What is Credit Repair

What Is Credit Repair And Why Do You Need It?

You found your dream apartment in the perfect neighborhood and the price is right. You pay the $50 application fee but to your surprise and disappointment, the landlord denies your application after pulling your credit score. Not only are you out $50 for the fee, but you’ve added an inquiry to your credit report. 

Good credit is something that we forget about until we really need it. When we do, having bad credit can be costly and prevent us from doing basic things like renting an apartment, buying a car or getting a credit card. 

It doesn’t have to be this way. You can repair your credit and start to see improvements to your score within 30 days. 

What is Credit Repair

Credit repair is anything that you do that has a positive impact on your credit score. You can do things on your own to repair your credit or hire credit repair services to assist you. 

To understand what financial decisions help and hurt your credit score, you’ll want to first understand how credit works. 

How Credit Reports Work

Credit reports are a detailed record of all of your financial activities. These activities are monitored and reported by credit bureaus including TransUnion, Equifax and Experian. 

Each bureau generates its own report and score. Though the bureau reports will be similar they don’t share information with each other, so the data on each report may vary. This means your credit score will be different from each agency, though they will likely fall within the same ranges.

Lenders will look at the information in your report and the score as a simplified representation of your creditworthiness. Depending on the score model used your score can range from approximately 300 to 850.

Types of Credit Scores

In addition to the scores reported by Equifax, Experian or TransUnion — other scoring models like FICO and VantageScore, issue a score based on information gathered from all three bureaus. 

The Fair Isaac Corporation, which is known as FICO, looks at 5 key pieces of information from  your credit history. Each piece of information influences your score in a different way and carries a different weight. 

Anatomy of a Credit Report

Why You Need Good Credit

Lenders rely on your credit history and score to determine if lending you money is low or high risk. If you have marks on your report that indicate a failure to pay or instability in your finances, they will consider you higher risk and charge you more for your credit or loan. 

1. Bad Credit Costs You More Money

Generally, the lower your score the higher your interest rates will be. These interest rates mean that your credit will cost you more money over time. 

Some lenders mitigate their risk by requiring bad credit consumers to secure their credit with collateral. You may be asked to use assets like a car or property in order to secure a loan.This can be a viable option but only if you know you will be able to pay back the money on time. You don’t want to risk losing your property over a loan you could not afford. 

2. You May Need Good Credit to Rent Housing

Good credit is used for more than just getting a loan or credit card. If you intend to rent an apartment, landlords will want to see your credit history to make sure that you aren’t extending yourself beyond your means, or have a recurrent history of delinquent payments. 

Every landlord is different, and some will refuse to rent to consumers who have scores below a certain threshold. Other landlords may be more forgiving of lower scores if your report does not show a history of unpaid utility bills, rent or evictions. 

If you have bad credit a landlord may require you to find a cosigner for your lease. A cosigner should be an individual with reliable income and acceptable credit who is willing to share financial liability for the apartment in the event that you do not pay your rent. 

3. Prospective Employers May Review Your Credit History

Some employers check the credit history of their applicants before offering them jobs. For some employers reviewing your credit history goes hand in hand with your background check. They may want to corroborate your identity and other things you have listed on your application. 

For some employers, the presence of delinquent accounts, financial litigation or bankruptcies may indicate that you have a problem with responsibility. If you are applying for a job that requires you to handle money or be responsible for company assets, the employer may not feel safe giving you access to company finances. 

Keep in mind that an employer is not allowed to check your credit without your written permission.

Reasons You May Need Credit Repair

There are many different financial activities or circumstances that can cause your credit to decline. The  reasons why you may need credit repair will be unique to you, and may influence how you approach the credit repair process.

If your credit has been damaged through identity theft, bankruptcy, eviction,  unpaid credit card or loan debt credit repair can help you get on the right path to an improved credit score. 

Sometimes, the steps you take to resolve or settle your debts can damage your credit. 

Repair Your Credit After Debt Consolidation or Settlement

Using a debt relief company, reaching a debt settlement or taking out a debt consolidation loan may have a temporarily negative effect on your credit score. It’s important to remember that these effects can be repaired and are a part of your debt relief journey. 

Debt relief, settlement and consolidation can impact your credit score for several reasons. You might decide to work with a debt relief company to negotiate debt after several months on non-payment. You may also elect to spend several months saving the money you would have put toward a monthly payment and use it to make a larger lump sum payment toward the settlement. 

Anytime you stop making payments on your debt, it will affect your score. 

Resolving your debt with a debt consolidation loan can also affect your score. The new loan will require a hard inquiry and will change your credit mix. If you close older accounts and transfer that debt to a consolidation loan then the age of your credit will decrease which could impact your score. 

Credit Repair Services

In The United States, credit repair is a 2.8 billion dollar industry that promises to repair consumer credit scores for a fee. When it comes to credit repair, if it sounds too good to be true, it probably is. 

Credit repair services only help repair your score by helping you dispute items on your credit report that are fraudulent or inaccurate. The ability to file credit report disputes is provided to help you ensure your credit report isn’t full of false data that can be used against you in lending decisions.

But if the data on your credit report is accurate, then there isn’t much a credit repair service can do for you. 

Some consumers prefer to pay for a credit repair service to manage these disputes on their behalf. If the convenience is worth the price you will pay, a credit repair service can be helpful.

It is possible for you to dispute charges on your report by yourself for a similar result and no fee.

Credit Repair Organizations Act

The Credit Repair Organizations Act is a federal law passed in 1996 that requires companies offering credit repair services to advertise and communicate honestly with consumers.

This Act, Title IV of the Consumer Credit Protection Act, prohibits untrue or misleading representations and requires certain affirmative disclosures in the offering or sale of “credit repair” services. The Act bars these companies from charging advance payment and requires that all contracts be in writing. Further credit repairs companies are required to allow consumers to cancel their services in writing.

Repair Your Credit Score on Your Own

Lenders typically report changes to your credit on a monthly basis, which means you can see the positive or negative results of your financial activities in as little as 30 days. 

The best thing you can do on your own to repair your credit in the short term, is to pay down your debt. Lowering your credit utilization and debt to income ratio can have a positive impact on your score as soon as your new balances are reported to the credit bureaus, usually within 30 days. 

Making payments on time can also have a positive effect, though you’ll need 6 months to a year of on time payments to see an impact on your score. If you are having trouble keeping up with your payments and have multiple accounts that are behind, you may want to consider debt relief measures like debt consolidation, settlement or a debt relief program. 

Once you have a plan of action to resolve your debt you can focus on good habits that will help you repair your credit.

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