearly, and avoid falling for scams. Rogue companies prey on desperate consumers, and those that offer to fix your score for a set fee tend not to be worth it.
According to the Federal Trade Commission (FTC), there are several things you can look out for to detect credit repair frauds. Red flags include:
- Asking for an upfront payment for their services
- Claims that they can get rid of adverse credit history, even if it’s accurate and up-to-date
- Advising you to avoid contacting any bureaus
Any company that promises you a ‘new credit identity’ is likely to be a scam, and you could end up spending more money and accruing more debt, rather than reducing it.
Ultimately, the best thing you can when you’ve got bad credit is to be proactive and avoid letting debt languish. By dealing with your situation, you’ll reach your goal of an improved score sooner.
It may be tempting to try to find an easy way out, but it’s never advisable to pay to have items ‘removed’ from your report. These kinds of promises are rarely legitimate, and you will be better off spending the money on paying off debt.
By using these DIY credit repair tips, you will begin to see improvements to your score. You may also consider seeking the advice of a credit counselor, who can offer you tailored and more in-depth guidance on repairing your financial situation.
While being turned down for a much-needed loan, mortgage, or card can be upsetting, always remember that you can repair your score. It may take time and hard work, but there is an end in sight!