Consumer Credit Repair Guide

credit repair guide to improve your financial life

Your financial situation is different from anyone else. You should take the time to review this consumer credit repair guide to find the best solution to improve your consumer credit history.

One American in five has errors in their credit reports based on a recent report from the FTC. These errors can negatively affect your credit scores since they are calculated solely based on the information in your consumer credit reports.  If you fall into this group, this consumer credit repair guide will help you to improve your credit score.

A lower consumer credit score indicates to a potential lender that the quality of your creditworthiness is less than ideal. This can result in limiting your availability of credit sources as well as increasing the cost (fees and interests) of borrowing.

What Is Consumer Credit Repair?

Consumer credit repair refers to the process of disputing mistakes and errors in your credit reports. Your creditors monthly report your credit activities (payments, credit applications, etc.) to the credit bureaus. Each credit bureau has their own proprietary version of your credit report. The information in your credit report is accurate, based on what is received from your creditors. But your creditors and the credit bureaus commit errors in reporting.

Follow this consumer credit repair guide to learn what to do when there are errors in your credit reports.

What Is A Credit Score?

Your credit score is your credit history expressed as a number. It is a three-digit number, typically between 300 and 850, designed to represent your credit risk, or the likelihood you will pay your bills on time. You can also think of it as a grade for how responsibly you have managed loans, lines of credit and other financial obligations over the years.

Credit scores are calculated using information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history. Higher scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit, like a loan or a credit card.

Credit scores are extremely important because they affect your ability to borrow money as well as the cost of doing so. Simply put, those with higher credit scores generally receive more favorable credit terms. This will translate into lower payments and less paid in interest over the life of any of your credit accounts. They also play a role in the car insurance premiums you pay. And, unfortunately, bad credit can even make it difficult to find a job or a place to live.

This consumer credit repair guide breaks down what goes into your credit score so you focus on what is most important to improve on.

Your Financial Report Card

A credit score is a statistical summary of the information contained in a consumer’s credit report usually graded on a scale ranging from 300 to 850. Your credit score represents your financial reputation. It is used by lenders, landlords, employers and others to determine your level of credit risk, responsibility, and overall character.

Credit scores are calculated using information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history. Higher scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit, like a loan or a credit card.

Here is a general look at credit score ranges:

  • Excellent – 800-850
  • Very good – 740-799
  • Good – 670-739
  • Fair – 580-669
  • Poor – 300-579

Credit scores may vary according to the scoring model used and which credit bureau furnishes the credit report used for the data. That is because not all creditors report to all three three nationwide credit bureaus (Equifax, Experian and TransUnion). Some may report to only two, one or none at all. Also, lenders may also use a blended credit score from the three major credit bureaus.

The types of credit scores used by lenders and creditors may vary based on their industry. For example, an auto lender might use a credit score that places more emphasis on your payment history when it comes to auto loans.

Since everyone’s financial and credit situation is different, lenders may also have different criteria when it comes to granting credit, for example, including your income as a factor.

What Affects A Credit Score

Credit scores are based on the information in our major credit reports. They represent a numerical weighting of different categories found in a credit report. There are two major providers of credit score reports in the US: FICO Score and VantageScore. While the credit scores may be calculated a bit differently, they will likely produce very similar results for you.

Your credit score is calculated only from the information in your credit report. However, lenders may look at many things when making a credit decision, such as your income, how long you have worked at your present job, and the kind of credit you are requesting.

If you have good marks in each of the following credit categories (using FICO Score as reference), your credit should be good no matter which credit score report is used. These percentages are based on the importance of the five categories for the general population. The importance of these categories may vary from one person to another.

Payment history is the most important part of any credit score. The first thing any lender wants to know is whether you have paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit.

Having credit accounts and owing money on them is the second most important category of a credit score. It is an indicator of whether your spending habits are sustainable and if you are likely to face serious financial problems in the future. If you are using a lot of your available credit, this may indicate that you are overextended-and banks can interpret this to mean that you are at a higher risk of defaulting.

In general, a longer credit history will increase your credit report. The length of time using loans, credit cards and lines of credit is important in accurately forecastig a borrower’s future risk behavior. However, even people who haven’t been using credit long may have credit scores depending on how the rest of their credit report looks.

This category measures your mix of different types of credit accounts (credit cards, retail accounts, installment accounts, auto and mortgage loans) and how recently you have used them. The types of credit you have used shows how experienced a borrower you are. It is not necessary to have one of each.

