Credit repair is a process that is undertaken when you find incorrect or incomplete data on your credit report. It takes time to build a credit report, likewise it takes time to repair a credit report that has incorrect or incomplete information. To know if you need to repair your credit, you need to first pull a credit report, preferably from each of the credit bureaus. The information on the report may be weighted negatively, positively, or neutrally depending on the information. Negative credit items may sometimes need to be removed. Positive credit items should be monitored, but rarely should you attempt to modify them, unless the information is materially incorrect. The ideal credit repair situation involves creating a baseline, removing or minimizing negative, and adding or accentuating positive.
The first step in credit repair is creating a baseline. To do this you pull credit reports from each of the three credit bureaus. This process can often be done through your federally guaranteed free annual credit report. This free report can be received from each of the credit bureaus once a year. These reports show your credit as it is now. It shows the negatives and positives. This report does not include a score, but the important part is not the score as much as the accuracy of the information included in the reports.
This first report or annual report if you have been monitoring your credit on a regular basis, shows you what information is currently on your report. With this report, you want to look for items that do not match what you know of your personal information. Verify and ensure that the names and aliases are ones you have used. You want to also verify the telephone numbers and addresses are accurate. You should also verify that your social security number is correct. On rare occasions, when there is an errant name, address, or telephone number, your credit report may have had someone attempt to get credit in your name or using your social security number. Even more rare is something referred to as a “merged” or “mixed” file, this happens when two files with substantially similar information are mistaken as belonging to the same person. To prevent further breaches with the same information, it is important to get the information corrected.
The next step in the credit repair process is to remove negative information or at the very least minimize the impact of such information. This is done through several methods including disputes, settlements, and time. Not all negative items should be disputed or settled. Negative information that is of a certain age should be left alone on the credit report, especially if there are several newer accounts on the credit report. Negative information that is older than the newest positive information gives the age that the credit report needs to generate a good credit score. When a negative item is removed from your credit report, you still may owe the amount(s) that were listed as being owed. Negative items that were discharged in bankruptcy would be one exception to this statement.
As negative information – late payments on a credit item, collections, charged off accounts, foreclosures, and bankruptcies – are removed from your credit reports, your credit score will increase, but only slightly. Settling collections and charged off accounts can minimize the impact of the negative items on your credit report. Creditors and collection agencies are not likely to remove an item for payment. Delinquent items are removed by the credit bureaus seven years from date of first delinquency. This also applies to defaulted accounts and foreclosures. Chapter 7 bankruptcies remain on your credit for ten years, whereas a chapter 13 bankruptcy would be removed after seven.
When removing negative items no longer improves your credit, it is time to actively begin the credit building portion of credit repair. To build credit, you would apply for credit, if you don’t already have a revolving credit line open. Applying for credit should be done judiciously as each hard inquiry lowers your credit score due to the hard inquiry it generates. Hard inquiries remain on your credit report for two years. To apply for multiple lines of credit in a short period of time can be very damaging to your credit. With each inquiry, a potential creditor asks “why the need for this credit?” The drop that this creates can be recovered in as short as a few months, or even a few years depending on the complexity of your credit profile.
Keeping balances low is extremely important to building your credit. While charging small amounts and then paying off a credit card immediately may seem like it would build your credit, it does now show a pattern of responsible credit utilization. Keeping a small balance on your credit card allows the creditor to report usage to the credit bureau. The danger in keeping a small balance is forgetting when a payment is due and having a late payment, turning a positive account into a negative account.
Creating a credit profile that includes a variety of credit types is a part of building good credit. Having a mix of revolving accounts – bank issued credit cards and store issued credit cards – and installment accounts – student loans, personal loans, automobile loans, and mortgage loans – is beneficial as it demonstrates to a potential creditor that you know how to handle different forms of repayment. Credit cards have a fixed payment date each month, however the payment amount varies with how much you have charged on the card and what the terms you accepted in your card agreement. Loans on the other hand have a fixed payment (that may adjust from year to year – as is often the case with mortgages) that is paid on a set date every month. Making one payment late causes your score to drop. Unlike that of an inquiry, this drop may take years to recover from. Additional late payments can cause a much larger drop.
