What is Credit Repair and Why You Need it?

Pacific Debt Relief is not a credit repair organization nor does our program aim to improve your credit score. The information below is for educational purposes to help consumers make informed decisions as it relates to credit and debt.

In today's financial landscape, a strong credit score is more than just a number, it's a gateway to financial freedom and opportunities. Yet, for many, the journey to impeccable credit is fraught with obstacles, from inaccuracies on credit reports to past financial missteps.

Credit repair emerges as a beacon of hope, offering a path to rectify past errors and rebuild your financial reputation. In this comprehensive guide, we delve into the essence of credit repair, learning how it works and why it's a critical step for anyone looking to enhance their financial well-being.

Join us as we explore the transformative power of credit repair and how it can unlock doors to better interest rates, loan approvals, and the peace of mind that comes with financial stability.

Don't want to read through? Speak to a debt specialist right now.

What is Your Credit Score?

A credit score is a measure of how responsible you are in paying your bills. A good credit score has nothing to do with your financial success. There are three main credit reporting agencies: Transunion, Experian, and Equifax. Creditors report to at least one of these agencies. 

These companies then use algorithms to determine your credit score. Since they get different information, your score may vary slightly. Check out this article on Why Your Equifax Credit Score Is Lower Than TransUnion – FICO Score. 

The credit score algorithms look at five factors including:

• payment history
• credit utilization
• age of credit
• credit mix
• application history

For a deeper look into the five factors, read this article. 

The short version is that the first two, payment history and credit utilization, make up more than 65% of your score. Credit utilization is how much of your available credit limits you are using.

Since only you can affect these two most important factors, a credit repair company will not be able to help much if these are bad (payment history) and high (credit utilization). The last three are also under your control. 

What Do Credit Repair Companies Do?

Credit repair companies, if they are legitimate, focus on one or two correctable factors. Generally, they will look at your credit report and contact the three agencies to have any old or inaccurate information removed. They also may request that a creditor increase your credit limit, which immediately changes your credit utilization score.  Both of these actions are something you can do yourself, saving yourself about $100 a month. 

A legitimate credit repair company is governed by the Credit Repair Organization Act (CROA).

This federally enforced law requires a credit repair company to provide :

• A written contract detailing the services and your legal rights 
• A three day right to cancel without any charge
• An estimate for how long to get results
• The total cost to you
• Any guarantees
  

Avoid any companies that do not provide these! Understanding the terms of your credit, such as recognizing a good APR for a credit card, can also be beneficial for your credit utilization and overall credit health.

Scam Credit Repair Companies

A credit repair company that offers a new credit identity is a scam. Either you are purchasing a Social Security number (which is illegal) or an SSN-type number that they call a CPN (credit profile number or a credit privacy number). 

They may also encourage you to get an Employer Identification Number (EIN) to use instead of your Social Security Number. All three of these actions are illegal and mean that you are committing fraud.

• You must pay fees before any work is done on your behalf
• You are told not to contact the reporting agencies yourself
• You are instructed to dispute correct and accurate information on your credit report
• You are encouraged to lie on credit or loan applications
• You are not informed of legal rights by the company
• You are told to misrepresent your Social Security number
• You are told to obtain an EIN from the IRS under false pretenses
• Guarantee a boost to your credit score or promise to remove negative but accurate information from your credit report. This is illegal.
• Pressure you to pay large upfront fees before providing any services. It is against the law to require payment before services.
• Advise you not to contact credit bureaus directly. You have a right to do this yourself.
• Tell you to misrepresent personal information like your SSN on applications. This is fraudulent.

Report any credit repair fraud to your state’s attorney general or to the Federal Trade Commission at ftc.gov/complaint or call 1-877-FTC-HELP.

Do-It-Yourself Credit Repair

If your credit score is less than stellar or you have been a victim of identity theft, it is time to look at your credit report. Actually, even if you have excellent credit you should look at your credit reports once a year. It may save you from issues including identity theft.

It is very simple to check your credit reports and you may get a free copy of each once a year. Here’s how you do it. In January, request a report from one of the big three. In May, request a report from one of the other two and then in September, request a report from the remaining company. Then repeat the sequence beginning in the next January. 

Go to AnnualCreditReport.com to request your credit report. You can contact each company individually, but this is the simplest way to do so.