On a credit score, this category emphasizes your recent financial performance. This is one of the best predictors of your future financial activities. Research shows that opening several credit accounts in a short period of time represents a greater risk, particularly for people who do not have a long credit history. If you can avoid it, try not to open too many accounts too rapidly.

Credit Reports | Credit Scores

There are three major US credit bureaus: Experian, TransUnion and Equifax. The credit bureaus maintain records of your credit data and other identifying information. These are your consumer credit reports.

There are two major US credit score providers: FICOScore and VantageScore. FICOScore is the market leader and are used in over 90% of US lending decisions. These are your consumer credit scores.

When you get a new loan or credit card, make or miss a payment, apply for a car loan, etc., your lenders will report this information to the credit bureaus. Since it is up to your lenders what information they report to the credit bureaus, and which credit bureaus they report to, it is not uncommon for your credit reports to be slightly different at each bureau.

And since your credit scores are calculated from the credit data on your credit reports, it is also common for your credit scores at each credit bureau to be slightly different. Yes, you have multiple credit scores. And, different lenders use industry specific credit scores when evaluating your credit. For example, there are credit score versions for auto, home mortgage and credit cards.

All consumer credit reports contain the same four categories of information.

Personal Information – Your name, address, Social Security number, date of birth and employment information. This information is NOT used in calculating your credit score.

Accounts – Your credit accounts, organized by type (bankcard, auto loan, mortgage, etc.), date opened, credit limit or loan amount, account balance and payment history.

Inquiries – Requests for your credit report within the last two years. There are two types of inquiries: hard inquiries and soft inquiries. A hard inquiry occurs when a lender or other third party checks your credit report or score when you apply for credit with them. A soft inquiry typically occurs when your credit reports and scores are pulled without you applying for credit (like when a credit card issuer sends you a pre-approved offer), or when you pull your own credit reports. Your credit scores only consider hard inquiries.

Negative Items – Delinquency information from missed payments that have been reported by lenders. This also includes information on overdue debt from collections agencies, and public record information (bankruptcies and foreclosures).

The Consumer Credit Repair Process

Consumer credit repair is the process you use to correct reporting errors on your credit report (which adversely affect your credit score) by submitting a dispute to the credit bureau that issued that report. If the information cannot be verified within 30 days, the credit bureau must remove the item you disputed.

You or a third-party credit repair company can do this. There’s nothing a credit repair company can legally do for you, even removing wrong information, that you can not do for yourself for little or no expense

There is no quick repair fix to improve your credit score. Information that is negative but accurate (such as late payments and delinquencies) will remain on your credit report and affect you credit score for up to seven-years. However, there are steps you can take to repair and improve your credit scores over time.

Dealing with the credit bureaus can be challenging.  This consumer credit repair guide is a starting point for you to take your first steps.

Consumer Credit Repair Process

By law, information reported about you to credit bureaus must be fair, accurate, relevant, substantiated and verifiable. Consumer Credit Repair involves fixing inaccurate, misleading, unverifiable, untimely, biased or incomplete information listed on your credit report.

In order to fix these errors, the national credit reporting bureaus require you to work through a series of formal dispute letters and complicated online disputing systems. The importance of fixing errors on a credit report is that they will result in lowering your credit score.

Basically, third-party credit repair services will examine your credit reports and help you with disputing items that are unfair, inaccurate, and unverified in order to help you have a fair and accurate credit report.

There are four basic steps to improving the quality of your credit report and resulting credit score:

Obtain your credit report from the three major credit bureaus to collect information on your full credit history. Each credit bureau’s report is different and all need to go through analysis. You focus on the negative items that are affecting your credit score and you create a disputing plan.

If you choose to use a third-party credit repair service, their legal team assigned to your case reviews your negative items and drafts and sends the appropriate dispute correspondence to the creditors or credit bureaus. The disputes need to be done in writing and sent to the credit bureaus via certified mail for bureau accountability.

If a negative item requires more care to remove, the dispute is escalated to include legal representation (if you use a third-party credit repair service). The Fair Credit Reporting Act and other laws are used to ensure your credit rights are accurately represented.

As disputes are processed, the credit bureaus need to be tracked to ensure compliance with the dispute resolutions.

Consumer Credit Repair Dispute Process

A credit dispute is an inquiry sent to a credit bureau about an error on your credit report. Essentially, a dispute is a request sent to the credit bureaus for them to conduct an investigation of questionable information on your credit report. Note that since there are three national credit bureaus, each with a different version of your credit report, you have three credit reports to review.

Once you have begun a credit dispute, a credit bureau will initiate an investigation of any credit information that you challenge. The Fair Credit Reporting Act (below) statutes obligate the three major credit bureaus to investigate the items in question. They must also forward any data you provide about the error to the organization that provided the information to the credit bureau.

