Improving Your Finances: Myths and Truths about Credit Repair
Credit repair might seem like a complex concept at first. However, that’s often because several misconceptions cloud the reality of the process and the potential for results.
The truth about credit repair is that it isn’t as complicated as you might have been led to believe. More so, if you’ve read negative reviews about credit repair, it’s important to note that the quality of your experience is often equal to the quality of the service provider you work with.
These myths can be damaging if they end up preventing someone from repairing their bad credit and improving their personal financial situation—especially if that person is you.
To help, let’s explore the real truth about credit repair and some of the most common misconceptions about credit.
Myth: You should carry a balance on their cards to show they are using their cards.
Fact: You can ensure that your card is reporting a balance by checking your credit for just $1 by following this link. It takes less than 5 minutes. When you pull your reports here, you can see the date the card reports to each bureau. If for some reason your due date is before your reporting date. You can request to change the due date on your card. Another way to do this is simply to ensure that you run your card within the next billing period, prior to the reporting date. If you need help understanding this, let’s talk.
Myth: FICO Score is the only one that matters. (Or any other singular score for that matter)
Fact: You have multiple FICO scores as a matter of fact you have over 50 “Credit Scores” at any one point in time. It depends on who pays to see what. As well as what information is factored into that score’s algorithm.
Myth: Credit Repair is a scam
Fact: Because so many consumers do not understand credit, it is easy to get scammed. However, not everyone who wants to help is there to scam you. We at CRN (Credit Repair Nerds of Colorado) have Certified Credit Counselors, as well Certified Financial Counselors. We are here to help because we were once in the same position as you and we didn’t have a counselor to help us through it all.
Myth: You can max your card out, as long as you pay it down soon after.
Fact: You can do this but is creates a risk factor that is not great for your algorithm. On your reports, there is a section called “High Balance” in this section it will show the highest balance that was ever reported on that card. This helps lenders/creditors/furnishers evaluate your normal behavior and decide if this is a risk they are willing to take. To see the “High Balance” category on your accounts pull your credit here and look at each account’s factors.
Myth: Your credit score will jump immediately!
Credit repair is not a magic pill for your credit score. While it is a proven strategy for addressing bad credit, it won’t improve your credit right away. Typically, those who may be dissatisfied with the results or timeline of credit repair are looking at their scores every day and expecting it to increase.
When a mistake or error is found on your credit report, the next step is to dispute the inaccurate negative item with a credit reporting agency. Once a dispute is lodged with a credit bureau, the reporting agency has always had 30 days, and now with the new CARES ACT they have what is named as a “reasonable amount of time” to respond. It may correct or remove the negative item at the end of that time, but the impact to your credit score will still take some time to show.
A general rule of thumb with credit repair is that you can expect it to take around six months for results to appear. Sometimes it may be longer, especially if you are disputing several aspects of your credit report.
There may be other elements to a poor credit score that are holding you back, and which credit repair alone cannot fix. We do offer some other programs, including counseling which can help you understand these other pieces. For awareness, the five factors of a credit score are:
1. Payment history
2. Utilization
3. Account mix
4. Hard inquiries
5. Age of accounts
Truth: Credit repair is about your credit report, not score!
This is a fundamental fact to credit repair: The process is concentrated on your credit report, not your credit score. Believe it or not, your report and your score are two separate things. Whatever happens with your score is an outcome of actions taken to repair your report.
The main thing to know here is that credit repair is focused on making sure your report is:
- 100% accurate
- Fair
- Entirely substantiated
That means the credit repair process is more about going through your report with a fine-tooth comb to find inaccurate information and attempting to resolve the situation.
Myth: Credit repair companies are a scam
This is a particularly damaging myth, as the services of a reputable credit repair company are invaluable to the process. The key word in that phrase is of course “reputable.” And there’s a simple way for sussing out the credit repair scams from the rest of the market, which largely consists of effective and trustworthy credit repair companies.
Truth: You can try to repair your credit yourself
DIY credit repair is possible without the help of an outside credit repair company. The process includes a few steps, which consumers can complete on their own if they choose:
- Auditing the credit report for mistakes.
- Disputing errors with a credit bureau.
- Taking next steps to further analyse or build credit.
While you can do this all yourself, the effort and time required are immense, while gaining the experience and education to properly conduct the repair also require substantial time and effort. Some may have the time and resources to get the job done on their own, but others may not benefit from such advantages. Or, they may not have the experience in disputing major credit report errors.
Myth: Credit repair can remove negative items that are correct
Some may come into the credit repair process with this expectation that it can be a cure-all, for every negative item. If negative information is correct and affecting your score, supplementary strategies like debt validation, negotiation and perseverance may be needed instead.
Truth: Credit report mistakes are common
The reason the credit repair process can be so intensive is that credit report mistakes are quite common. One study from the Federal Trade Commission found 42,000,000 Americans had a credit report mistake that could negatively affect their score. (FTC report here)
Most consumers want to trust that their credit report is fair and accurate, and sometimes assume so. On a deeper level, inaccurate information from your credit report can be more difficult to see from a consumer’s perspective. For example, duplicate accounts, incorrect inquiries and inaccurate accounts can all be present on a credit report. Without addressing these errors, or even knowing they exist, consumers may be unable to build their credit regardless of what they do on their own.
KEYS TO GOOD CREDIT REPORT:
Credit repair is best leveraged when you take action on your own part to build credit. Remember those five factors that comprise a credit score? Each of those is partly within your control as a consumer, and it may take some new lifestyle choices or spending habits to change poor credit history. For example:
Always make timely payments. If you need to, set alarms on your personal devices, circle dates on a kitchen calendar or just enroll in auto pay. Many organizations grant a small discount for automatic bill pay, additionally.
Don’t open too many new accounts at once or in a short span of time. This could act in a doubly negative way. Each account you open will come with a hard inquiry while also reducing the average age of your accounts.
Keep your credit utilization around 20%. This refers to the amount of your credit balance that you use or owe on. Accessing too much of your credit can be damaging to your score and make it harder to pay off debts.
The most important truths to remember about credit repair are that it’s not a scam, it can improve your credit score in time and there are many services available to help you take control of your credit situation. In addition, these companies, including Credit Repair Nerds of Colorado may be able to provide further credit analysis, next steps and credit monitoring to help you improve your situation.