So you’ve got bad credit. We get it â€” itâ€™s absolutely no fun to have that stuff hanging over your head. It’s a huge emotional and financial drain on you and your family, it’s not something you’d wish on anyone else.
But â€” there is some good news. Firstly, let’s get one thing out of the way â€” bad credit is no reflection of you as a person. Debt happens for a number of reasons, ranging from unexpected medical expenses, to just a few months of overly enthusiastic shopping. You are not alone in your debt either â€” the average American has debts of $90,460.
Just because you have a bad credit score, it doesn’t mean you have to live with any sort of shame â€” you can fix it! Just like bad debt happens for a reason, good credit scores also happen for a reason, so letâ€™s talk about that.
Weâ€™re going to go over what makes a bad credit score, how to turn it into a good credit score, and along the way, youâ€™ll learn how to dig your way out towards financial freedom.
We want to be honest with you, though â€” yes, it takes work, and yes, it takes effort. There is no magic bullet that will make your bad credit go away. There are, however, a few simple but very effective things you can do to unchain yourself from your debt and live a happier life filled with freedom and financial security.
In this ultimate guide, weâ€™re going to cover everything you need to know about your credit score, how you can improve your credit score, and how your life can improve once you follow the steps in this guide.
To make things easy, weâ€™ve broken it up into chapters so you can skip straight to where you want to go:
- What Is Your Credit Score?
- The Credit Repair Process â€” Using a Credit Repair Company to Repairing your Broken Credit
- Are Credit Repair Companies a Scam?
- How To Increase Your Credit Score and How It Can Improve Your Life
Go grab yourself a drink, sit down, and by the end of the article, youâ€™ll have everything you need to know to start working on a better credit score today!
What Is Your Credit Score?
Your credit score is a measure of your financial reliability. At least in the eyes of banks and other financial institutions, it reflects how well you manage your finances and whether or not you make timely payments on loans and bills.
That’s because lenders use credit scores to decide who to lend to and at what interest rates; if it looks like you’ll have trouble paying back their loans, then they’re less likely to approve lending requests from you in the future.
If your credit score isnâ€™t good â€” banks and other lenders believe thatâ€™s a sign that you might be having trouble managing money, which can cause problems in other areas of life like job hunting, owning a home, getting insurance coverage for yourself and your family members.
So if you’re looking to apply for a loan â€” or youâ€™re concerned that your credit score might be holding you back from potentially valuable opportunities, then working to improve your credit score is something you should consider.
What is a good credit score?
Credit scores depend on a lot of things, which weâ€™ll cover later. However, when it comes to what banks consider good and bad is pretty clear cut. Credit scores generally fall into four categories: bad, fair, good, and excellent.
Bad: 300 – 629
Fair: 630 – 689
Good: 690 – 719
Excellent: 720 – 850
A score of 300 is the absolute lowest you can go, and 850 is the absolute highest. The average American has a credit score of 698, which is in the good category. Keep in mind though, if that is the average score, that means half of Americans have a credit score below that â€” so if you have bad credit, you are not alone.
People with credit scores of 670 or more are usually seen as acceptable or lower-risk borrowers, and generally don’t have trouble getting loans.
Those having a score from 580 to 669 are seen as “subprime” which means they may find it more difficult to get better terms and interest rates, but they still should be able to get loans in general.
The riskiest group within the population is made up of those who have credit scores below 580, meaning they might have trouble getting any sort of loan at all.
Generally speaking, you can improve your credit score no matter your rating, but it does tend to be harder to turn a good score into an excellent score.
If youâ€™d like to know more about what banks consider when it comes to credit scores, you can read our article What Do Banks Consider a Good Credit Score?
The Credit Repair Process â€” Using a Credit Repair Company to Repairing your Broken Credit
Thereâ€™s good news! You might not know this, but some of your so-called bad debt might not actually be bad debt after all. Some of your debt might actually be an error, due to the fact you actually paid it, or it was just bad reporting in the first place.
This is where a credit repair company comes in â€” they can go through your financial records and help you improve your credit score by finding the â€œfalse debtâ€, and negotiating on your behalf on how to pay off genuine debt.
Okay, let’s get started on everything you need to know about using a credit repair company to repair your credit score. In this section we are going to cover:
What is a credit repair company?