Here are the following steps that you should take if you find an error on your credit report.

Each of the major credit bureaus have their process in place to dispute inaccurate information in a consumer credit report. While you can do this online, it is recommended to send a letter to ensure receipt and accountability.

The FTC has a sample dispute letter you can use for reference. It should cover:

  • Clearly identify each item that you challenge.
  • Explain why you challenge the information and go into detail.
  • Request that the negative item is removed or corrected.

If you are challenging a credit inquiry (a hard inquiry that occurred without your approval), you should first notify the lender who issued the credit inquiry. Then you should notify the credit bureau.

The data furnisher is the entity (lender or creditor) that provided the information to the credit bureaus. They are also obligated to follow the statutes in the FCRA. This means they are responsible for investigating consumer disputes about the accuracy of the information they provided.

If the furnisher has reported a late payment or incorrect debt amount, you could try contacting them directly. In cases of incorrect personal information, it should primarily be reported to the credit bureaus.

Credit bureaus must investigate the items in dispute usually within 30 days. Once completed, they have five days to report the results back to you. You can expect the same time-frame for a response from a data furnisher.

After the investigation, the credit bureau must provide the results in writing and give you a free copy of your report if the dispute results in a change.

Credit bureaus are not obligated to investigate a claim they decide is “frivolous,” Examples of frivolous claims include:

  • Submit inaccurate or incomplete information on the dispute.
  • Try to contest the same item multiple times without new evidence.
  • Attempt to claim without proof that everything on your credit report is inaccurate.

If the information you challenge is verified as accurate by the data furnisher, the item will remain on your credit report. Otherwise the item will be updated or deleted. Review your credit report to verify.

Filing a dispute has no impact on your score. Updates to personal information have no impact on your score. Your credit scores could change if information on your credit report is updated (removal of a late payment, change in account status, etc.) and is relavent in the calculation of your credit score.

Laws Governing Credit Repair

The Fair Credit Reporting Act is where credit report repair begins. The FCRA regulates how the credit bureaus treat consumers.

  • Ensures that consumers can acquire their consumer credit reports at a reasonable price (or for free under certain circumstances), and severely restricts “investigative consumer reports”.
  • Regulates who has “permissible purpose” to acquire a consumer’s report.
  • Delineates the running reporting periods for information on credit reports — generally 7 years for most items except for bankruptcy related notations which can remain for 10 years. Keep in mind that these are MAXIMUM LIMITS.
  • Details how a credit bureau must handle consumer complaints. When a consumer disputes a credit file item, the bureau must note within the file that the item is disputed and begin an investigation which must be completed within a “reasonable” amount of time, universally held to be 30 days. The bureau must then inform the consumer of the action that was taken.

The FDCPA was enacted to protect consumers civil rights and details credit collection business activities.

  • Provides standards for acceptable third-party collections behavior. Collection agencies (CA) are prohibited from contacting consumers at “unusual” times, (9 PM – 8 AM next day). CA’s are prohibited from telephoning or writing to debtors at their place of employment if asked to cease such contacts.
  • Specifies that CAs must always include several legal caveats in their dealings with debtors. IF a CA does not state their purpose right away when communicating with a debtor, whether written or verbal, they are violating that consumer’s Federal civil rights.
  • Prohibits collectors from screaming, threatening or actually employing violence, using profanity, misrepresenting their identity, or hinting at possible imprisonment.
  • Allows any consumer to formally request that the CA “cease and desist” from communicating with them. Then the CA is legally obligated to follow suit.
  • Obligates collectors to behave in a certain manner when communicating with others. Specifically, a collector must identify themselves by name but are prohibited from identifying their employer or the reason for their call.
  • Specifically details a consumer’s right to request further information regarding an alleged debt. Such procedures are termed debt validation. Every consumer has the right to challenge the veracity of any debt. A collector must then respond in a certain way, otherwise the collection activity must CEASE and all related consumer reporting must be RESCINDED.

The Fair Credit Billing Act requires creditors to bill correctly and completely. It is the FTC’s job to make sure that the statute is universally applied.

The FTC summarizes the statute’s prohibitions as follows: “unauthorized charges; charges that list the wrong date or amount; charges for goods and services you didn’t accept or weren’t delivered as agreed; math errors; failure to post payments and other credits, such as returns; failure to send bills to your current address — provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends; and charges for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.”

