Do you have bad credit? Are you tempted by television advertisements that make fixing your credit and boosting your score look easy? Before you pay someone to "fix" your credit, just remember these three things:
- According to the FTC, no one can legally remove accurate and timely negative information from a credit report.
- Everything a credit repair firm does, you can do yourself, for free. Credit repair firms provide a service: they will save you time in exchange for money. These firms do not have any magic tricks or tools that you do not have yourself.
- Do not work with a credit repair firm making promises that are too good to be true. Ignore companies that promise to "erase your bad credit - 100% guaranteed."
To repair credit yourself, follow these five steps:
1. Get Your Free Credit Report From All 3 Bureaus
You need to review your credit report from all three credit reporting agencies. You can use AnnualCreditReport.com to obtain your report for free. As you review the report, keep track of any information that you believe is incorrect. Credit scores are built using data from the credit bureaus, so it is important to ensure the data at Experian, Equifax and TransUnion is accurate.
2. Did You Find An Error With An Existing Account?
If you recognize the account but believe the information being reported is not correct, you should reach out directly to the financial institution that reported the information. For example, if you recognize the credit card, but do not recognize the late payment - speak with the credit card company. Often the bank or credit card company can fix the issue and update the credit bureaus directly.
You might see a big balance on a credit card you never use, because someone might have stolen your credit card information. Dispute the balance directly with the credit card issuer. The credit card company would then be able to fix the problem and update the reporting with the credit bureaus.
Just ensure that you keep a good paper trail of your correspondence with the financial services companies. If the bank or financial institution does not resolve the issue, you can take further steps. But having a good paper trail makes those next steps easier.
3. Did You Find Accounts That Are Not Yours?
If someone has opened accounts in your name, without your knowledge, you could be the victim of Identity Theft. The best first place to start managing identity theft is IdentityTheft.gov. This is a government website that enables you to report an identity theft and get a recovery plan. As part of that plan, you will be encouraged to freeze your credit and file disputes with the credit bureaus. It is critical to keep a good paper trail.
4. Use The CFPB To Your Advantage
If you are unable to resolve the issue with your financial institution, you do have another option. You can always complain to the Consumer Financial Protection Bureau. You can submit your complaint online, and a dedicated case worker will look into your situation.
The paper trail becomes very important in this step. You should share with the CFPB as much detail as possible, so that they can be the most helpful. Complaining to the CFPB is free.
5. Build Your Credit The Old-Fashioned Way
To have a good credit score, you need to have positive information reported into your credit report on a monthly basis. The easiest way to do that is with a credit card. Just try to keep your utilization low (although there is no magic number, VantageScore released data showing that people with excellent credit scores tend to have utilization below 10%). And make sure you pay your statement balance in full and on time every month. If you repeat this, over time your score will improve.
If you are unable to get a credit card, consider applying for a secured credit card instead. You need to provide a deposit, and you will be given a credit limit that is tied to your deposit amount. A secured credit card is reported to the credit bureau and can help you build your credit score. You can shop for the best secured cards at sites like MagnifyMoney and NerdWallet.
Continue To Monitor Your Credit Report And Your Score
The earlier you find out about a credit report or identity theft issue, the easier it is to solve. To ensure that you find out about issues in the future, consider signing up for a credit monitoring service. Some companies, like CreditKarma, offer free credit monitoring. Other companies offer daily three-bureau monitoring and resolution services. Do your homework online, and make sure you protect yourself.
Only hire a credit repair firm if you do not want to spend the time doing this yourself. But do not hire a credit repair thinking that they have a magic solution. Remember: anything a credit repair firm does, you can do too.