Credit repair is a process which takes time and effort. The credit repair process starts with what is currently on your credit. It determines how much work needs to be done to raise your credit score to your goal. Removing or minimizing negative items improve your credit some, but often not enough to reach your goals. Some negative items should not be removed as they are close to coming off on their own and their age adds to the age of your accounts on your credit file. Adding or improving positive credit items will get you the rest of your way to your goal. This needs to be done cautiously as too many inquiries in a short span of time can lower your credit score and make it difficult to recover the score in a short period of time.
Fraudulent Credit Repair Practices
Credit repair practices vary as much as the companies who offer the services. Some credit repair companies work within the laws that govern them to help consumers build the best credit profile that the consumer can, while other credit repair companies resort to unsavory, unethical, and illegal practices to improve their client’s credit report. Some of these practices include disputing legitimately negative credit items en masse so as to overload the dispute validation system, filing false police reports of identity theft, and adding multiple unrelated authorized users to credit accounts that have a long, clean history.
Negative credit history, while damaging may not be disputed if the information reported it valid and current. If, however, the information contains errors, that can be disputed. Some credit repair companies will dispute negative information despite the accuracy of the information. A tactic that is sometimes used is called “jamming” – this is the act of overwhelming the credit dispute process. By using the “jamming” tactic, these credit repair companies are hoping that a legitimately negative tradeline will fall through the cracks and get deleted. This method relies heavily on the amount of time that a credit bureau has to verify disputed items. If a credit bureau has not verified the disputed information in 30 days, it must delete the information from the credit report. “Jamming” is neither legal nor a permanent fix to a negative credit situation, as legitimate negative information will be re-reported when the creditor next reports the account.
Another fraudulent credit repair technique is to have the consumer falsely claim that they were a victim of identity theft. Credit bureaus require a police report when a claim of identity theft is made. The police report would need to state that someone – whether known to the consumer or unknown – has used the consumer’s identity to obtain credit or for other fraudulent means. A false report to the police is illegal. Some credit repair agencies may even go so far as to file a false report of identity theft on behalf of their paying client.
Another illegal tactic sometimes used in credit repair is obtaining an Employer Identification Number (EIN) and using it to create a new “fresh start” file or a file with no prior credit history. While this may sound like a good idea, it is not legal for multiple reasons. First, obtaining an EIN (a business’ version of a social security number) without the intent of starting a business is not legal. Additionally, a consumer may be breaking additional laws by lying on the applications to creditors.
Some credit repair companies may offer to rapidly improve your credit by adding “seasoned tradelines” to your credit file. This practice is known as “piggybacking.” Although it is sometimes referred to as “credit enhancement”, “piggybacking” is the act of adding an authorized user (identified on some trade-lines as AU) – someone who is not the primary account holder – to an account with a long credit history. While this does give the consumer a quick credit history, this is a shady practice at best and fraudulent at worst. Due to this practice having become overly prevalent, some adjustments have been made in scoring models to minimize the effect of authorized user accounts where the primary card holder is not a family member.
Adding someone as an authorized user on a credit account is not in itself a bad practice as it can help a family member build or rebuild credit, especially if the line of credit has been open for an extend period of time. It is not a decision to be taken lightly as it can be costly for the primary card holder, especially if a card is issued in the authorized user’s name. It can do more harm than good for the authorized user if there is a high balance on the account or there have been any delinquencies on the account.
Some credit repair practices, while not originally bad, have become so due to some credit repair companies and even some of their clients using them to “game the system”. One such example is adding an authorized user to an existing credit account. Other credit repair practices, such as “jamming” and creating a new credit file using an EIN obtained under false pretenses, are fraudulent at the very least and illegal at the worst.
How to Repair Credit
Repair a consumer’s credit for less out of pocket than credit repair organizations will charge, is something that any consumer can do, however there is little guidance when the consumer has questions about the laws regarding credit repair. Under the consumer protection rules set up by the Federal Trade Commission (FTC), consumers have several rights including to their own credit file with the consumer reporting agencies. There are several steps to repairing a consumer’s own credit file. First, a consumer must obtain a copy of their credit report. Next, a consumer must evaluate the information in the consumer report looking specifically for any inaccuracies. Then a consumer has the right to dispute any incomplete information. Once the consumer reporting agency responds to the dispute, a consumer can provide a written statement to the consumer reporting agency if they do not like the results of the investigation.
