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How Does Credit Repair Work?

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In a Nutshell

Having an accurate credit history and a positive credit score can open doors for you and allow you to get credit like personal loans, credit cards, or a mortgage on more favorable terms and at lower interest rates. It can also help you rent a decent apartment or refinance any existing loans. This is why it’s important to know what goes on your credit report, how you can dispute and remove inaccurate information, and how your credit score is calculated. This article will discuss how to repair your credit yourself for free and what to look for in a credit repair company if you are considering hiring one.

Written by Attorney Eric Hansen.  
Updated September 3, 2021


Getting by on just your paycheck can be tough even with the best credit. It can be even tougher if you have a bad credit score. Your already tight budget may be harder to manage because of higher interest rates on loans and credit cards, higher car insurance premiums, or difficulty finding a place to live.

It is important to know what affects your credit score and shows up on your credit report. Sometimes poor credit scores are the result of negative items accurately showing up on your credit report. But other times inaccurate negative information on your credit report will drag your score down. This is more common than you might think, but you can address these errors and repair your credit. This article will discuss how to repair your credit yourself for free and what to look for in a credit repair company if you are considering hiring one.

Do I Need to Repair My Credit?

Whether you need to repair your credit will depend on what’s on your credit report, what your score is, and what your financial goals are. You’ll want to routinely check your credit reports from the three major credit bureaus — Experian, TransUnion, and Equifax — to ensure there aren’t any errors. 

This matters because having an accurate credit history and a positive credit score can open doors for you and allow you to get credit like personal loans, credit cards, or a mortgage on more favorable terms and at lower interest rates. It can also help you rent a decent apartment or refinance any existing loans. This is why it’s important to know what goes on your credit report, how you can dispute and remove inaccurate information, and how your credit score is calculated.

What’s on your credit report?

Each lender and credit card company reports borrower information to the credit bureaus. They furnish information about:

  • Applications for new lines of credit;

  • How long an account has been open; 

  • The total credit balance; 

  • The credit utilization ratio; and

  • The payment history, including late payments and missed payments, collection activity, charge-offs, bankruptcies, and more. 

The information lenders give to the credit bureaus is categorized to create the five main factors used to calculate your credit score. Sometimes lenders, credit card issuers, or collection agencies provide inaccurate or incorrect information to the credit bureaus. Being able to review every detail of your credit report is essential to building and repairing your credit. You can get a free copy of your credit report by going to AnnualCreditReport.com.

How hard is it to repair credit?

It isn’t difficult to do credit repair, but it does require effort, determination, and patience. Credit repair starts with going through your credit report and identifying negative or derogatory marks that are inaccurate. Then, you can address those negative marks by disputing them to have them removed from your credit history. This will help improve your credit, and so can taking steps to actively build your credit to improve your credit score.

Repairing Credit — for Free — on Your Own

Negative information on your credit report can lower your credit score. Significant derogatory marks like late payments, missed payments, collection accounts, repossession, foreclosure, and bankruptcy can seriously decrease your score. If there are inaccurate, negative entries like these on your credit report, disputing them and getting them corrected or removed will help boost your credit score. 

Lenders, credit card issuers, and credit bureaus must legally keep accurate negative information on your credit reports though. If your credit report is accurate and has derogatory information on it, you can still build your credit score by adding positive information. It may take some time to see results, but the effort will be worth it. 

There are many ways to add positive credit information to your credit history in order to improve your credit score. For example, you can:

  • Make every monthly payment on time.

  • Focus on decreasing your credit utilization rate by paying down debt on your revolving credit accounts, like your credit cards.

  • Make sure you have a good credit mix. Consider adding a credit card if you don’t have one or an installment loan like an auto loan if you were thinking about getting a car.

  • Control the number of hard credit inquiries on your credit report. Don’t submit several credit applications at the same time because that can drag down your credit score.

  • Address accounts that are overdue. This might involve getting a consolidation loan to cover the overdue accounts, asking for and negotiating a payment plan, requesting debt forgiveness, or selling an asset that you don’t need anymore.

The most efficient credit repair plan, like a good game plan in football, uses both sides well. Your offense is the positive credit repair steps like having a good credit mix and having a positive payment history. Your defense is regularly checking your credit reports, disputing inaccurate negative marks, and having them removed. You can also reduce the number of accurate negative entries by having a good offense.

What Can a Credit Repair Company Do for Me?

A credit repair company does the same thing you can do on your own to repair your credit, but they charge a fee. Some people prefer to hire a credit repair company because they trust their expertise or previous success. When it comes to credit repair, many people feel uncomfortable with the process or unsure of where to start. 

Credit repair companies start by reviewing your credit reports from the three major credit reporting bureaus. They will look for errors or inaccuracies in your credit file such as:

  • Inaccurate personal information like a wrong name or incorrect spelling;

  • Inaccurate contact information like your address or phone number;

  • Inaccurate account information including the amount, your credit usage balance, and the status of your account (whether it’s open, closed, in collections, delinquent, or charged-off);

  • Duplicate accounts such as when the same account is listed multiple times under a different creditor or collection agency;

  • Accounts that do not belong to you, including accounts that may have been opened by someone with a similar name or through identity theft; and

  • Incorrect credit inquiries.

