If you've been turned down for a loan based on a bad credit score, you may be interested in credit repair and how you can fix your score. A good credit score is not only essential for getting banks to offer you loans and credit cards, but a high score will also get you lower interest rates on all of your loans.
Some people are looking for a quick way to fix their credit. They may turn to companies that promise a high credit score in a short period of time. If this is what you're after, beware. While there are some methods that can quickly fix your credit score, there are also credit repair companies that are out to scam you.
When considering credit repair, it's important for you to have a good understanding of how credit works, what makes up your credit score, and how you can improve your score.
Credit Repair -- Know Your Rights
Your credit report is composed of different aspects of your financial data and history. This includes:
- Your payment history. Whether you have made payments on time, been late, or defaulted on a loan.
- How much you owe. This shows all current loans and how much you owe on them. It will also show if you have paid a loan.
- The length of your credit history. How long you have had accounts open. In general, the longer your credit history, the better your score, assuming that you are responsible with your money.
- The types of credit you use. This could include credit cards, mortgages, or car loans.
- Any new accounts you have opened. If you're recently opened new credit accounts, this will show up and may decrease your score.
The Fair Credit Reporting Act (FCRA) protects the rights of consumers in America. If consumers were not able to see their credit history, lenders could take advantage of them by increasing rates. The FCRA allows you to receive one free copy of your credit report per year. It also allows you to correct any mistakes that are on your report, which can increase your score.
What a Legitimate Credit Repair Company Does
If there are errors on your credit report, you can file a dispute in order to have them removed. However, this can be a time consuming process, and following up can be difficult for those that work a regular 9 to 5 job. Because of this, some people look to hire a credit repair company to handle these disputes.
A legitimate credit repair company will advocate on your behalf. They will contact your creditors in order to dispute inaccuracies and they will follow up to ensure that the items are removed from your report.
One way to spot a legitimate credit repair company is by looking at when they ask for payment. By law, a credit repair company should not charge you until they have completed the actions. If a company asks you for upfront payment, run away.
Watch Out for Credit Repair Company Scams
Unfortunately, some people are desperate to improve their credit score and there are some companies that take advantage of this. These companies claim that, for a fee, they can improve your credit. Be careful when hiring one of these companies.
For example, some credit repair companies will encourage you to take illegal actions to improve your credit score. These may include disputing all negative aspects, even if they are accurate, or telling you that you can create a new credit identity.
If something doesn't feel right, walk away.
DIY Credit Repair
The great news is that there are many things that you can do to improve your credit score. While you cannot remove accurate negative information, you can dispute anything that is inaccurate and work towards building a better credit score.
Perhaps the most important aspect would be to pay your bills on time. As you do this, your creditors will report to the credit agencies and this will gradually increase your score. New creditors may see that you have recently begun to take charge of your finances and will respond more favorably to your request for credit.
Time also will help you with credit repair. Negative information on your report only stays there for 7 years (10 years for bankruptcy). You may simply have to wait it out before you're eligible for the best rates, but this all starts with taking control of your finances now.