The first step a consumer must take in order to repair their credit is to obtain a copy of their consumer credit report. Under the Fair and Accurate Credit Transactions Act of 2003 – commonly referred to as the FACT Act, consumers may obtain, once every twelve months for free, a copy of their consumer report from each of the major credit bureaus. Additional copies may be obtained for a nominal fee unless specific criteria are met to make the consumer eligible for an additional free report – to be eligible for the additional reports a consumer must either have been denied credit, denied approval for a rental agreement, be on public assistance, or will be looking for a job in the next 60 days (in accordance with the Fair Credit Reporting Act – FCRA). It is important for consumers to obtain a copy of each of the three credit bureaus as not all creditors report to every credit bureau.
After receiving a copy of their consumer credit report, consumers should look very closely at each trade-line – item reported on the credit report. When looking at the trade-line, consumers should look at the credit limit, the balance, date first reported, date last reported, and any late payments. Make sure that all of the information is complete and accurate. Only information that is inaccurate, incomplete, out of date, or fraudulent may be removed from the consumer credit report.
Anything that is incomplete or inaccurate can be disputed. To dispute information in a consumer’s credit report, the consumer would write a brief letter identifying the trade-line that is being disputed. Information that is disputed should be identified by as much identifying information as is possible. This is often required if there are two similar accounts on the credit report so it is easier to ensure that the correct account is the one investigated.
The information needed in a dispute for TransUnion includes the consumer’s name on their credit report, social security number, their date of birth, their current address, the name of the company whose trade-line is being disputed, the account number being disputed, the reason for dispute, and any corrections to the consumer’s personal information. This information would then be sent to:
Consumer Dispute Center
P.O. Box 2000
Chester, PA 19016
Similar to the TransUnion dispute information, the consumer would need to list the name of the creditor, the account number of the account with the inaccurate information, the reason the information that is being disputed, the consumer’s social security number, their date of birth, their name (as it appears on the report), and their current address. The address that a consumer would send their Experian dispute to is:
P.O. Box 9701
Allen, TX 75013
As with TransUnion and Experian, a dispute to Equifax needs to have specific information. A consumers name, as it appears on the credit report, their address, the consumer’s social security number, date of birth, the account holder of the trade-line in dispute, the account number, the reason of the dispute, and any corrections with supporting documents should be sent in the dispute. A consumer’s dispute to Equifax would be sent to:
P.O. Box 740256
Atlanta, GA 30374-0256
It is important for a consumer to provide as much information and supporting data as they can. An example of supporting documentation would be bills from the creditor showing proof of payment not missed. Proof if name, if the consumer’s name is the information that is incorrect due to marriage, divorce, or typographical error and needs to be disputed. If the consumer does not provide sufficient supporting data to show that the information is incomplete or otherwise inaccurate, the consumer reporting agency will contact the creditor for verification.
From the time of the dispute, credit reporting agencies have 30 days to investigate the validity of the credit item and dispute claim. If the trade-line was deemed to be accurate, the consumer has the right to write a letter. This letter explains to creditors that the consumer disputes all or part of a trade-line. Once the letter has been sent to the credit reporting agency, the credit reporting agency would then save this letter with the consumer’s file. Each time that a creditor requests a file from the consumer reporting agency, the consumer reporting agency will send the letter along with the credit file.
The consumer may also request that a consumer reporting agency resend an updated credit report to anyone who has received a copy in the last six months. The updated report would also include a copy of any letter mailed to the credit bureau, specifying what the consumer believes is incorrect or incomplete and why the consumer believe the information is incomplete or incorrect.
Credit repair can be done by the consumer, but it is quite time consuming. Each time a dispute is reported, a consumer reporting agency has 30 days to investigate and update accordingly. In accordance with laws enacted to protect consumers, only erroneous, incomplete, and/or out of date information may be disputed. While is it cheaper for a consumer to clean up their own credit file, there is a limit to what can be done without crossing into fraudulent credit repair techniques.