Credit repair companies are organizations that claim to be able to remove negative items from your credit report. These items might include false reporting of late payments, foreclosures, debts, and judgments. If you have any of these types of debts on your credit report, there are ways in which a credit repair company can help remove them so the debt won’t affect your credit score. Good stuff right?
If you have a bad credit score and need help repairing it, there are ways to do so with the help of a credit repair company. These companies can help remove negative information from your credit report to improve your credit score. With this in mind, there are some important questions to ask before deciding to work with a company that will basically â€œclean upâ€ your credit report.
Credit repair companies are usually used by consumers who have debts on their credit report but don’t know how to remove them. Many times, these companies offer the service of disputing negative items with the three major credit bureaus; Experian, TransUnion, and Equifax.
While some consumers find that they are able to process their own credit repair, most don’t have the time, patience, or knowledge of how to do so. In the end, most people find that it is much easier to work with a credit repair company to achieve their goals.
Many people use a credit repair company because their goal is to improve their credit score as quickly as possible. For example, a consumer may want to purchase a home but feels uncomfortable doing it with the credit score that they currently have. By working with an experienced credit repair company, consumers are able to improve their bad credit score much faster and more conveniently than having to do all of the hard work themselves.
How much does a credit repair company cost?
Honestly, repairing your credit is actually something a lot of people can do themselves, so in that sense, it can cost you nothing. However, as we mentioned earlier, the whole process of going through big paper trails, contacting credit agencies, and trying to negotiate new terms isn’t exactly something we’d recommend for fun.
So when it comes to repairing your credit score, most people find that paying for a professional credit repair company is a much better option. When you do hire a credit repair company, you can expect to pay between $30 and $100 per month, and the exact number will depend on what you need.
For example, if you have $20,000 in credit card debt and bankruptcy that’s preventing you from getting a good rate for a mortgage, then that’s going to cost a lot more than having just a couple hundred dollars of medical debt.
One thing to note is that by law, all credit repair companies are required to be completely upfront with their costs. That means if they don’t show you exactly what they are offering, and what they will charge, you should stay away and find a reputable credit repair agency.
What does the credit repair process look like with a credit repair company?
The credit repair process means hours of tweaking and updating your data for curating your credit information. It’s not a fun or quick process, so that’s why people hire credit repair companies to do the heavy lifting. Individual credit repair companies might approach things slightly differently, but the process remains mostly the same.
The very first step of the process is the credit repair company seeking your credit score and credit history on your behalf. They’ll generally contact each of the three credit bureaus â€” Experian, Transunion, and Equifax. The company will then use this data to determine what’s wrong with your profile and how they can fix it. They’ll let you know if there are any errors that need to be changed, whether items are missing, or if some debts should be paid off before requesting them to be removed.
The first step of the process is having a credit repair company contact each of the three major credit bureaus on your behalf. This is called a “609 letter”, and it’s part of your rights as part of the Fair Credit Reporting Act (FCRA). This letter requests all of your credit information, including who has accessed your credit file, for example, employers and lenders.
The company needs this data so they can determine what needs to be done in order to repair your credit score. If there are any errors that need to be updated, items that are missing, or debts that should be removed, the company will let you know about them.
The next step is for your credit repair company to write a formal letter of correspondence instructing the credit bureaus to investigate everything your credit repair agency is claiming. That means if they’re asking for a debt to be removed, the credit bureaus will investigate and attempt to verify that this debt belongs to you.
Once the credit bureaus have gone through all of your credit paperwork, they will send you back an updated version of your credit report. Your credit repair agency will then help you go through all of the items you no longer want on your credit report.
The credit bureaus should be working on a time period of about 30 to 150 days to get back to you on these disputes. This is called the â€œtimely response” threshold, and it ensures that credit bureaus don’t ignore you or delay your requests.
All things going well, you will have some of your debt removed, which will, in turn, improve your credit score. The results will vary case by case, but at the very least, you will have the most accurate version of your credit report possible, based on the revisions you have made.
The process isn’t quite finished here though, or at least it shouldn’t be. To keep on top of your credit score, you should request a free copy of your credit report from each of the three credit bureaus every four months. The Fair Credit Reporting Act ensures that we can do this without getting charged.
By keeping regular tabs on your credit report, you will be able to monitor new debts as they come up, and dispute them if you think they are a mistake. After doing this regularly for a year or so, you’ll be in the great habit of finally being in control of your credit!
How long does the credit repair process take?
