Repairing Damaged Credit

Repairing damaged credit is not as difficult as you might imagine, although it will require a fair amount of work and perseverance. Falling behind or failing to pay one's debt obligations will hurt your credit score and your ability to obtain credit in the short-run, but you can take steps to remove negative and/or inaccurate information from your credit report and improve your score, thereby repairing damaged credit in no time at all.

Your first step is to contact the three major credit bureaus (Experian, Transunion and Equifax) and obtain a copy of your credit report to review the accuracy of the reported information (for example, your former creditors, debt balances, payment history, etc.) Unless you are dilgently reviewing your report on a regular basis, these reports are likely to contain errors and inaccuracies, since the information is collected from a vast number of sources over lengthy periods of time.

As a consumer, you have the right to dispute any inaccurate or erroneous information in your file at any time. You will need to submit a letter to each of the 3 credit agencies, highlighting the inaccurate information and the reason for your dispute (for example: "not my account", "account was paid in full", "never late", "only late once", etc.) It is now the agency's responsibility to verify the disputed information through contacting the lender which provided the underlying information.

Per federal laws governing the documentation, collection and dissemination of debtor information, lenders are required to retain promissory notes in connection with each debt obligation undertaken and to produce such documents in connection with a dispute. Further, the credit agencies are required to respond to your dispute within 30 days, thereby placing a significant burden on them to verify the accuracy of information in their files. If the item is found to be inaccurate or if it can't be verified (due to compliance issues or a lack of response from a creditor), the item is deleted in the agency's file for good. Sometimes repairing damaged credit is that easy.

Disputing inaccurate information is far from an exact science due to the human factor involved, the evolving sophistication of computer programs handling data and the sheer volume of information which needs to be sifted through and extracted. This process may be enhanced through utilizing computer software specifically designed for disputing negative and erroneous information and/or working with a firm specializing in creditor disputes. While favorable results can be achieved through all three approaches, individual circumstances should determine the most suitable approach.

Some situations will warrant paying for the expertise of proven resolution specialists, who understand the laws and actively apply such knowledge in dealing with the agencies to achieve successful outcomes. Credit repair companies can often work much faster and more efficiently than you can on your own.

Through employing one of the three approaches, you should be able to significantly improve your credit score in a relatively short period. Once this is done, you may consider applying for 1 - 2 lines of credit. Upon obtaining a new credit line and paying down the balance each month, your FICO score should increase by an additional 50 - 100 points within a few months.

Take the first step in repairing damaged credit so that you are no longer penalized or denied a job, mortgage or other significant opportunity.

There is a very real, quantifiable cost of having a low credit score. It is highly advantageous for you to work to increase your score.

If you are financing a car and have bad credit, you will only be able to borow at a higher interest rate, which will cost you thousands of dollars in higher interest. One of the first things a person often when they have restored their credit is to refinance their automobile for a fraction of their current payment.

The American dream of owning your home is out of reach for most people with credit problems. Even mildly damaged credit will cost a small fortune in additional interest. In 2008, Fannie Mae and Freddie Mac (the two guarantors of conventional mortgages in the US) announced a new graduated pricing schedule based on your credit score. They will not even offer mortgages to anyone with a score under 620. Second, they will severely penalize you based on your score, even when you are approved for a loan. With these new price adjustments, you can pay up to an additional 2.75 points (2.75% of your loan amount) in fees just to get your loan if your scores are not high enough.