Credit repair is NOT rocket science. Rebuilding damaged credit does take time and effort, but it’s actually a lot easier than you think — especially if you have the right resources and guides.
As mentioned in our Beware Credit Scams section, if you want honest advice about and professional help for repairing your credit, your best option is to go with a licensed attorney who specializes in credit repair.
But if you don’t have the money or if you’ve got half a brain, you can actually do it yourself with these easy steps:
- Set your goals. Start by setting your objectives and goals for repairing your credit. Are you looking to buy a home or rebuild your finances? What kind of credit score do you need? Your goals will determine what you need to do — as well as provide the motivation to help you achieve your goals.
- Get your credit report and scores. The Fair and Accurate Credit Transaction Act (FACTA), which was added to the Fair Credit Protection Act in 2003, requires credit reporting agencies to provide each American consumer with one copy of his or her credit report each year. But you have to ask. To get your free report, just go to AnnualCreditReport.com. Unfortunately, this report doesn’t provide your three (3) FICO scores, so make sure to purchase your credit scores as soon as possible.
- Remove inaccurate entries. As soon as you have your reports, analyze them for inaccurate entries. If you see negative entries that you know are erroneous, write a complaint letter to the credit reporting agency right away to dispute that entry. Make sure to include any documentary evidence you may have to support your claim. If you see an inaccuracy in a positive credit item, however, you may want to think twice before disputing that account. A positive entry boosts your credit score; if that entry is removed, then your credit score will drop.
- Add positive credit entries. In addition to removing negative entries, you’ll want to start adding positive entries. As discussed in the Understanding Credit Scores section, negative factors drag down your credit scores, while positive factors can increase it. If you see an account missing — and that account is one you pay on time and have positive history — then try to get that item added to your credit record. This can include rent, utilities, installment loans and other debts that you can show (with canceled checks or receipts) as positive.
- Establish your budget. One of the most important yet overlooked tasks that most Americans fail to do is create a budget. If you’re trying to rebuild your credit, creating an accurate and realistic budget is crucial, because it will give you an idea of how much money or income you have to pay down debts.
- Address unpaid delinquencies. If you have open credit cards or installment loans that are delinquent, but NOT in collection or default, then you may want to try to bring them back in line. Remember that currently active accounts are needed to produce the positive credit history that you need to rebuild damaged credit.
- Build positive credit accounts. Finally, you want to start building positive credit history for the future. Start by paying bills on time, especially credit cards and installment loans. If you’re starting from scratch or need more help, you’ll need to open some accounts to help you generate positive history. Even though your options are limited, you still have opportunities even if you’re just coming out of a foreclosure and bankruptcy. One of the most effective ways is to use secured credit cards. Secured credit cards are typically guaranteed approval, so long as you have a checking account and a job.
Finally, remember that you need to keep hope and looking forward. Rebuilding your credit and your lives is long and difficult, but it is feasible and within reach. But you need to commit yourselves to keep working at it.