The overall credit repair process will take time â€” anywhere from three to six months, depending on how bad your credit history is. There are a number of factors that will determine how quickly your credit will be repaired.
The main factor is based on how long your history is, and to what degree it’s stuffed with negative items like bankruptcies, judgments, collections, etc. Basically, the more bad stuff you have on your credit history, the longer it’s going to take.
What we’re trying to say is that the only way to find out how long it will take for your credit history to be repaired is to contact a credit repair company and let them examine your case. They’ll then provide you with a free estimate of how long it’s going to take, and then they can put together a strategy on how to go about repairing your broken credit.
While it’s tempting to want all of this to happen overnight, it will be a reasonably long process that will take patience. The good news is, once the whole process is over, your financial life will be in much better shape, and you’ll also have the knowledge to allow you to keep it that way in the future.
In conclusion, if you have a bad credit score, you are not alone â€” we promise. There are millions of people who have had their credit history broken by errors, debt, and other financial mistakes that they made in the past. However, you can fix your credit with a qualified credit repair company to repair your broken credit score, so it will be easier to get approved for loans or find an employer when you need one.
Your credit repair company can help you remove bad debts, improve your score by handling all the paperwork for you, and even negotiate with creditors on your behalf. There are, of course, other options for improving your credit score, but a credit repair company is definitely a solid choice.
If youâ€™d like to find out more about the credit repair process, including some extra hints and tips, you can read our article on Navigating the Credit Repair Process â€” Your Ultimate Guide To Repairing Broken Credit with a Credit Repair Company.
Are Credit Repair Companies a Scam?
Legitimate credit repair companies are not scammers, and will not rip you off. In saying that, there are some scammers out there that make a bad name for the genuine credit repair companies that can really help you.
Because money and debt can be a very emotional topic, some people will gravitate to anyone who promises to help lift them out of debt. Scammers love to prey on this and will offer you the worldâ€¦ for a price.
To avoid scammers, do plenty of research â€” look for online reviews, and read about what other people say about them. The following sites are good resources.
If you’d like to see if a credit repair company has any complaints, you can check the Consumer Financial Protection Bureauâ€™s database. The U.S. Department of Justice also has a list of approved credit counselors for local and national companies.
Finally, you can also ask friends, family, and colleagues for referrals, which is also a good way of finding companies that are worth your time and money.
If you’re looking for a rule of thumb, if it sounds too good to be true, it probably is. When looking for a reputable credit repair company, use your head, not your heart.
Now that we’ve covered the basics of finding a legitimate credit repair company, let’s take a look at:
How the Credit Repair Organization Act protects you
By law, all credit card repair companies in the U.S. must comply with the Credit Repair Organizations Act (CROA). The CROA is designed to protect credit seekers from being taken advantage of by scammer credit repair companies and aims to put an end to hidden fees and cost-prohibitive services.
The CROA is enforced by the Federal Trade Commission (FTC), and requires all credit repair companies to tell you:
- The services they will provide for you.
- Your legal rights, written as a contract that you have a copy of.
- The option to cancel your contract within three days, without charge.
- How long it will take to get the results you are paying for.
- If they will offer any guarantees.
- The total cost of the services that they will provide.
A credit repair company can’t ask you for money upfront. If they ask for any sort of prior payment, including monthly payments, they are acting illegally.
Of course, just because there are laws in place, doesn’t mean some con artists won’t try and scam you â€” which leads us to the red flags to look out for when looking for a credit repair scam.
Red flags that indicate a credit repair scam
Every day, hundreds of people in the U.S. fall victim to a credit repair scam, costing time, money, and heartache. This means you’re not alone â€” con artists often prey on people who are in a vulnerable position or just don’t understand how credit works. To help avoid being “taken” by a scam artist, here are some red flags to watch out for:
- The credit repair company promises to completely remove negative items from your credit report.
- They are charging upfront fees, even before the work begins. Legitimate companies will not ask for payment until AFTER they have done their work and gotten results.
- The credit repair company advises you to dispute credit information that is actually accurate.
- You are getting calls from an unlisted number or one that doesn’t identify the business name.
- The credit repair company is not willing to send you information about their services â€” including pricing and guarantees in writing before you sign up.
- Legitimate credit repair companies will NEVER ask for payment over the phone â€” if they DO request it, it is most likely a scam.
- The credit repair company tells you you can’t do credit repair yourself â€” you absolutely can do it yourself, it just takes time and effort.
