Credit repair is eliminating or correcting false information from your credit report in order to offer a fair and full picture of your finances, improving your financial score, and resolving to prevent future credit difficulties. You may do this on your own or engage a credit repair firm to handle it for you. Either approach has the potential for mistake. Make sure you understand your rights and avoid the 16 errors outlined below.
- When attempting to increase your credit score, it is easy to make errors that actually worsen it.
- To prevent making these blunders, make sure you understand your rights under relevant credit laws.
- You should also get and check your credit reports once a year, looking for problems; only dispute material that you feel is incorrect; maintain detailed records and get everything in writing; and avoid shady credit repair organizations.
Know Your Rights
When it comes to credit, many rules safeguard customers. Credit Repair Organizations Act (CROA), Fair Credit Reporting Act (FCRA), Fair and Accurate Credit Transactions Act (FACTA) of 2003, and Fair Debt Collection Practices Act (FDCPA) of 2010. These statutes require, among other things, that:
- Once a year, you must have free access to your credit reports.
- You have the right to contest mistakes on your credit reports, and credit bureaus must rectify them if they are proven.
- When your credit record is used to reject you a loan, for example, you must be notified.
- You must provide permission for your credit information to be shared with others.
- The length of time that unfavorable material appears on your reports is limited.
- When contacting you about debt, creditors must follow specific guidelines, such as remaining within set hours and not making threats or notifying family members about your debt.
- Credit repair companies are not permitted to lie to your creditors or to urge you to lie, change your identity, or misrepresent their services. 1
- They must also provide you a contract and a three-day cooling-off period. If a company fails to meet any of these criteria, you may be dealing with a fraudster rather than one of the top credit repair firms.
Knowing your rights is just one half of the equation. Along the process, you must also avoid making errors. Here are some things to keep an eye out for.
Mistake #1: Failing to Check Credit Reports
Knowing what your credit reports say is the first step in rebuilding your credit. If you have never requested your reports or it has been at least 12 months since you last checked them, go to the Federal Trade Commission (FTC) Free Credit Reports website and follow the instructions. Other websites provide credit report access, and a few even provide certain reports for free, but the FTC gateway assures you get the FCRA-guaranteed reports. Read all three reports thoroughly, keeping an eye out for anything that seems to be erroneous or wrong.
Mistake #2: Procrastinating
Do not postpone credit repair. If you uncover incorrect information on any of your credit reports, you should strive to rectify the record as quickly as feasible. Although the majority of bad information is removed after seven years, it is a long time to live with an erroneous credit report.
Mistake #3: Avoiding Credit Education
Whether you are seeking to erase or rectify inaccurate information on your credit reports or just attempting to minimize debt and chart a new financial course, the more you know, the better. This includes learning how to challenge inaccurate information on your credit report as well as understanding that you should definitely pay off high-interest credit card debt before taking out installment loans.
Mistake #4: Not Keeping Documentation
Complete and comprehensive recording of every debt is critical for challenging incorrect information, preserving your rights, and staying within spending restrictions that make sense for you. You should be aware of the penalties for late payments as well as the best circumstances for obtaining a credit boost. Always be ready to demonstrate that payments were paid on schedule, and always be prepared to back up your claims with documentation.
In 2020, the Consumer Finance Protection Bureau received an estimated number of “credit report” complaints.
Mistake #5: Disputing Too Much
Obviously, you should only debate things that you really feel are incorrect. Some credit repair firms contest everything in the hope that one or two items “stick.” The issue is that credit bureaus are unlikely to take such a strategy seriously. Even if they do, you risk erasing favorable information that boosts your credit score. It is also critical to pursue your disagreement to the appropriate institution. In most circumstances, the credit agency, not the creditor, will be responsible.
Mistake #6: Disputing Online
Although all three credit bureaus have online dispute mechanisms, some opponents argue that utilizing them may deprive you of some of your FCRA rights. Credit agencies may avoid doing things like passing your information to creditors, responding to your disputes in writing, and presenting you with the “method of verification” of the item you disputed thanks to online technologies. According to critics, you should register your challenge using paper “hard copies” and certified snail mail.
Mistake #7: Disputing with Boilerplate Language
Along with not contesting “everything,” it’s also a good idea to personalize the wording in your dispute file to prevent the credit bureau “red flagging” your papers for being repeated. Use the template as a guide instead, and make sure the words are your own.
