Repairing Credit on Your Own

It's rare to find someone who knowingly damaged their good credit. Most of the time, one problem leads to another, and things begin to snowball into a much bigger issue. It's a whole lot easier to hurt your credit than it is to build credit, but it's possible to take steps to repair your credit yourself. As long as you don't expect a good credit score overnight, a little research and effort can put you on the right track toward better credit.

Don't Make Poor Credit Worse

If you're starting to get buried in credit card debt, the worst thing you can do is to either ignore it or keep adding to it. Cut yourself off from using credit cards or opening a new credit card account. If you find you're having trouble making on-time payments, talk to your card issuer about payment options. 

It's easier and less expensive for everyone if you can find a way to handle problems upfront before they get out of control. Creditors will usually work with you to make reasonable accommodations. This includes adjusting your monthly payments or providing flexibility with the available credit on your accounts.

Whatever they agree to, get it in writing so you have some proof down the road. Taking proactive steps like this can help you build credit by demonstrating a commitment to managing your credit accounts. In addition, consider implementing credit monitoring. Credit monitoring will help you stay informed about changes in your credit profile and address any issues in a prompt manner.

Credit Reports

Before you do anything else with your credit, it's important for you to know what you're dealing with. There are three major credit bureaus in the US--Experian, Equifax, and TransUnion--and each one has a file on you. Chances are much of their information is pretty similar. However, it's possible that mistakes at one or more agencies are painting an inaccurate picture of your credit history.

You can get a free credit report once a year. This service is only available through AnnualCreditReport.com, so beware of imposter sites. A common recommendation is to space out your requests over several months. This way you can work on problems you spot in the first one, then see if they're getting cleared up later. 

For example, if you see incorrect information on the Experian report you ordered in January and get it fixed by March, you'll be able to see if it's still getting reported to TransUnion when you order another copy of your credit report in August.

Look for Credit Report Errors

If you paid for a report, you'll also see your FICO credit score, which ranges from 300 to 850 (higher is better). This is the score you're ultimately trying to improve.

You'll want to examine each of the accounts listed while considering the following questions:

• Do you recognize them all?
• Are the amounts owed and amounts paid accurate?
• Does the payment history show you delinquent when you know and can prove you were paying on time?
• Do you see addresses or employers you don't recognize listed?

If you find mistakes, you're not alone. A Federal Trade Commission (FTC) study found that about a quarter of consumers reported potentially material errors on their credit reports and that these kinds of errors mean that 5% of consumers are probably paying too much for things like loans and insurance.

Even when information can be verified, it needs to be accurate, so be sure to report negative information that's inaccurate. Viewing your report online, you should be able to click on a link to report an error. If you wish to dispute an error on your credit report with a credit report dispute letter, see FindLaw's Sample Credit Dispute Letter Template.

Start the Credit Repair Process

Patience is an important part of getting your credit score back up, as is being smart about what debt you tackle first. In general, personal loans like mortgages and student loans are low-interest payments you'll be making every month for a long time, so it's less important that you pay them off early.

Revolving credit with high-interest rates like credit cards, however, should be paid off as soon as possible, as they play a part in considering factors like credit limit and negative items on your credit report. Not only does paying off high-interest credit cards mean you're spending less money on interest payments, but it also improves the credit utilization ratio that factors into your credit score.

Consider exploring secured credit cards as a potential tool to rebuild credit. These cards are often easier to qualify if you have a history of negative items, and they require a security deposit that serves as your credit limit.

Just as important as committing to getting your debt down is committing to making your payments on time. A late payment or two might not have a big effect on someone with a high credit score, but little dings like that will keep low scores from climbing very fast. If you're worried about forgetting a payment, consider enrolling in electronic auto-pay through your bank or lender.

Beware of Credit Repair Scams

While there are legitimate credit counselors out there, many more companies are looking to take advantage of consumers, often violating consumer credit laws and the provisions of the Credit Repair Organizations Act.

Some of the worst companies won't even take legitimate steps to help you, but instead just dispute all the accounts listed in your credit reports. The accounts are pulled off the reports temporarily while they're investigated, and your credit looks great for a couple of months. However, this deceptive tactic may leave you vulnerable to identity theft and further financial harm.

It's crucial to be cautious and informed when seeking assistance from credit repair companies. Legitimate credit counselors and services operate transparently and comply with regulations set forth by organizations like the Consumer Financial Protection Bureau. If you encounter a credit repair service that seems too good to be true, it probably is.

If a scammer takes advantage of you and your bad credit, consider consulting a personal injury attorney to try to recover your losses. Having a legal expert on your side can make all of the difference.