Lots Of People Ask, “How Do You Repair Credit?” The Secret Answer Is That There Are 5 Methods You Can Use.
How Do You Repair Credit Intro
How do you repair credit? Although the credit bureaus would like to have you think otherwise, there is absolutely nothing illegal about disputing items on your credit report. In fact, it is your explicit right by law to do so under the Fair Credit Reporting Act.
What is illegal is stating something that is false, such as “It’s not my account,” if it actually is your account.
How Do You Repair Credit–The 5 Methods
There are five main methods, all of which are completely legal, that you can choose from to repair your credit. Some are much better than others and some are much faster too.
1. Time. By law some negative credit accounts are allowed to show on your credit report for up to 7 years and others are allowed to show for up to 10 years. The important point is not that they have to be reported for that long, but that they can’t be reported for longer than that length of time. So, if you’re not in a rush, and you don’t want to put in any effort or money whatsoever, then you can just wait a few years.
2. Following the credit bureaus’ instructions. Another method is to go to each of the credit bureaus directly. You can challenge your negative accounts that they are showing on your report and see if they’ll remove this hurtful information. The problem is knowing what to say and how to say it, so that you aren’t guilty of fraud, and that you get the response you’re looking for.
3. Do it yourself credit repair. There are many courses, manuals, programs, etc. that can show you how to repair credit yourself. The quality and price varies, but usually for well under $100 you can learn how to repair credit yourself. One drawback is that there’s a good bit to learn, terminology to understand, letters to write and paperwork to deal with. Another problem is that you have to stick with it. Each month you’ll have to write more letters and deal with more paperwork until you’ve gotten the results you want. Are you dedicated enough to follow through for three months up to as much as a year?
4. Credit restoration software. A different version of do it yourself credit repair, but with a software program that helps to produce the letters you’ll need. You’ll still have to learn more about credit repair than you probably want to know and you’ll still have to have the self discipline to follow through each month, but its usually easier than plain do it yourself courses and they also run for $100 or less.
5. Credit repair companies. The bad here is that it’s the most expensive option, about $50 per month. The good part is that they do the work for you and they keep doing it each month until your negative items on your reports are gone. You won’t have to learn all the details about how to fix your credit and you won’t have to figure out how to write the letters. And you won’t have to be self disciplined enough to follow through each month with whatever tasks remain.
How Do You Repair Credit Conclusion
So, how do you repair credit? From personal experience and observations of others, credit repair companies are the best choice for most people.
Many won’t be able to force themselves to read a manual, with or without the help of a software program, to learn how to properly and legally repair their credit. Of those that do, most won’t be able to make themselves do the various tasks needed each month to keep the process going until they get the results they want.
When you consider that most all credit repair courses tell you to send each letter via certified mail and that the credit repair companies send these letters for you if you hire them to do it, then they really aren’t that much more expensive, if at all.
If you are very focused and genuinely interested in the details, then the best choice would be one of the software programs.
Otherwise, the answer to “How do you repair credit?” is that if you can handle about $50 per month, the best choice is a good credit repair company.
I thought that it had some great points worth noting, so I’m posting it here and adding some thoughts to it.
A major league pitcher dreams of throwing a perfect game. High schoolers eying the Ivy League study furiously in hopes of earning 2400 on the SAT. Meanwhile, Chris Peplinski is pursuing his own brand of flawlessness: an 850 credit score.
The 37-year-old stay-at-home dad from Rogers, Ark., has already nabbed 813 on the FICO scale, the credit scoring system most lenders use in sizing up potential borrowers.
That ranks him above more than 82% of Americans and comes with a big payoff: It entitles him to ultralow rates on loans, saving him tens of thousands of bucks over a lifetime.
[***A lot of people don’t seem to see the point in having good credit until they go to buy a car or a home and can’t qualify for what they want. The point here is that one of, if not the most important reason, to get and maintain good credit is all of the money you’ll save over the long haul.***]
Nevertheless, Peplinski won’t be satisfied until he hits the maximum: 850. Why? “Your credit score tells a lot about you,” Peplinski explains. “A high score means you’re responsible and in control of your life. You’re trustworthy.”
To reach his goal, Peplinski voraciously reads up on every element that goes into a FICO score, checks his number every three months, and tweaks his behavior to eke out every possible additional point.
Two years ago, he took out a car loan even though he and his wife, Chrissy, had the cash to buy their wheels outright. He figured that adding to his mix of credit might boost his score.
In spite of Chris’s best efforts, landing an 850 may be a quixotic goal — only about 0.5% of Americans manage it, FICO reports. “The 850 score is kind of like a unicorn,” says John Ulzheimer, a credit scoring expert with Credit.com who used to work for FICO. “Everybody talks about it, but nobody’s seen it.”
The reality is that you don’t need to catch the unicorn to catch the best rates. But adopting some of the habits of Peplinski and other members of the 800 club can help you improve your own score.