After the credit repair company has identified inaccurate negative marks on your credit reports they will get to work communicating and negotiating with credit bureaus, creditors, and debt collectors on your behalf. The credit repair company will attempt to dispute, correct, and remove inaccurate, negative information. They can help with accounts in collections, charge-offs, late payments, and bankruptcies. 

Credit repair companies will also verify and validate debts as well as send dispute letters on incorrect, inaccurate, and incomplete negative items on your credit reports. They also frequently send cease-and-desist letters to debt collection agencies to stop them from bothering you. Credit repair companies usually have a thorough system of contacting lenders, credit card issuers, debt collectors, and credit reporting agencies. They work quickly and consistently.  But they charge a fee for all of these services.

Keep in mind that you can do this same work yourself for free if you are comfortablennand have the time to see the process through. Stay organized by tracking your efforts, keeping a log of all communications, and following a consistent schedule. Utilize templates for dispute letters and other credit repair resources available to you.

Don’t Fall for a Credit Repair Scam

There are many reputable credit repair organizations. But for each good company, there are many disreputable credit repair companies. Trust your instincts and look for red flags like the following: 

  • Overpromising — if they telling you something that sounds too good to be true, it probably is;

  • Asking for upfront payment before performing services in full;

  • Advising you to get a new Social Security number or to apply for an Employer Identification Number to establish a new credit identity and new credit history;

  • Telling you that they are able to remove accurate negative information from your credit report. The Fair Credit Reporting Act (FCRA) requires credit bureaus and lenders to keep accurate negative information on your report;

  • Advising you not to contact the credit bureaus directly;

  • Being evasive and vague;

  • Not giving you a written contract that provides details on services, pricing, timeframe, and your cancellation rights;

  • Not informing you of your legal rights;

  • Telling you to misrepresent, lie, or falsify information about yourself; and

  • Having a bad gut instinct when you interact with them.

Before hiring a credit repair company you should thoroughly vet and scrutinize them. Look for positive reviews from legitimate and reputable third-party websites. Be skeptical of the reviews on the credit repair company’s website. See if there have been any complaints with the Better Business Bureau and scour their reviews too. The Consumer Financial Protection Bureau is also a great resource in vetting a credit repair company. See if there are any complaints in the CFPB’s database.

The Credit Repair Organizations Act Is Your Friend

The Credit Repair Organizations Act (CROA) was put in place to protect consumers from unsavory and scam credit repair companies and their practices. It’s important to understand the protections the CROA provides if you are considering hiring a company to help repair your credit.

Though some credit repair companies try to skirt or stretch the rules, the CROA prohibits many of the red flags listed above. Specifically, the CROA requires credit repair companies to provide a written contract that has the important details of its services, pricing, and timeframe. You have the right to know how long it will take to get results and the total amount you’ll have to pay. Under the CROA, you have the right to a three-day cancellation window without any financial obligation. The CROA also prohibits organizations from misrepresenting their services and from charging upfront fees prior to services being completed. 

Basically, the CROA requires credit repair companies to be clear about their services and to inform you of your rights as a consumer. The law exists to deter companies from being fraudulent. The Federal Trade Commission (FTC) enforces the CROA and punishes offenders. 

Can I Repair My Own Credit?

Yes, absolutely, you can repair your credit on your own. Any reputable credit repair company will tell you that you can do everything that they do for you. It does take time, effort, and persistence to repair your credit. So if you don’t have the time or don’t feel comfortable negotiating with creditors and collectors, you may want to find a reputable company to do it for you.

If you decide to repair your credit on your own, you should learn as much as you can about disputing negative marks on your credit history. You’ll want to check your credit reports from all three major credit bureaus because not every creditor reports to each bureau. This means your information may not be the same on every credit report. When you go to write dispute letters, utilize letter templates like those from the Federal Trade Commission or CFPB.

Gather evidence. Supporting documentation like a bank statement that shows a bill was paid on time will help in your efforts. Document your communications and be sure to send copies of supporting your evidence, not the original documents. Send your dispute letters, cease-and-desist letters, and goodwill letters by certified mail with a return receipt requested. 

You may also want to get credit counseling from a nonprofit organization to build your credit and fine-tune your credit repair plan. The credit counselor will have helpful resources and experience with credit repair.  

Let’s Summarize…

Credit repair is the process of removing inaccurate information from your credit report. The process doesn’t happen overnight. In fact, it can be slow and requires effort and attention to detail. Many people are perfectly capable of repairing their credit themselves and removing inaccurate information from their credit reports. Other people prefer to hire a credit repair company to do this work. Either option is fine, so long as you find a reputable company if you choose to hire out the service. Credit repair is one step in boosting your credit score. You can also proactively add positive information to your credit history to help increase your score.



Written By:

Attorney Eric Hansen

Eric D. Hansen is an experienced Minnesota attorney within a number of varying and nuanced practice areas. He has operated his own solo practice as well as worked at small suburban boutique firms and large diversified downtown law firms. Eric has a wealth of experience in busines... read more about Attorney Eric Hansen

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