Let's be real, some of our parents didn't do a good job teaching us “adult” things–like credit repair.
If you have ever Googled, “how do I set up my electricity” or “how to apply for a loan”, then you are not alone. According to Google Trends, these phrases have doubled in popularity in the past five years.
There are thousands of twenty and thirty-somethings that have no clue what a 401K is, how to build credit, or how to set up their utilities. These things are second nature for people who were educated in personal finance, but for those that weren't, these things are like speaking a foreign language.
If your journey with personal finance has been less than favorable and you have a credit score you're unhappy with, this article is for you. Together, we'll discuss what credit repair is and what you can expect through the process.
What is credit repair?
Credit repair is removing inaccurate or outdated information from your credit reports. Inaccurate or outdated information may be negatively impacting your credit score. You can repair your credit independently or you can hire a company to handle the process for you.
If you decide to hire a company to handle the process for you, I recommend connecting with local professionals in your area to receive referrals. Generally, real estate agents or loan officers will have several local recommendations that their clients have used in the past. Also, I recommend vetting any credit repair company to ensure that they have your best interests at heart.
How do I get started?
To begin the process, request credit reports from the three credit bureaus: Experian, Equifax, and Transunion. You can do this directly through their websites, through your bank, or services like annualcreditreport.com. By requesting credit reports, you are able to review them for inaccurate or outdated information. Credit Karma or similar websites send notifications when your credit is run, but I recommend going directly to the bureaus for the most accurate and up to date information.
How long does it take?
Credit repair is an extensive process that includes reviewing your credit report, identifying inaccurate or outdated information, and disputing the information with the bureaus. The length of time it takes to repair your credit depends on how many disputes you need to make. In some cases, it can take up to 6 months. If you decide to hire a credit repair agency, then the length of time may be even longer.
Will everything negative be removed?
To be blunt, no. Credit repair is the process of removing inaccurate or outdated information. If there is information on your credit report that is negative, such as bankruptcies or foreclosures, and accurate, meaning it happened due to your actions, then it will not be removed. Despite this, the older the information, the less impact it has on your credit score.
Will my score change dramatically?
Most likely, you will not see a dramatic change in your credit report — especially if most of the negative information is accurate. For each hard inquiry that is removed, you may see a 5-10 point increase. For the removal of paid collections, you can see a 10-50 point increase.
Are credit repair companies free?
No, credit repair companies are not free. Credit repair companies do all the heavy lifting and help you dispute inaccuracies on your credit reports. On average, you can expect it to cost $50 to $100 to start, followed by a monthly fee.
What should I look out for when choosing a credit repair company?
Depending on who you ask, credit repair companies have mixed reviews, so explore them with caution. The Consumer Financial Protection Bureau encourages consumers to look out for several warning signs, including:
1) Paying in full upfront
2) Promises to remove negative credit information
3) Asks you to dispute accurate information
4) Doesn't explain your rights under the CROA and Fair Credit Reporting Act
5) Tells you not to contact the credit bureaus personally
Can I improve my score without writing to the bureaus?
Yes, you can improve your score by developing a healthy budget, staying on top of payments, and being disciplined. Click here to learn more about starting a budget.
What are some other ways that I can improve my credit score?
One notable way to improve your credit score is reducing overall credit utilization. Experts recommend keeping credit utilization less than 10%, or, in other words, making sure to charge less than 10% of your limit to your card.
If you are disciplined and charge your routine expenses to your credit cards, then it may be time to request a credit increase from your card issuer. This is not a free pass to spend more each month, though. Instead, this request, if approved, will increase your total credit limit, meaning that your utilization will go down naturally since you have more credit available.
A second way to improve your credit score is monitoring, and limiting, how many hard inquiries you have per year. Multiple hard inquiries can drive your score down, so if credit improvement is a goal, avoid taking on additional hard inquiries.
I have young children. Can I help their score?
The easiest way to help your children cultivate a healthy credit score is teaching them about personal finance. If you’re new to the topic as well, there is truly no shame in seeking out a class for the family to attend together. There’s multiple classes out there – from classes made by professionals to local college classes, so look into what’s available in your area.
If you have a healthy grasp on credit card utilization and scores, adding a child as an authorized user (and giving or not giving them the card, your choice) will help increase their score. I know several parents that added their children as authorized users and when they became of age, they had a solid credit score.
With the tangible steps outlined above, credit repair is a beast that you can tackle. If you have decided credit repair is necessary, what steps will you take first?