- The credit repair company tells you to change your identity to improve your credit.
- The credit repair company tells you that you can’t or shouldn’t contact the credit bureaus yourself.
- The credit repair company tells you to apply for credit using anything other than your Social Security Number. In this scam, they will tell you to apply for credit with a Credit Privacy Number (CPN), or credit profile number. This often results in identity theft.
- The credit repair company tells you to enter false details or information on loan or credit applications.
It’s a good idea to bookmark this page in your browser and make sure none of these red flags apply to a credit repair company you are talking to. If any of the red flags do appear, stay away, or even report them, which we’ll cover now.
How to report a credit repair scam
So you’ve spotted a credit repair scam â€” good on you! Thankfully, you’ve avoided the scam, but you should really make sure these con artists don’t go on to hurt other people. To report a credit repair scam you can:
How to fight a credit repair scam
If you’ve been unfortunate enough to be the victim of a credit repair scam, you do have a few avenues to go down thanks to the CROA:
- You can choose to sue the scam credit repair company in federal court, either for what you paid them, or your total losses â€” whichever one is the highest amount.
- You can join a class-action suit against the fraudulent credit repair company.
- You can pursue punitive damages, which punishes the company for breaking the law.
- Report them to the FTC or your state Attorney General, as mentioned above.
Admittedly, none of this is a simple process, but many lawyers will be happy to investigate each avenue for you.
The many red flags in this post should help steer clear of unreliable or scammy credit repair companies. Unfortunately, con artists never fail to find new ways to trick honest and unsuspecting people, but there are laws on your side, and you shouldn’t be afraid to use them to your benefit. And if all else fails, report them!
With this information at hand, you’ll be ready to find and choose the perfect credit repair company for your needs. It’s important to know that most credit repair companies are legitimate, friendly, and effective, so don’t let a few bad apples discourage you from chasing a better credit score.
If you’d like to know a little bit more about credit repair scams, feel free to read our article 10 Signs A Credit Repair Company is a Scam â€“ And What You Can Do.
How To Increase Your Credit Score and How It Can Improve Your Life
The average American has a credit score of 698, which is considered to be in the â€œgoodâ€ range. This means they are likely able to get loans with low-interest rates. But what if you wanted an even better credit score? And how would your life improve with a better credit score?
A great credit score can help get better loans, better insurance, better jobs, and even better health â€” it’s that meaningful.
Let’s take a look at the ins and outs of building a better credit score, and the positive impacts it could have on your life. Trust us, this is worth reading!
How a better credit score can give you a better life
We are not joking when we say a better credit score can improve many aspects of your life. It’s not just about lower interest rates or better deals either â€” when you have a good credit score, the weight of your financial burden is lifted from your shoulders. Your life becomes simpler, less stressful, and you are able to dedicate more energy to the better parts of your life.
Let’s take a look at the real-world, proven benefits of having a better credit score.
Lower interest rates
When you have a good credit score, creditors are not just more likely to lend you money, they are more likely to lend you money with a lower interest rate and better terms. This means you pay less interest and have more money to spend on the things that matter to you.
Many creditors will also waive certain fees with a good credit score. For example, many credit card companies waive monthly fees for customers who maintain a good credit score.
Enjoy a newfound financial security
A good credit score gives you financial security, which is all about freedom. You can make a large purchase, such as a car or a house, and know you have the financial resources to do so.
This means you no longer have to save for years or live paycheck-to-paycheck desperately trying to keep up with your bills. Curveball bills become less of a problem, and you no longer dread opening envelopes in the mail. The relief of this financial security, even just knowing it is there, really can be life-changing.
A better credit score means better health
It’s a scientific fact â€” better financial security leads to better physical and mental health. The reason for this is that when you have more money, you have less stress. When we don’t have to stress about money, we no longer carry that burden and can relax.
For example, when you are financially secure, you are less stressed about meeting your financial obligations or paying your bills on time â€” both of which are proven to put a toll on our physical and mental health.
Even if the worse was to happen and you had to take on some medical bills, you will know you have the good credit to cover it.
Bottom line â€” better credit means no more sleepless nights!
A better life for your children
We saved the best for last. Having a good credit score can mean a more secure future for your children, especially if you have children who are about to go to college or start planning for their own lives.
Why? Because when you have a good credit score, it means you have been financially responsible and disciplined, which is a great example to set for young ones.