[***This is an excellent point. To have good credit you don’t need an 850 credit score. Typically anything over a 720 is considered “A” credit and will get you the best rates and terms available. And whether you fix your credit yourself or you have a credit repair company do it, its very achievable to have a credit score of 720 or higher.***]
And that can translate into real money: On a $300,000 30-year fixed-rate mortgage, the most credit-worthy borrowers will pay $14,200 less than those one tier below, $25,600 less than those two tiers below.
[***Here’s a great specific example of how much money you can save and have to use in other areas of your life, just by spending a few hundreds dollars to get your credit fixed, if it needs it.***]
FICO, the Minneapolis company that produces the scoring model, divulges the five factors that determine your magic number — your payment history, the amount you owe on credit lines and loans, the length of your credit history, how much new credit you’ve applied for, and the types of accounts you’ve had — plus what percentage of your score each factor represents.
But as for exactly how many points you’ll gain or lose for, say, taking on a mortgage, being late on a bill, or charging credit cards up to the max? That’s proprietary information: “It’s a black box,” says FICO spokesman Craig Watts.
Mystery feeds obsession. Much the way fans of TV’s Lost met up online to postulate theories on the show’s ending, some credit score aficionados passionately debate their hypotheses on message boards like the FICO Forums at myfico.com. Others use themselves as guinea pigs to discover which moves will nudge a score up or down.
While most people could tell you their number only from the last time they got a loan — if at all — true FICO fiends know their score as well as they know their spouse.
Of the score strivers MONEY interviewed, most check their score obsessively, at least every few months — at a cost of $50 or more a year. They also fixate on their credit reports, upon which the scores are based.
[***Don’t worry, you don’t have to be this interested and involved in your credit to have a great credit score. Its actually not that hard to get and keep great credit.***]
Leland Lim, a 41-year-old doctor from the Bay Area, is vigilant about scanning these for errors that might drag down his number. “It took me three years to get a derogatory entry on one of them corrected,” says Lim, who now earns an 806.
As for what makes an 800-plus score, these self-made experts basically say the same thing FICO does: Payment history is the single most important factor.
[***Bingo! Pay your bills on time. Do this with every bill, every month and you’re most of the way there to keeping a great credit score.***]
“I have this fetish about paying bills as soon as they come in the house,” says Dick Husemann, 66, a retired Air Force officer from Wilmington, N.C. He and his wife, Brenda, 69, attribute their high scores — matching 818s — to the fact that they’ve never missed a credit payment.
The Husemanns also never charge more than 10% of their credit limit. They’re not alone in that; most score enthusiasts aim to keep a low “utilization ratio,” or the amount they owe compared with the amount of credit available to them. FICO verifies that a low ratio can help your score.
Chris Peplinski used his knowledge of this principle to help his wife boost her number. When they met seven years ago, Chrissy’s credit cards were maxed out and her score was a low 466. (Today he jokes: “I tell people when they’re dating someone new, ask about your date’s credit score!”)
Chris helped her get on a repayment plan. A sales manager for General Mills, Chrissy now has tons of available credit she’s not using and a score of 786. Chris occasionally applies for additional credit cards to goose the couple’s credit lines further, even though he knows the FICO model will ding his score in the short term for opening a new account.
That kind of gamesmanship is all part of the quest for 850. With lenders now routinely closing inactive accounts, Lim rotates all his credit cards into circulation so that he’ll continue to have a lot of available credit to figure into his utilization ratio.
[***This is a very good point. With the economy being what it is, many lenders are pulling back the lines of credit to consumers. So, it’s a great idea to regularly use your cards in order to keep them active. The key here is to use them, but pay them down each month so that the balances stay low.***]
But because his charges also affect that ratio, a few months before applying for a loan, he stops using the cards or pays them off before the statement is generated. That way, he says, “my score jumps a bit” — just in time for the lender to see.
The 800 club members are also conscious of their mix of credit.
Lim became interested in the scoring process two years ago while refinancing a home-equity loan into a home-equity line of credit. Having heard that revolving debt could affect a score more than an installment loan, he studied up.
His research revealed that HELOCs are not considered revolving debt in the FICO model. (The scoring firm confirms.) And remember that car loan Peplinski took out even though he didn’t have to? He did it because FICO favors those with a variety of credit types, such as mortgage, credit cards, and auto loans.
“I probably paid $100 in interest,” he says. “But it was worth it because we raised our credit scores by 15 points.”
[***If you don’t even know what your credit looks like or what your scores are, then I suggest you get a copy from all three credit bureaus and see what your situation is. Check out annualcreditreport.com. If you haven’t looked at your reports in a year or more, then you can get them for free.***]
[***If you know your credit needs work, then I suggest you either fix it yourself with the help of a credit repair software like Credit Repair Magic or get a credit repair company, like Sky Blue Credit Repair, to do it for you. Either way, get it fixed. It’ll save you thousands of dollars and make you life much easier when you do need credit.***]