It seems everywhere you turn there are companies promising to help you completely fix your credit for a "low, one-time fee." The truth is these companies don't offer anything you can't do yourself with a bit of patience and armed with the right knowledge.
If you're ready to set yourself on the path of better credit, here are some tools and tricks you can use to repair your credit on your own.
Ordering and Auditing Your Credit Reports
The first step is ordering new copies of your credit reports. Don't rely on reports you got months ago, as accounts may have changed dramatically in that time.
You are entitled to one free credit report from Equifax, Experian and TransUnion once every year at AnnualCreditReport.com. This report will not include your credit score.
Note: You can also each report separately from the credit bureaus if you've already received your free reports.
Go through your credit reports with a fine tooth comb to look for any inaccuracies and problems. A helpful tip here is printing off your reports, making copies and then highlighting mistakes -- like accounts that aren't yours or a misspelled name -- and circling red flags, including missed payments, max-out credit lines, credit lines over 30% and accounts gone to collections.
With this information, you can proceed to disputing the mistakes and doing what you can to repair the problems.
Tools to Estimate Your Credit Score
It's also helpful to estimate your credit score and see how changes can impact your credit. Here are some tools you'll find helpful to help you figure out your priorities:
- Quizzle: Estimate your credit score, view account information and get a credit report card.
- CreditSesame: Get an estimate of your credit score and learn more about areas you can improve.
You can easily dispute mistakes on your credit report without any help, although you'll need some patience here. You may choose to dispute items online or by phone, although the best way to do is is through the mail.
Dispute all mistakes separately with their own dispute letters clearly explaining the issue, and provide any proof you have.
Always write your own dispute letter and use plain English, attaching any documentation you can provide such as account statements disproving a late payment or a copy of your social security card if the bureau has incorrectly reported your social or name.
Mail dispute letters to the three bureaus and send the same information, plus documentation, to the creditor or collection agency as well because the bureau will undoubtedly turn to them to verify the information. Always send everything by certified mail and keep records of everything.
Here's a sample dispute letter, which is simple and to the point.
Sample Dispute Letter
June 19, 2013
123 Main Street
Anywhere, USA 12345
Reference Account #: 000-111-2222
To Whom It May Concern:
I would like to dispute the following item on my credit report:
A Mortgage Company
Partial account number 1234
My credit report shows a 30-day late payment in the amount of $792.29 for June 2012. However, I was not late. I am enclosing copies of my statements for May, June and July 2012 that clearly show my payment for June 2012 was not 30 days late.
Please correct this as soon as possible.
Check Statute of Limitations on Old Debts
If you have negative accounts from many years ago, check the statute of limitations before you even think about paying them.
The Fair Credit Reporting Act states that most negative items must be removed from your credit 7 years after the first date of uninterrupted delinquency, or more than 180 days past due. If an original account is turned over to collections, it must be removed 7 years after it was first reported delinquent.
Fix Past Due Accounts
Next, it's time to tackle any past due accounts on your credit report. Payment history makes up 35% of your credit score, so these past due accounts are hurting you badly. Ideally, you want past due accounts reported as "current," although "paid" is still an improvement.
Get current on any accounts that are past due now, but not charged off, which happens when your payment is 180+ days past due. This is one of the worst things for your credit! You'll need to pay the total amount past due so it's time to contact your creditor right away. Ask them to waive late penalties or spread out the past due balance over a few months if you need it.
You can also ask your creditor to re-age your account, which will show your payments as current, not delinquent, although this requires actually talking to them. The longer you put this off, the harder it becomes.
Once an account is paid off, get a settlement letter and send a copy to the credit bureau to make sure your information is updated.
Pay Charged Off Accounts
If your accounts are already charged off, you are still responsible for the balance and it can make it hard to get approved for new credit. If you choose to pay in full, your credit report will update to show a $0 balance and reflect that the account is paid, although the charge-off status will remain for 7 years from the charge-off date. You can also settle these accounts, but this settlement status will also remain for 7 years.
The best thing you can do is negotiate with your creditor to remove the charge-off status from your credit report in exchange for full payment. This is not easy, but it is possible! Make sure you get them to agree in writing, and don't believe them if they say it can't be done. Any company that reports to your credit file can delete or change the status of the account at any time.
Take Care of Collection Accounts
Collection accounts are just like charged-off accounts in that you may pay in full, get a settlement or try to get the company to remove the collection account from your credit report in exchange for payment. Collection accounts remain on your credit report for 7 years so do your best to have it removed.
