What Are the Secrets for Credit Repair?

Credit-repair companies imply that there are secrets to fixing bad credit. They make elaborate promises, but the Federal Trade Commission (FTC) warns that most of these are false. There is no way to wipe out legitimate negative items on your credit report or legally create a new file. You do not need a credit-repair firm because you can use your legal rights and knowledge of how FICO and other credit score providers calculate your number to make your own repairs.

Erase Negative Items

You cannot erase bad entries on your credit reports if they are accurate. Dayana Yochim of the Motley Fool website states that around 80 percent of credit files have errors ranging from incorrect spellings to wrong payment dates. Any small glitch is grounds for a dispute under the Fair Credit Reporting Act (FCRA). Creditors often do not respond to credit bureau requests to verify disputed entries, so the negative information gets erased. The FTC advises ordering free credit reports from annualcreditreport.com, which lets you request them every 12 months. Find every possible mistake and use the dispute forms on the credit reporting agency websites to challenge them.

Bring Payments Current

Audit your accounts and bring any late payments current. FICO, the biggest credit-score company, explains that delinquent bills payments are very damaging to credit records. Create a plan to make all future payments on time, which continually improves your score. Make a budget that allows you to pay at least the minimum amount due each month and mail your checks early or arrange for electronic funds transfers to prevent forgotten or late payments.

Lower Your Debt

FICO warns that high debts lower your credit score. Your credit is slowly repaired as you pay down your biggest balances. The secret to efficient debt reduction is putting more money toward high-interest accounts, according to Bankrate columnist Lucy Lazarony. Very little money goes toward the actual balance if you only pay the minimum requirements on those accounts. Pay as much as you can to reduce the principal more quickly.

Get Help

The FTC warns against using credit-repair companies but explains that credit-counseling firms can help you create a workable budget or debt-management plan. Such agencies meet with you in person, online or over the phone to evaluate your situation and the best ways to salvage your credit. Credit counselors often negotiate with creditors for balance or interest rate reductions and create debt management plans to help you pay off your bills within a set time frame. The on-time payments and declining balances repair your credit over time.