How to build a better credit score
So now that we’ve talked about the benefits of building a better credit score, we need to talk about how to actually improve your credit score in the first place. There are a few ways to do this â€” they all take discipline and effort, but the benefits to you are worth it.
Pay your bills on time
This may seem obvious, but this is the biggest and most overlooked factor that goes into your credit score. Did you know that if you miss a single credit card payment by 30 days, it can lower your credit score by over 80 points?
Payment history is the most important factor in keeping your credit score healthy, and late payments can stay on your credit report for over seven years â€” and that’s not something you want a lender to judge you on, just because of a simple mistake.
If you do happen to miss a payment, contact the creditor as soon as you can to let them know it was a mistake, and you will pay it ASAP.
Getting into that habit of regular payments requires attention and dedication, but if you can pull it off, you’ll be on your way to a better score. Make sure to pay at least the minimum amount owed every month and avoid making any unnecessary charges.
Make multiple monthly payments
Beyond paying your bills on time, creditors will look at how much of your credit you are using at any one time. This is called credit utilization, and it basically means how much of your available credit you are using before you pay it off â€” the lower it is, the better your credit score.
So the best way to keep low credit utilization is to either not spend too much on your credit card at once or to make payments as often as possible to lower your credit utilization.
Keep all of your credit cards open
This advice may sound odd â€” after all, surely we want to reduce the temptation to spend on multiple credit cards, right? Well as we talked about before, creditors will look at your credit utilization. If you close down a credit card, you are actually increasing your credit utilization, which is not a good thing.
Think of it like this â€” you have four credit cards, each with a limit of $5,000. That’s $20,000 in total. If you close down one of your credit cards, you are removing $5,000 of available credit, which increases your existing credit utilization.
Even if you pay a credit card off, just leave the account open. Put the card in a safe place so that you’ll only use it in emergencies, and you’ll help lower your credit utilization, and raise your credit score.
Get a good debt-to-income ratio
One of the big things creditors look at is your debt–to–income ratio, or how much you owe, compared to how much you earn. In essence, they want to make sure you are earning enough to pay off your debts.
You can read more about how to calculate your debtâ€”toâ€”income ratio in our article Make Your Money More Valuable.
Consolidate multiple debts into one debt
Debt consolidation is all about getting multiple debts bucketed into one. So, instead of having three credit cards to pay off, you would take out a personal loan and use that to pay it all off. This would drastically reduce both the number of bills and your overall interest rate, which is usually beneficial for your debt-to-income ratio.
The key here is to look for a lower interest rate. Sometimes companies that specialize in debt consolidation will offer an interest-free period, which can allow you to take your time and pay back the loan without incurring any extra cost.
If you do choose a debt consolidation package with this interest-free period, make sure you can pay all of your debt during this time, because when the interest-free period ends, you may end up paying more interest than your original debts.
Bundle your insurance products
A good way to reduce your costs is to bundle your insurance products, like home insurance, car insurance, and more. If you are able to get these bundled together with one provider, odds are you will receive a discount on your premiums.
And remember â€” you aren’t limited to sticking with the same insurance company forever. Make sure to check the market and find a provider that can offer you the best deal and the best services for your needs.
Draw up your budget
This is one of the most overlooked parts of improving your credit score, and it’s also the most critical to understanding where you sit financially. Drawing up your budget really just means writing down all of your income (inflow), and then comparing it to all of your bills (outflow). The end number is called your cash flow.
When you understand your cash flow, you can adjust it so that you have more money going to your debts and less going to things like dining out. That means lowering your spending, and if necessary, getting a second job or increasing the hours you work at your current job.
The fewer bills you have each month, the better off you are when it comes to borrowing money because eventually those bills will be repaid and you won’t have as much money leaving your account.
If you’d like to see a template for drawing up your budget and more information about how to make your money work for you, read our article Make Your Money More Valuable.
We genuinely hope that weâ€™ve given you a much better idea as to how you can repair your credit forever, and enjoy all of the life-improving benefits good credit holds.
Hey, congratulations, you just did a whole lot of work on how to improve your credit! Youâ€™ve just started on your journey towards financial freedom. If you have any questions about any of the solutions we’ve talked about in this article, please do reach out and contact us â€” we are dedicated to helping people repair their credit, and this could be your first step to living a better, positive financial life.
Best Credit Repair Companies 2022