Credit Repair

Credit repair has become big business in recent years and it’s no surprise with credit scores being used more often and for varying purposes. For example – I bet you didn’t know that some employers look at your credit history when going through job applications. Landlords are also starting to use credit scores to determine who should and shouldn’t be accepted as tenants. Your credit score is also used to determine the interest rates you receive for loans, sometimes it can be a difference of up to 5%.

Index

Breakdown Of Credit Scores
Preventative Credit Repair Techniques
Reactive Credit Repair Techniques
Credit Repair Companies
Credit Repair Software
Credit Repair Letters

Before we move onto ways in which you can repair your credit it’s important that you have a full understanding of how your credit score is calculated, we will only be looking at the FICO score as it’s the most commonly used score (it has market share of 90%+).

Breakdown Of Credit Score

Payment history 35% - on time payments, late payments, delinquinent payments
Credit utilization ratio 30% - amount of credit used divided by total amount of credit, only revolving credit is counted
Credit length 15% - the amount of time you’ve held your longest open credit account
Recent searches for credit 10% - the amount of hard inquiries you’ve made recently for credit – checking your score does not count
Other factors 10% - mostly the variation in the types of credit you’ve used, for example installment or revolving credit.

How To Do Do It Yourself Credit Repair

Repairing your credit falls into two main categories or tactics, these are; preventative measures & reactive measures.

Preventative Credit Repair Techniques

Whether you are trying to repair your credit using a professional or on your own the most important thing to do is to ensure your credit doesn’t fall any further than it is currently, these are called preventative measures, below is a list of the most useful preventative measures that everybody should follow.

Pay all your bills on time - this really should go without saying but it’s one of the things that most people with bad credit fail to get to grips with. Whenever you make a late payment it is listed within your credit report for a period of 7 years, if you fail to make a payment within 90 days of it’s due date you officially become delinquent on that payment. Delinquencies also appear for a period of 7 years. This all falls under the payment history part of your credit score which accounts for the largest chunk of the pie (35%).
Don’t apply for new credit – another mistake people often make is to keep applying for new credit when they have a low score. Whenever you apply for new credit it appears on your credit report as a hard inquiry. Each hard inquiry costs you between 5 and 50 points (although if you apply for multiple loans in the space of two weeks it only counts as one inquiry, so that loan shoppers are not disadvantaged). Wait until your credit score is high enough before applying for any new loans.
Keep your oldest account opened – another thing many people do is to start closing all of their unused accounts, this is a smart move as it makes your finances easier to manage and it also means your not stuck paying any annual fees. But in doing so people often mistakenly close their oldest credit account, your credit history length accounts for 15% of your score so it’s important to keep it open.

Reactive Credit Repair Techniques

Reactive tips are geared towards improving already damaged credit scores, if you’re somebody that has a good score you might find that these tips are not relevant to you, in most cases you’ll probably find that you’ve already put these into action.

Lower your credit utilization ratio – this ratio is calculated by taking your total amount of revolving debt and dividing it by the total amount of revolving credit. For example if you have balance of $100 (total revolving debt) on your credit card that has a credit limit of $1000 (total revolving credit) your score would be calculated by dividing 100 by 1000 which gives us 0.1. If your ratio is above 0.3 then your score will be negatively affected – anything in the 0.1 to 0.3 range will increase your score. Anything below a ratio of 0.1 is considered neutral – this is because if you carry a balance of 0 (or close to 0) lenders are not able to make any money from you.
Go through your credit report & dispute any questionable items – you’re entitled to one copy of your credit report from each of the credit bureaus every twelve months through annualcreditreport.com. In some cases data furnishers (the creditors who provide the bureaus with the data) provide incorrect, inaccurate or questionable items in your credit report. This can cause your credit score to be artificially lower than it should be. One of the best things you can do to repair your credit is to dispute any of these inaccuracies and get them removed from your report. Each of your reports will contain information about how to file a dispute with each bureau – it usually takes between 30 and 60 days for these incorrect items to be removed if successful.
Use a variety of credit types - There are two main types of credit as previously discussed, revolving (i.e credit cards) and installment (i.e home loans). You can increase your score by ensuring you have both types of credit used, this accounts for less than 10% of your total score but it can still be an easy way to quickly boost your score.

