Does Credit Repair Hurt Your Credit?
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Sometimes people run into unforeseen circumstances in life and their credit takes a hit. This can make it difficult to get a mortgage, good interest rates for an auto loan, or even find a good job. As a result, they look for ways to repair their credit. There are a number of different options out there and it is important to understand them so that you can take actions that will help your credit without damaging it further.
What Is a Credit Repair Company?
You may have heard of a credit repair company but you may not know exactly what it is. A credit repair company will work with you to remove inaccurate items from your report. The types of inaccuracies that could appear on your report include the following:
- Duplicate accounts
- Inaccurate accounts
- Accounts that don’t belong to you
- Incorrect inquiries
- Inaccurate address or name
- Employment history
If you have items on your credit report that are valid, such as late payments, missed payments, or charged-off accounts, a credit repair company cannot help you remove them. It is important to understand that the credit repair company can only dispute items that are inaccurate.
As a result, using a credit repair service will not hurt your credit. In fact, it will help your credit score if you are able to remove inaccurate information that may be bringing your score down.
Why Do People That Think Credit Repair Can Hurt Their Credit?
There are other types of companies that will help you reduce your debt or set up payment arrangements. These are called credit consulting companies or debt reduction companies. They help you come up with a plan to manage your debt. They often say that they will reduce your balances and they may be able to negotiate on your behalf; however, they do not do anything that you can’t do on your own by calling your creditors.
The issue is that it will show on your credit report if you settle a balance for less than you owe. In addition, you will pay income tax on the difference. You may have higher interest rates on future credit because credit companies will see this when you apply for credit.
People sometimes confuse these types of companies with credit repair companies but in fact, they offer very different services. A credit repair company is only going to help you make sure that your credit report is accurate and they will not get rid of any legitimate items for you.
When to Call a Credit Repair Company
The time to call a credit repair company is when you find something on your credit report that shouldn’t be there. For example, if you have a debt from a company and that company sells the debt to another company, it can only be reported on your credit report one time. The Fair Credit Reporting Act sets laws and guidelines that protect you. If creditors violate your rights, you can use a credit repair company.
In addition, the balances of your accounts should be accurate. All of the debt on your credit report should belong to you. People often find mistakes on their credit reports and these companies will help you remove them.
What a credit repair company won’t do is challenge a legitimate debt. If you have made payments late, they cannot have that removed from your report. You will need to make an effort to pay on time for six months or more and that will help you rebuild your credit.
How Long Do Bad Marks Stay on a Credit Report?
When it comes to the bad marks that a credit repair company cannot move, you may wonder how long they stay on your credit report. Most of them are there for seven years, including the following:
- Late payments
- Short sales
- Tax liens (from the date of the payment)
- Chapter 13 bankruptcy
Collection accounts will remain on your report for seven years plus an additional 180 days and bankruptcy stays there for ten years from the date of filing, unless it is a Chapter 13.
How Does a Credit Repair Company Work?
When you call a company for credit repair, they will start by obtaining copies of your credit report from all three credit bureaus: Experian, Equifax, and Transunion. It is important to obtain all three because creditors do not all report to the same bureau. They will look over the reports and note any discrepancies.
When they meet with you, they will ask you to identify anything that is inaccurate. They will also let you know what evidence they need to successfully dispute the report. Once they have this information, they will file disputes with all three bureaus.
They will tell you that you could file these disputes on your own. They are not doing anything that you are unable to do but they have years of experience doing it and they are familiar with all of the laws and regulations. They know what kind of evidence you need to successfully dispute an item and it can make your life easier to use one of these companies.
How Do You Know If You Are Dealing with a Reputable Credit Repair Company?
You should start out by doing research on the company. Look for customer complaints and find out what they have to offer. You will pay for this service so you want to deal with a company that is professional and has experience.
The company should not charge you for repairing your credit before they do the work. They should draw up a contract that tells you what they are going to do and you should know exactly what you will pay for this service. Beware of companies that guarantee a certain credit score; this is not something that a reputable company will do.
In addition, a professional credit repair company will not agree to challenge legitimate items. They should let you know that you will need to build a history of on-time payments. A good credit repair company will be professional and have extensive knowledge of the laws and regulations for credit repair.
Finally, a good company will tell you that you can dispute items on your own without their help. Some people do this but many people prefer to work with a company that has experience in this field. Either way, the company should let you know that you have a choice.
How Is Your Credit Score Determined?
It can be helpful to understand where your credit score comes from in the first place. You are entitled to a free credit report every year. When you look at it, you will see that there are several different sections.
The first section contains personal information such as your name, other names you may have used, your address, phone number, employment, and more. You should make sure that it is all accurate.
The next section deals with anything that has a legal impact on your credit, such as bankruptcy, liens, judgments, or wage garnishment. Again, this information should all be accurate.
The next section has information about your creditors, including credit cards, auto loans, mortgages, and loans. It will show how much you owe, how much has been paid off, and what your credit limits are. This section will reflect any late payments or missed payments as well and it will show any accounts that have been charged off.
To determine your credit score, credit bureaus look at five different categories, including the following:
- Your payment history (35% of score)
- Your credit usage (30% of score)
- The length of your credit history (15% of your score)
- The type of credit you have (10% of your score)
- Credit inquiries (10% of your score)
As you can see, 65% of your score is your credit usage and your payment history so making your payments on time is very important. You should keep your credit usage under 30% or your credit limit. If you can’t get your balances down, you might be able to open a new account to increase your credit limit so that your usage goes down.
It is important to understand the differences between the different companies before you hire one. Credit repair companies are designed to help you remove inaccurate information from your credit report. If you are concerned about inaccuracies on your credit report, we can help. We will go through the report with you and find items that should be removed before we dispute them on your behalf.
Your credit report is important because it affects your ability to get a mortgage or to get a decent interest rate on an auto loan. There are things you can do to keep your score where it needs to be, such as paying your bills on time and keeping your credit usage under thirty percent. Be sure to order your free credit report every year so that you are never caught by a surprise.
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