Thoughts On Credit Repair

This consumer credit repair guide has provided you an overview of the importance of your credit reports and how they affect your credit scores.  Your credit scores define your credit worthiness and all that it implies in your daily life.  Not having ideal credit can cost you thousands of dollars over the course of a home or car loan. It can keep you from getting insurance coverage or even a job. It can make even everyday needs and decisions more difficult.

If you do not have ideal credit, this consumer credit repair guide should be a first step to improve it.  Credit repair is a process that takes dedication, time and patience. Unfortunately it does not fix your credit score immediately. And, as this consumer credit repair guide has shown, if your credit reports do not have material errors that will affect your credit score, there will be no improvement in your credit score.  So, this means that improvements in your financial behavior are needed.

This consumer credit repair guide is somewhat neutral as to whether you or a third-party credit repair company should do the credit repair work.  You need to assess the severity of your current financial situation, the level of effort required in the credit repair dispute process, and your personal level of discipline and dedication toward reaching your financial goals.

There is a basic point this consumer credit repair guide wants to be clear on. You can do anything that a third-party credit repair company can do. However, that does not mean that you will be as efficient or achieve similar results as a third-party credit repair company.  Similar to whether you choose to change the oil in your car or pay a third-party to do so, it becomes a matter of your personal ability, time and effort.

Finally there is one caveat this consumer credit repair guide would like to add.  If you are able to improve your credit score, in the time period that you need, what is the financial benefit to you?  Try to quantify this benefit financially.  If this is a large enough amount of money, investing the time  and resources in credit repair, however it is done, the value should be obvious to you.

Credit Repair | Identity Theft

Frequently Asked Questions

Consumer Credit Score

Credit scores for married couples are treated separately. They do not have joint credit scores. Each has their own individual scores. If you are unmarried you only need to worry about your credit habits and profile. However, if you are married your spouse’s credit habits and profile have an impact on yours. For example, if you have a credit card in both of your names and it does not get paid on time, that can adversely affect both of your credit scores.

A credit score minimum requirements, in order to qualify to receive one, your credit report must have:

  • At least one account opened for six months or more;
  • At least one account reported to the credit bureau within the past six months
  • No indication of deceased on the credit report

Credit score changes, in general, do not change that much over time. Your credit score is calculated each time it is requested;. This can be a lender request or by you. Each time your credit score is calculated it takes into consideration the information that is on your credit report at that time. As the the information on your credit report changes, your credit score can also change.

There can be delays by your creditors in reporting information to the credit bureaus. Also, the type of changes in information will affect your credit score. For example, opening a new credit card account will be more significant a change than simply having paid your bills on time the previous month. Also, something dramatic like a bankruptcy judgement will have a significant impact in the calculation of your credit score.

Credit scores are different between the national credit bureaus. In the U.S., the three national credit bureaus compete to capture, update and store credit histories on most U.S. consumers. While most of the information collected by the three credit bureaus is similar, there are differences.

All of your credit information may not be reported to all three credit bureaus. The information on your credit report is supplied by lenders, collection agencies and court records. You should not assume that each credit bureau has the same information pertaining to your credit history.

A bankruptcy affects credit scores negatively. It will always be considered a very negative event by your credit score. The negative impact it will have on your score will depend on your entire credit profile. For example, someone with a high credit score could expect a huge drop. Alternatively, someone with many negative items already listed on their credit report might only see a modest drop in their score. Also, the more accounts included in the bankruptcy filing, the more of an impact on your credit score.

Does spending less improve credit scores? It depends. If the money saved goes into your bank account, this will not improve your credit scores. Your credit scores do not consider the amount of disposable cash you have at any given time.

However, if the money saved is used to consistently payoff your credit accounts, you will notice an improvement in your credit score. Your credit score factors in the balance on your revolving credit accounts such as your credit cards. As you pay the balances down, your debt versus credit (credit utilization ratio) should decline, which is positive for your credit scores.

Do inquires affect credit scores? Yes they do. Credit inquiries are requests by a “legitimate business” to check your credit. These inquires are reported to the credit bureaus which are then included in your credit reports. There are two types of credit inquiries that are classified as either “hard inquiries” or “soft inquiries.” Only hard inquiries have an affect on your credit scores.

Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. These include inquiries when you are checking your own credit reports and credit checks made by businesses to offer you goods or services.

Hard inquiries are credit inquiries where a potential lender is reviewing your credit because you have applied for credit with them. For example, when you have applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single credit inquiry. The exception is when you are “rate shopping” for the best deal on a loan. In this case all all inquiries within a 45-day period for a mortgage, an auto loan or a student loan are classified as a single credit inquiry.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

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Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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