Mistake #8: Sending Uncertified Mail
You should submit any papers to a credit agency, collecting agency, or creditor through certified mail with a return receipt requested. This gives you the above-mentioned paperwork as well as verification that the agency received your communication. The same “evidence” criteria applies to any communication you receive from any of the organizations listed above. Do not agree to anything orally unless it is also in writing. You’ll know what the agency agreed to and, more significantly, you’ll have written confirmation.
All contact should be in writing; do not agree to anything orally unless it is also in writing.
Mistake #9: Falsifying Documents
It is not just prohibited for creditors and credit agencies to provide incorrect and misleading statements or written correspondence. If you lie, you will almost certainly be prosecuted. Any paperwork you offer as part of a credit dispute or query must be correct. You are not need to expound, but what you say must be truthful.
Mistake #10: Transferring Credit Card Balances
Transferring a credit card debt from one card to another is not a smart credit restoration strategy. You’ll still owe the same amount, and in most situations, the balance transfer costs will exceed any interest savings. The same is true when consolidating debt onto a single credit card, particularly if you shut the other cards, eliminating any accessible credit.
Mistake #11: Missing Payments
Another credit repair error that some individuals make is missing payments on certain accounts in order to make payments—or greater payments—on others. The only exception may be if the account has already been charged off or has gone to collections. When selecting between paying a collection account and a current account, always pay the current account to keep it current.
Mistake #12: Canceling Credit Card Accounts
Because your credit history accounts for 35% of your credit score, closing a credit account is seldom a wise move. Instead of canceling the account or tearing up the card, it may be far wiser to retain a tiny amount and pay it off regularly. It will require discipline to avoid falling into debt, but the effort will be rewarded with a better credit score.
Mistake #13: Applying for New Credit
If you are attempting to restore your credit, your odds of getting accepted for further credit, particularly unsecured credit, are slim. You might be wasting a hard inquiry that lowers your credit score just as you’re attempting to boost it. It’s better to wait until your credit has been rebuilt before applying for new credit.
Mistake #14: Paying Debt Collectors
It may seem illogical, but paying a debt collector might result in unintended consequences. Making a payment on an old debt, for example, that has outlived the statute of limitations, might update the obligation. If you are unclear about the legality or status of the debt, it is critical that you do not pay until the debt collector confirms that the obligation is legitimate and current. It’s important to realize that debt collectors are professionals at scaring you into paying up. Don’t pay solely on verbal promises. The only permissible mode of communication is written communication.
Mistake #15: Hiring a Shady Credit Repair Company
Some individuals may not believe they have the time or skills to improve their own credit. Hiring a credit repair firm may be advantageous and easy for such folks, however the convenience comes at a cost. Professional credit repair services may include a fixed price or “per deletion” charge of $35 or more, according to Credit Karma. The overall cost might reach $750 or more. Some businesses demand a monthly fee of $50 to $130 or more. Only you can determine if it is worthwhile to pay someone else to restore your credit. It’s worth remembering that credit repair agencies in general have a bad reputation, so go through your rights again, as outlined above and in the CROA.
Mistake #16: Filing for Bankruptcy
Some individuals believe they need a new start and file for bankruptcy to “fix” their credit. Unfortunately, bankruptcy will not enhance your credit score; it will stay on your credit record for up to ten years, and even after it is removed, many lenders will inquire whether you’ve ever filed for bankruptcy as part of the loan application process and use it as a rationale for not accepting a loan.
What Should You Not Do to Improve Your Credit?
Hiring a shady credit repair organization is the most frequent error individuals make when trying to restore their credit. A professional cannot do anything to boost your credit score that you cannot do yourself, so think twice before hiring assistance.
Can Errors on a Credit Report Be Fixed?
Yes. If you find an inaccuracy on your credit report, you should first dispute it with the credit reporting firm. They are required by law to investigate faults and correct them whenever they are discovered. 2
Can Credit Bureaus Make Mistakes?
Yes. According to a Federal Trade Commission research, 5% of consumers have an inaccuracy on at least one of their credit reports. 3
The Bottom Line
When attempting to increase your credit score, it is easy to make errors that actually worsen it. To prevent making these blunders, make sure you understand your rights under relevant credit laws.
You should also get and check your credit reports once a year, looking for problems; only dispute material that you feel is incorrect; maintain detailed records and get everything in writing; and avoid shady credit repair organizations.
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