In today’s financial landscape, your credit score serves as a pivotal indicator of your economic well-being, wielding significant influence over your capacity to obtain loans, credit cards and housing, among other things. However, for many individuals, the journey towards credit score repair can be a perplexing one, riddled with potential obstacles and complexities.
Documented talked to Bruce McClary, Senior Vice President of Media Relations & Membership at the National Foundation for Credit Counseling, and Rod Griffin, Senior Director of Consumer Education and Advocacy at Experian. They provide valuable insights into the essential steps needed to repair your credit, empowering you with the knowledge to navigate this challenging journey while steering clear of common pitfalls.
How to repair a credit score
Credit repair is a process that demands patience and commitment. Restoring credit can vary greatly depending on individual circumstances. The most crucial factors in credit restoration are making on-time payments and maintaining low credit card balances, paying them off in full promptly.
Griffin highlighted that for those who have encountered financial difficulties, especially due to excessive credit card debt and unsustainable spending habits, two important steps include reducing credit card debt and curbing unnecessary expenditures.
More generally, Griffin suggested that obtaining a credit report and credit score is the first step in understanding your credit history. The credit score itself is less important than the risk factors affecting it.
“The risk factors tell you exactly what from your credit report you need to work on as an individual to improve that score to make your credit better,” said Griffin.
For someone who has gone through bankruptcy, Griffin encouraged them to maintain an open and active credit account. Make small monthly purchases and pay off the balance promptly to gradually rebuild your credit. This approach introduces positive information into your credit report without accumulating more debt, ultimately reducing the impact of the bankruptcy over time. Griffin suggests this strategy as it helps counterbalance negative entries, leading to a quicker improvement in your credit history.
In cases of identity theft, McClary emphasizes the importance of immediate action. First and foremost, it’s crucial to report the crime to law enforcement and relevant authorities. Simultaneously, consider placing a fraud alert and freezing your credit report. To do this, contact the three major credit bureaus – Equifax, TransUnion, and Experian. A credit freeze provides protection by preventing unauthorized account openings, while a fraud alert adds an extra layer of security. Additionally, obtaining a copy of your credit report from each of these bureaus enables you to scrutinize the details and identify any further fraudulent activities beyond your initial discovery.
Also Read: Identity Theft: How Does It Happen and How To Report It.
How long does it take to repair credit?
The duration of the credit restoration process varies depending on individual circumstances, including how much damage was caused and what type of damage was caused. It is also related to how successful you are working with the credit bureaus to correct the reported information related to fraudulent activities. Simple issues such as late payments can be resolved within a month or two, while bankruptcy and more severe credit problems can take years to fully recover from.
Griffin suggested that you never lose confidence or give up. You can report positive payments for phone bills, utilities, streaming services and rent to tools like Experian Boost to speed up the process, he said. By doing so, you show that although you have faced difficulties, you are making progress.
If you have very strong credit scores, it’s likely that you don’t see much impact. However, on average, there is an over 13-point increase in credit scores for people with scores of lower than 680 on a FICO scale. With fewer than five accounts affected, there may be as much as a 19-point increase on average, according to Griffin.
Which trusted companies can help you restore your credit
You can start with credit bureaus like Equifax, Experian and TransUnion to enroll in monitoring services, Griffin said. For example, if something new is affecting your credit report, you can act on it right away to prevent further victimization. The same holds true if you have experienced identity theft. The bureaus will notify you if they suspect you are the victim of identity theft.
It’s also essential to contact lenders directly if you’re facing difficulties repaying them, as they may offer alternative repayment plans or resources to help, Griffin said. In this way, you can continue to pay them.
You can file a complaint with the Federal Trade Commission and complete an affidavit affirming that you have been the victim of fraud and identity theft.
If your Social Security Number was compromised, you should work with the Social Security Administration to ensure that your number can’t be used by someone to open up new accounts.
The one that many often ignore to notify, according to McClary, is their employers. It is a good idea to make your employers aware of your stolen identity because “in addition to giving someone the ability to open up new credit card accounts or take out loans, it could also give someone access to information, records of your that your employer keeps, and it could affect your job.”
What to do if you’ve been a victim of identity theft
In the case of identity theft, valuable documents include police reports, affidavits and legal documents supporting the fact that you are a victim. Receipts and billing statements can serve as evidence, particularly to dispute inaccurate late payments. Any documentation of communication between you and the creditor or lender showing the fraudulent accounts or transactions can also serve as evidence. The more detailed it is, the more successful you will be when restoring your credit.
The dispute process involves going online to the credit bureaus to upload documentation, ensuring that accurate information is relayed to the credit agencies.
You should also bring your driver’s license, passport or other documentation proving your identity when requested.
In the case of bankruptcy, individuals should consider providing a “Schedule A” to ensure accurate reporting of accounts included in bankruptcy.
How to monitor and report your credit restoration process
Both Griffin and McClary stress that specificity is essential when disputing credit history issues, including clear details of the problem, account numbers, creditor information, and supporting evidence.
If you disagree with the results of the dispute when you’re disputing information, or working to update your credit history, adding a “statement of dispute” to your credit report will be helpful, adds Griffin.
Regularly monitoring the credit restoration process is crucial, and using monitoring services and tools can be highly effective. Tools like account payoff calculators and score simulators can be very useful. McClary also advises you to proactively follow up with lenders and creditors.
Identity theft victims who are Asian should especially practice clear and consistent reporting of personal information, especially names.
Beware of quick credit repair companies
Always be cautious if something is too good to be true. You should particularly beware of credit repair companies promising quick fixes, as they may not deliver on their claims.
Know your rights under the Credit Repair Organizations Act (CROA), which “specifies what a credit repair firm must do before they take a single penny from you,” explained Griffin. For example, they must have a written contract with you and fulfill all of the terms of that written contract before you are charged. They cannot tell you to falsify information or that they can remove accurate information from a credit report. They also should give you three days to withdraw from that contract without taking any payment.
You can consider reputable nonprofit organizations like the National Foundation for Credit Counseling, the largest and oldest credit counseling services company.
In addition, you should always keep an eye on your credit activity while bewaring of credit monitoring services as they vary in quality.
Resources for identity theft victims to help with credit repair
- Free weekly credit report: annualcreditreport.com
- Scam tracker (report scam): Better Business Bureau
- Affordable repayment plan: National Foundation for Credit Counseling
- Identity theft resource center: fraud.org
