What is Credit Repair?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 February 2018
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Credit repair is a process in which an individual or business with a poor credit rating intentionally takes action to stop the downward spiral of the FICO score. Part of this process requires creating a plan to incrementally eliminate outstanding debt, as well as revise the spending habits that created the initial problem. Depending on the severity of the debt load, it may be necessary to work with a credit counseling service in order to develop a viable plan.

The first step in starting a credit repair initiative is to gather copies of credit reports from the several credit bureaus. Keep in mind that consulting a single credit bureau is not sufficient. There is a good chance that you have some negative comments logged with one bureau but not with the others. If you really want to get a true picture of your current credit score, you must look at each report in detail.

It is not enough to simply review the positive and negative comments on your credit reports. You also need to verify each comment. There may be information that needs updating, or even data that is not relevant to you. Identifying and correcting erroneous information of this nature can make a huge difference when it comes to credit ratings.

In order to continue the process of credit repair, it is necessary to determine the current level of indebtedness. This means making a list of every debt, whether it is current or in arrears. The debt obligations may be in the form of a mortgage, credit card balances, bank loans or even items such as the current account balance at the local garage. Without having a true picture of exactly how much debt exists, it is impossible to even begin developing a workable budget.

Not everyone is capable of putting together a realistic budget. This is where it may be necessary to call in the experts. Consider working with a credit counselor. If you are not sure where to find one, check with a credit rating agency; often, they can recommend local counselors you can work with. Banks sometimes offer assistance of some type with budgeting needs. You may also find that the local municipality offers weekend courses in money management at no cost to the attendees.

If available income is not sufficient to cover current obligations, it is time to contact each of your creditors. Often, the process of credit repair includes closing credit accounts to further purchases in return for freezing the interest rate and establishing a monthly payment you can manage. While this may appear to be negative on the front end, this prevents you from acquiring more debt, and also allows the creditor to notify the credit bureaus that you are making timely payments.

To continue the process of credit repair, talk to banks or finance agencies where you currently have an outstanding loan. They may be willing to refinance the remaining balance in order to provide you with smaller monthly installments. Depending on the nature of the economy, you may also get a lower loan rate in the bargain.

Keep in mind that during this process of credit repair, it is important to resist any offers for new credit. As your rating improves, you are likely to receive so-called preapproved offers in the mail. Stay away from these; the interest rates will be high and you don’t need more debt.

In like manner, avoid the use of a cash advance agency except in the direst of emergencies. Sometimes called paycheck or payday loans, these also carry high interest rates that will only slow your credit repair progress down. While some of these payday loan agencies do report to credit bureaus, not all of them do. Don’t assume that doing a couple of quick payday loans will provide positive feedback on your credit reports. The impact is likely to be non-existent or so small that it is not worth the expense or the effort.

The ultimate goal of credit repair is to restore your good name and ensure you have the means of securing credit for important purchases, such as a home or a new vehicle. While engaging in credit repair often means developing a great deal of discipline, the end result is well worth the time and effort it takes to regain a solid credit rating.



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