Here's a tactic you can also try for collection accounts. Collection agencies tend to go out of business fairly often, and neglect accounts. Dispute collection accounts on your credit report as they are required by law to respond to the credit bureau and verify the information within 30 days. If the company has gone out of business or overlooks verifying the information, it must be removed.
Try disputing the accounts as past the statute of limitations and see what happens. If this doesn't work, dispute again stating the account has multiple inaccuracies and request a verification of all information.
How to Deal with Judgements
Have you discovered that someone has filed a judgement against you? You may be able to get it dismissed, or vacated, which basically voids the paperwork. You'll need to file a motion to vacate the judgement by appealing to the court. If you feel the outcome wasn't fair and you have good reason why it should be overturned, give this method a try.
Just like collection agencies that don't always follow the letter of the law, the same is true for people who file lawsuits against you in court. You may even win your case on a technicality, like if the person suing you won by default because you didn't respond in time or didn't appear for your court date, assuming you had good reason for not appearing.
To do this, you'll need to look up the rules in your state for civil procedure so you understand what needs to be done to file a motion and avoid having your motion thrown out. You'll need to prepare a Motion and Declaration to Vacate Judgement, as well as an Order to Show Cause.
Cornell University Law School has information that can help you here: State Statutes.
You must identify the case by court reference number, name and all persons involved, then explain your reasons for bringing your motion.
Explain why you did not appear or respond to the summons. In some states, a non-certified letter from the USPS is not enough to serve a summons, for example.
You'll also need to explain your defense to the judgement, such as stating that the collection agency did not respond to your request to validate the debt and did not prove it was yours under FDCPA.
If you win, you will receive court documentation showing your case was dismissed, and copies of this may be sent to the collection agency as well as the credit bureaus to get it removed from your credit report.
Prioritize Your Debts
The newer the bad mark on your credit, the more it impacts your credit score and the more weight potentially lenders will give it.
Create a spreadsheet of all of the negative marks on your credit report and make a note of: the credit bureau (TransUnion, Experian or Equifax), the status (charged-off, collections, past due), the date of delinquency to determine how old it is and how soon it will drop off your file and the amount past due or owed.
The newest bad marks take priority over older late payments or delinquencies and past due accounts are more important to target first than charged-off accounts.
Watch Out for Reinserted Items
Once you've succeeded in having negative information removed from your credit report, you're probably ready to breathe a big sigh of relief. But what happens if the credit bureau adds it back on? This is fairly common these days, and credit bureaus have the right to put items back onto your credit report if they investigate and determine it's true. Under the law, they must notify you in writing within 5 days, though.
If they don't, it's a violation of the Fair Credit Reporting Act (FCRA), which carries a fine of $1,000 that must be paid to you. A lot of people have had success suing credit bureaus for reinserted listings, which will get the listing permanently removed as well.
Add a Statement of Dispute
If you don't have luck resolving disputed items, add your own statement of dispute to the credit report explaining why this information is incorrect. It must be under 100 words so it should be simple, like "Never missed any payments with [Lender Name]." It will be visible to anyone who views your credit report for 2 years.
Improve Your Credit Utilization
Now it's time to bring down your high account balances to improve your credit utilization, which impacts 30% of your credit score. Higher balances hurt your credit. Ideally, you want to use no more than 10% of any credit limit, but you should at least reduce your balances to no more than 30% of your credit limit.
It's better to have balances spread out over numerous accounts rather than having one credit card close to maxed out with 3 empty cards. Spread your balances around if possible.
Obtain New Credit
Once you've cleared up the negative items on your credit report, it's time to get some positive information added. If your credit score is still low, you can reestablish your credit with a secured credit card. These cards require a security deposit that's typically refundable and equal to your credit limit.
Secured cards report to your credit file -- unlike prepaid cards!-- and some require only partial deposits. Most credit card companies will also consider your account for an upgrade to an unsecured version after 12 months of responsible use and refund your deposit.
You can see a list of our recommended credit cards for rebuilding credit in this article. The list includes unsecured cards even for people who previously filed for bankruptcy.
Get Help When You Need It
Rather than turning to debt settlement companies, which will probably make the situation worse, you can get help from the National Foundation for Credit Counseling (NFCC). They offer free tools to consumers in the United States to assess their debt and income level, understand their finances and improve credit. They have agencies around the country to counsel you and their free or low-cost services include budget counseling, bankruptcy and housing counseling, referral services and financial literacy courses.
Also, if you feel like the DIY approach is not for you, this article contains information on some recommended services that can help you work through your credit repair issues.