Credit Repair Companies

There are a number of credit repair companies that do all the legwork for you and help you to improve your credit score. These companies are primarily focused on removing negative items from your credit report – although most of them do provide some support with increasing your score through other methods (such as advice on how to reduce or consolidate debt and other personal finance tips). Below are some of the most common companies, you can view the full list along with our reviews at credit repair companies reviewed.

Lexington Law

Lexington Law is by far the biggest credit repair company around, they’ve serviced over 500,000 customers and remove 1.2million+ negative credit records each and every year. They have been around in the credit repair industry for the last 20 years. Because Lexington Law has such a large customer base they are able to have teams of trained credit lawyers who specialize in getting these negative results removed from credit reports quickly. They also have direct relationships with two out of three of the credit bureaus which means that they can get these items remove quickly (where as if you were to do it yourself it could take as long as 60 days).

Signing up with lexington law is a $99.95 sign up fee and then monthly payments from $49.95, they have 22 lawyers over 16 states and have an excellent custom service record (o resolved complaints with the BBB). They also offer a $50 discount if for couples.

Sky Blue Credit

Sky blue credit has been around for even longer than lexington law, in fact they have been operating for the last 22 years. Their set up fees are half that of lexingtonlaw ($49) and then $49.5 per month. One of the advantages of sky blue is they do a thorough analysis of your credit report and will dispute any records they think they can removed – whereas other companies dispute only items you’ve selected.

It’s this attention to detail and personalized service that sets them above the other companies out there. They also have a special offer wherein if your spouse signs up at the same time as you, they will waive half of the sign up cost for the second person.

Credit Repair Software

Credit repair software is designed to make the process of disputing incorrect information from your reports easier. There are a number of different products in the market currently – below is a list of some of the more popular products and their advantages and disadvantages.

Credit Aid

Credit aid is the biggest name in the credit repair software industry, it’s supposably be designed by lawyers who have experience in the credit repair industry.

Advantages:

Easy to use, just point & click
Order your free reports within the software
Written by lawyers so that you can leverage the law in your favor
Templates for credit disputes
Track what items have and haven’t been removed from your report

Disadvantages:

$29.95 fee (although you can get it for free by using trialpay, wherein you sign up to netflix or a similar program)
Only three people can use the same software

Dispute Suite

Dispute suite is a powerful credit repair software solution, it’s designed at people who are interested in setting up their own companies to help others improve their score. Due to the high price of the software this is only recommended for people with a credit repair business – it’s not suitable for individuals.

Advantages:

Unlimited users
Easy to use, point and click
Advanced dispute module, allows you to dispute multiple items in one go and customize the letter so it doesn’t appear to be a canned response, without the hassle of writing a new letter each time.

Disadvantages:

Expensive, cheapest option is $99 per month with the most expensive being $399/month.

Look at a full list of credit repair software.

Credit Repair Letters

Below is a sample credit dispute letter, you should be able to find the address of where to send these letters on the top of your credit report. If you’re unable to find them then you’ll be able to find this information on our site: Equifax Dispute Address, TransUnion Dispute Address, Experian Dispute Address.

Dear <credit bureau name>:

Please find a letter I received from <credit institution that has reported incorrect information> regarding <incorrect details>. I contacted this company challenging whether or not a late payment was valid. In response to their error, they have agreed to erase the account from my credit. The letter states: “a request has been sent to the credit reporting agencies… Experian, in order to delete the late payment from the account.”

Please take this item off my credit history. My Equifax credit report number is <insert your number here>.

When complete, please send me a copy of an updated credit report.

Thanking you in advance

<Your Name>,

Once you’ve sent this letter, you should receive a response within 60 days as to whether or not they’v accepted your dispute. If they haven’t then you may have to esclate your claim – the easiest way to do so is to contact a credit repair specialist such as lexington law.

Sample Credit Dispute Resolution Letter From Equifax

Whether you decide to try and repair your credit by yourself or use a company – one of the most important things to do first is to get a baseline score to see how much you’ve improved your credit by. Under law the credit bureaus are not forced to give you a free credit score, but by clicking the previous link you can follow our guide which’ll tell you how to get yours for free. Best of luck getting your credit back on track and remember that it’s always much easier to maintain a good credit score than it is to bring it back from the brink – so prevention is the key!.