Credit Repair

What is Credit Repair?

What is Credit Repair?

Credit Repair is the process of improving your credit score through a variety of easy to complete actions. There are several options for boosting your credit score including:

  • Paying down debts
  • Consolidating debts
  • Removing unverifiable collections from your credit report
  • Removing negative history that is past the statute of limitations
  • Opening new credit
  • Co-signing with somebody with good credit

When beginning the process of credit repair you will first want to acquire a current detailed copy of your credit report. Once you have your credit report you will want to begin by reviewing your credit for negative history such as collection accounts and unpaid debts.

Paying Down Debts

Paying down debts or paying them off is one of the easiest ways to increase your credit score when you have outstanding debts. If you are using more than 50% of your available approved credit limit your score will be hurt. If you are using 100% of your available credit it appears to the credit bureaus that your budget is stretched thin and therefore your credit worthiness for additional purchases may be questionable. Your first goal in improving your credit score should be to get your debts below the 50% mark of your available credit limit.

Never close a credit card after paying it off

You should always keep credit cards open even if you paid them off. If you no longer want to use them just cut them up or put them somewhere safe instead of carrying them on you. The reason why you want to keep them open is because they represent available credit that is in good standing.

Example: Let’s say you have two credit cards one with a limit of $10,000 and a second credit card with a limit of $2,000 with a $2,000 balance. You go and pay off the $10,000 credit card and close it. You now only have one credit card with a $2,000 balance and are using 100% of your credit ($2,000 / $2,000 = 100%).

If you would have kept the $10,000 limit credit card open you would have two open lines of credit in good standing and would only be using 16.7% of your available credit ($2,000 / $12,000 = 16.7%).

Consolidating Debts

Consolidating debts works in a similar way as keeping credit lines open after paying them off. Essentially you shift your debts around in a manner that frees up available credit lines. If you have several credit cards with variable interest rates you wight want to consider balance transfers and consolidation on to credit cards that offer 0% interest for 12 or 18 months. When you have a 0% interest rate you can pay down the debts faster and improve your credit rating by getting the percentage of available credit your using lower much quicker than you were when you were paying interest.

Unpaid debts and credit repair

If you have unpaid debts that still have not gone to collections you have two options:

 

  1. Pay on the debt and get it current
  2. Allow the debt to go into collections

If you have unpaid debts and you allow them to go into collections this inaction will further damage your credit history and set you back on your credit repair initiative. Sometimes letting the debt go into collections is the only option due to cash flow and and other income restraints. It will be impossible to fix your credit with out first fixing your cash flow (Income – Expenses = Positive or Negative Cash flow).

Removing Unverifiable Collections from Your Credit Report

Collections accounts on your credit report damage your credit rating and significantly lowers your credit score. According to the Credit Reporting Agencies Act collections can only be reported on your credit history if they are accurate, complete and verifiable. Most collections are accurate and complete but are sometimes found to be unverifiable. Sending your collection accounts through a very specific verification process can help get some collections removed from your credit history and help repair your credit.

We recommend that if you have any collections on your credit report that you check to see if they are verifiable before you make any payment arrangements.  To learn more about the verification process and how it works check out our Debt Verification Letter in our downloadable Credit Repair Kit.

Removing Negative History that is Past the Statute of Limitations

You can also help improve your credit rating by having negative history removed from your credit report that has expired beyond the statute of limitations date. The statute of limitations is different for debts and for bankruptcy but by understanding both you can repair your credit rating by getting the history removed from your credit report when the time comes..

Statute of Limitations for Debts

For debts the Statute of Limitations begins 6 months after the last payment was made and lasts for 7 years. After that the credit reporting bureaus can no longer report the debt on your credit history. Technically you still owe the debt and a collection agency that purchased the debt can attempt to collect on it however they can’t report it on your credit history. If you make a payment even as small as one penny on the debt the statute of limitations starts over and essentially you would have to wait another 7 1/2 years before the debt can be removed from your credit report again.

Statute of Limitations for Bankruptcy

Bankruptcy is a tough decision to make because it decimates your credit history for a long period of time. It is often difficult to obtain new credit after you have filed for bankruptcy therefore it should be avoided unless you have no other options. As far as your credit report bankruptcy has a statute of limitations of 10 years before it can no longer be reported on your credit history.

Opening New Credit

Opening new lines of credit such as a credit card can help repair or improve your credit history after it has been open for about 12 months and is in good standing. You will obviously want to always make the payments on time, but more importantly keep the balance paid down below the 50% of your available credit limit. The lower the percentage you use the better off your credit score will be as long as payments are made on time. Sometimes people have a low credit score because they do not have enough credit history and therefore opening new credit can improve their credit score.

Secured Credit Cards

If you find it difficult opening a new line of credit you should look into opening a secured credit card. A secured credit card works a little different than a traditional unsecured card because in order to open up the line of credit you must leave a deposit. For a credit card with a $500 limit you would have to submit a $500 deposit to open up the line. The bank will hold the deposit to insure you pay on time. If payments are not paid you forfeit the $500 and hurt your credit further. Secured credit cards can help repair damaged credit and improve somebody’s credit rating who does not have much credit history.

Co-signing With Somebody with Good Credit

If you have no credit history or negative credit history you might find it difficult opening up new lines of credit. See if a friend or family member will add you to one of their credit cards or open lines of credit. You will want to be added in a way that shows you are responsible for paying back the line of credit and not just somebody who is allowed to use it. The credit reporting companies look at authorized users different than a person who is responsible for repaying the debt.