Credit repair takes diligence, time and effort. In contrast to what many credit repair ads claim, it cannot be done overnight. The process involves steadily repaying your debt, so that your creditors will begin to report positive results to the three major credit bureaus: Equifax, Experian and TransUnion.
The Federal Trade Commission (FTC) states that you may improve your credit by yourself, legally and at little to no additional cost. However, there are several credit repair options that may simplify or ease the process.
You may find it easier to fix your credit with financial tools, such as professional credit repair companies, credit counseling, debt consolidation, secured credit cards and more. Learn the pros and cons of different credit repair tools below.
Getting Your Free Credit Report
You may be wondering, “What is the first step to fix my credit?” If so, you must begin by obtaining your credit report. According to the FTC, you are entitled to a free copy of your credit report once every twelve months. Since Equifax, Experian and TransUnion each create their own report for you, you may order all three reports at once or spread them out throughout the year.
It is important to review your report if you want to increase your credit score, because you will be able to pinpoint which lines of credit are lowering your score. You may even find inaccurate negative marks on your report. If so, you must dispute those marks and potentially have them removed.
Note that the Annual Credit Report website is the only credit report site authorized by the federal government. However, you may use other sites to check your score more frequently for free. These sites include Credit Karma, Credit Sesame, NerdWallet, WalletHub and more.
Credit Repair Companies, Debt Relief Companies and Credit Counseling
The only form of free credit repair is steadily improving your credit yourself by paying off your debt. If you want professional help, however, you may opt for a credit repair company, a debt relief company or credit counseling.
A credit repair company specializes in analyzing your credit report, looking for errors and negotiating with your lenders to remove derogatory marks. Finding errors may help fix your credit score, because your score will increase once the mark is removed.
While you may find these types of errors yourself and do your own negotiating, it may take a lot of time and effort. A credit repair company may bring more skills and experience to the table, which means your problems may be solved more efficiently, and it may take less time to increase your score.
If you want to repair your credit with a different type of program, you may consult a debt relief company. A debt relief program is similar to a credit repair program, because the professionals will negotiate with your creditors and perform some of the more time-consuming work for you.
It is different, however, because it focuses on debt settlement. If you have an exorbitant amount of debt, debt relief professionals may negotiate with your creditors and promise them that you will pay some amount, even if it is less than what you owe.
If you are wondering how to pay off debt on your own, you may consider a credit counseling program instead. Credit counseling is often free and provided by nonprofit financial education organizations. In general, a credit counselor will review your finances, discuss your options and give you resources and advice for improving your financial situation.
For credit repair services, debt relief services and counseling services, make sure that you read reviews. Checking to make sure that an organization is legitimate will protect you from fraud and other issues.
What is debt consolidation?
If you are wondering how to pay off credit card debt and you have multiple lines of credit, debt consolidation may help.
Debt consolidation occurs when all your debt is combined into one loan or one credit line. Two of the most common forms of debt consolidation include consolidation loans and balance transfer credit cards.
A consolidation loan works when a lender agrees to pay off your existing debt in exchange for a loan. You are then obligated to pay off the consolidation loan in monthly installments. Similarly, a balance transfer credit card involves transferring all your existing credit debt onto one card.
If you want to know how to get a good credit score with a high amount of debt, consolidation loans or credit cards may be good resources. This is because you may qualify for a lower interest rate, which will lower the amount you pay in interest over the life of the loan or the credit card.
These consolidation methods may make it easier to keep track of the entire amount you owe and how long it will take to become debt free.
However, you will need an average or good credit score to qualify for a consolidation loan or balance transfer credit card that has good terms. If you have a poor credit score, you will not receive the same type of offers.
Consequently, you may end up spending more money on debt consolidation, to the point that it will not be worth it.
Improving Your Credit Score on Your Own
If you decide to fix your credit score without using a professional company, you must review your own credit report and devise a repayment plan. You may also consider other resources for improving your credit, such as a secured credit card.
Do you want to know how to raise your credit score by 200 points? One of the simplest ways is to remove incorrect and negative marks from your credit report. Errors are not extremely common, but they occur more often than you may think.
According to a study conducted by the FTC in 2012, one out of every five credit reports contained errors.
To have an incorrect mark removed from your report, you must submit formal dispute letters to creditors and credit bureaus.
These letters must explain why you believe certain marks on your report are incorrect. You may provide proof of the false marks, if possible.
Another way to raise your credit score is to negotiate a tax settlement with the Internal Revenue Service (IRS). If you owe the IRS a significant amount of money in taxes and cannot repay your debt in full, you may qualify for an offer in compromise. Finally, you may consider applying for a secured credit card as another way of steadily improving your score. This type of card requires you to put down a security deposit, which will usually be the same amount as your credit line. By making payments to this card on time and keeping your credit utilization low, your credit score will improve.