Next, examine your report in detail. There are five general sections:

• Personal information such as names, known aliases, addresses, and places of employment.
• Credit Summary includes information about the different accounts you have and if they are current or delinquent. Examine these carefully and note any over seven years or any that have errors.
• Real Estate Accounts - (mortgages)
• Revolving Accounts - (credit cards and lines of credit)
• Installment Accounts - (such as car or education loans)
• Other Accounts - (any other accounts including rental payments)
• Collection Accounts (accounts that have been sent to collections)
• Account History includes payment history and other details. Note any errors or if they are over seven years old. You’ll find the following information.
• Creditor name reporting the information
• Account number associated with the account
• Account type
• Responsibility for loan - individual, joint, or authorized user 
• Monthly payment required to pay each month
• Month and year the account was opened
• Last date the creditor updated the account information 
• Balance owed at the time data was reported
• Credit limit or loan amount
• High balance/high credit - the highest amount charged or original amount of loan
• Past due amounts at the time the data was reported
• Remarks made by the creditor about your account
• Payment status- current, past due, charge-off
• Payment history since the account was established
• Public records. This should only include bankruptcies
• Credit inquiries for the last two years. These include:
• Hard inquiries - requests by potential creditors. These affect your credit score
• Soft inquiries - a short version of your report. These do not affect your credit score

If you find errors, file a dispute with the credit reporting agency. They will check with the creditor and if in error, remove the information. You will need to provide written documentation, so keep any information about loans and payoffs! Send copies, not the original documentation.

Dispute Errors on Your Credit Report

Another way to repair your credit yourself is to dispute any errors on your credit report. 

Here are some tips:

• Get copies of your credit reports from AnnualCreditReport.com and review them closely. Make note of any incorrect information.
• Write dispute letters to each credit bureau reporting errors. Provide documentation proving the inaccuracy.
• Follow up if errors are not corrected after 30 days. You may need to repeat the dispute process.

Disputing errors can help improve your credit score over time.

Improve Credit Habits

In addition to correcting report errors, establishing good credit habits can significantly repair your credit. 

Try to:

• Make all payments on time each month
• Keep credit card balances low compared to limits
• Limit new credit applications
• Build credit history with responsible use

Developing the right habits takes discipline but pays off.

Special Situations

This section covers what to do if you have the following issues with your credit reports: identity theft, debt collection harassment, bankruptcy, eviction, debt collection lawsuit/settlement, late payments, foreclosure and repossession, and charge off.

Identity or Credit Card Theft

If you find potential fraud, act immediately. 

• First, cancel all credit cards that have been affected and contact any banks, etc about the situation
• Set a fraud watch with the credit reporting agencies
• Set a credit freeze with the credit reporting agencies. This means that you will have to lift it temporarily  to get a loan, but it prevents anyone else from getting your credit report
• File a report with local law enforcement and send a copy of the report to creditors
• File a complaint with the Federal Trade Commission
• Keep all copies of any correspondence
• Request that fraudulent accounts are removed from your credit report

Fraudulent Debt Collection

You are protected by federal law against illegal debt collection practices and harassment. If you are not certain what is legal and what is harassment, this blog will explain your rights.

Bankruptcy Discharge

If you’ve been through bankruptcy, you can ask for the charge to be removed from your credit report after seven years. It may take up to ten years to get it off your report. While you are waiting for those years to pass, make on-time payments and keep your debt to income ratio low.

Eviction

If you’ve been evicted, it may show up on your credit report for up to seven years, even if you paid off your delinquent rent.  As with bankruptcy, make certain you pay bills on time and use your credit wisely while you wait seven years to have the eviction removed.

Debt Collection Lawsuit and Settlement

If you have been sued for outstanding debt the record will be on the credit report. Unpaid and paid judgments stay on your credit report for seven years. If you win the case, file a dispute with the credit reporting agency to have it removed.

Late Payments

Any late or missing payments are reported. Pay off unpaid balances and focus on paying down debt. These two actions will improve your credit score far more than anything the credit reporting agencies can provide.

Home Foreclosure and Property Repossession

Any foreclosure or repossession will show up on your credit report for seven years. While you wait those seven years, pay your bills on time and focus on paying down debt.

Charge Off

A charge off means that the creditor has decided to write off a debt as uncollectible. It may not be worth the cost to sue you or sell your debt to a collection agency. This does not mean that you get out of debt free. Instead, it's on your credit report for seven years and creditors will view it with great suspicion. Make payment arrangements (and follow through) with the creditor so that your credit report is not as affected.

FAQs