Tool 6: Credit repair

Credit repair is the process of removing incorrect items from your credit report to improve your score. 

Although credit repair isn’t a debt repayment method, it’s a valuable part of your financial journey. Your credit score and report unlock financial tools like a mortgage, credit cards and other loans. Credit repair is also essential if you have incorrect things on your credit report that are dragging down your score and you want to qualify for debt consolidation loans. 

What is credit repair?

Through credit repair, you address negative marks such as collections on your credit report to improve your credit score. You can pursue credit repair either on your own or by working with a reputable credit repair company. When doing it yourself, you’ll be the person disputing incorrect items. 

Credit repair can also refer to more general things for improving your credit. This includes building a positive credit history through on-time payments and maintaining a good debt-to-credit ratio below 30%.  

How credit repair works

To repair your credit, you or a credit repair company will dispute incorrect items on your credit report. You can get your credit report for free once per year at AnnualCreditReport.com or each week from any of the three credit bureaus.

The factors that determine your credit score include your debt-to-credit income ratio, your history of on-time or late payments, length of credit history and inquiries for new credit. Amounts owed, payment history and length of credit history have the largest impact on your score at 35%, 30% and 15%, respectively.

When you choose to work on your credit, you’ll be responsible for creating a debt paydown strategy to lower your debts and for contacting the credit bureaus to remove incorrect and delinquent marks.

Why is credit repair part of debt paydown?

Credit repair is part of debt paydown because your credit score plays a major role in which debt paydown tools you can qualify for.

Fair or bad credit limits what’s available to you. For example, you may not be able to qualify for balance transfer credit cards to help you consolidate your debt. Some cards require good or excellent credit. Even if you do get approved for this type of credit card, a refinance or consolidation loan, a fair or bad credit score may have higher interest than you would if your credit was better.

Additionally, your credit score can affect your insurance premiums, whether you can qualify for a loan deferment or forbearance and even whether you can rent an apartment. 

With a good credit score, you can look forward to better interest rates which will dramatically lessen the amount of money you pay over time. Lower interest rates also mean lower monthly payments.

If you have ever missed a payment, had a debt go into collections or settled debt for less than you owed, your credit score probably dropped. In these cases, you want to make sure you’re doing your best to establish good credit history with things like on-time payments. 

If you have errors on your credit report that are negatively affecting you, try to get them removed so you aren’t unfairly penalized for those mistakes. 

Is credit repair right for you?

If you have a low credit score due to delinquent marks, credit repair may be a smart step for you to take. Depending on your future goals, you’ll want to have as close to good or excellent credit as you can for large purchases like a mortgage or auto loan.

Credit repair isn’t guaranteed and unless you’re doing it yourself, you will have to pay for the service. Not all credit repair companies are created equal so you’ll need to do your due diligence before deciding to work with one. Reviewing the Credit Repair Organizations Act is a good place to start. 

Repairing your credit on your own will save you money, but it also means that you’re responsible for putting in the legwork to get it done. If you’re highly motivated to repair your credit, doing it without a credit repair company might be the smartest option for you. Otherwise, it might be wise to enlist the help of a reputable credit repair company. 

Other debt paydown tools to consider

Credit repair can work together with other debt paydown tools like budgeting and debt management. When you budget for your debt, you make it a priority in your monthly spending to ensure you don’t miss payments and always pay on time. This is crucial to maintaining and building a good credit history.

Refinancing or consolidating your debt is another way to pay it down and at a lower interest rate. For this, it’s important to have a good credit score. Credit repair may be the first step to utilizing these tools if you need them in the future. 

Finally, you may need to speak and negotiate with your lender at some point. When you have a good credit score, you’re better able to ask for what you need to pay down your debt. Credit repair can help you do that.

Next steps

Credit repair may be right for you if you want to fix and improve your credit score which has lowered due to debt or other factors. You can repair your debt by contacting the credit bureaus and asking them to remove delinquent marks either on your own or through a credit repair company.

Continue to learn more about credit repair, as well as how it can work with other debt repayment tools. For more information on credit repair and the other debt repayment tools mentioned here, visit our National Debt Relief hub.