All too often people get caught not thinking about their credit until it’s too late. The toughest part is, it’s totally understandable. Credit scores and reports aren’t exactly top of mind for most people. Unfortunately, not being top of mind doesn’t get people out of a pinch in the moments when their credit score has a big say in their life plans.
Credit repair companies to the rescue! Or so we’d like to think. (More on that later.)
What’s the big deal about credit scores?
Credit scores are three little numbers that pack a big punch. Lenders, landlords, and insurance brokers all rely on them to determine just how reliable you are when it comes to meeting your financial obligations. The better your score the more willing a lender will be to let you borrow from them and the better the interest rate you’ll get. In other words, at the very least your credit score translates into thousands of dollars over a lifetime. At the very most, they can mean the difference between getting approved to rent an apartment or getting insured or not.
Credit despair giving rise to credit repair
Picture this.
Your car breaks down. No car is not an option. You need one for work, not just to commute, but to do your job. Luckily, you’ve known the time was coming so you’ve been saving up to buy a new one. In fact, you’ve already picked out just the right car. You walk into the dealership ready to sign on the dotted line. All smiles, the sales rep starts preparing the paperwork. Suddenly, the smile fades away. He explains that the financing won’t go through. Company policy says that they can only offer financing to people with credit scores over 600. Your smile fades from shock and confusion because you’ve never missed a payment in your life. Being denied financing never even came close to registering on your radar.
Taking the advice of a friend, you check your credit report. That’s when everything becomes clear. Someone had used your information to take out credit cards without you knowing, destroying your credit.
Enter credit repair companies.
The realities of credit repair
It’s inopportune and desperate scenarios like this that laid the groundwork for the rise of credit repair services. These companies offer to repair your credit for a fee. Sometimes a very large fee. How the fee is structured varies depending on the company. Some charge by the month. Others charge by the task, deleting an error on your credit report for example.
While all this is good to know there’s something else that’s important to know. There’s nothing a credit repair company can do that you can’t, with a little research, do yourself. Not. One. Thing.
There’s also nothing they can really do to speed up the repair process. They like to say they can, but in reality, they have no sway in timelines. It’s credit bureaus that are in charge of timelines. The TransUnion website even says, “TransUnion will not provide any additional services or treat a consumer differently due to the fact that the consumer has retained and paid a credit repair company.”
Improving a credit score isn’t a quick fix. It’s something that happens over time. The only advantage they have timewise is knowing what form to fill out and where to get them. Something easily rectified by a few minutes on Google. (Or by continuing to read this blog, more on that soon.)
What to look out for
For various reasons, some people prefer using a credit repair service to venturing on their own. Totally understandable! The only caution would be to do your due diligence in finding a legitimate, ethical and reliable organization. The low barrier to entry into this work and close proximity to very sensitive information has formed a hotbed for unethical organizations. Listed below are a few things to look out for when sourcing a credit repair company. If you see any of these red flags it’s best to keep looking.
- Require payment upfront.
- Don’t take time to fully understand your financial situation before offering credit.
- Use high-pressure sales tactics.
- Overpromise on how quickly they can improve your score.
- Guarantee that they can get information removed from your credit report.
- Don’t explain your legal rights to you.
- Request payment by atypical means like gift cards.
- The contract is unclear or non-existent.
- Advise you to falsify information on credit applications.
- They dissuade you from contacting a credit bureau.
- Encourage you to dispute accurate information on your credit reports.
Some of these points, such as not taking payment upfront, are enforceable by law. For example, in Ontario, there is the Consumer Reporting Act that outlines all the rules these companies must abide by.
DYI Credit Repair
For DYI credit repair, there are a few key things to know. Firstly, what goes into a good credit score? Secondly, how to get rid of inaccurate, negative information on your credit report.
The makings of good credit
Credit bureaus look at five things when determining your credit score. Some are weighted more heavily than others.
Your credit history – 35%
This is the biggy when it comes to credit. This category is the reason why there’s no such thing as a quick fix when it comes to credit scores. Credit Bureaus rely on patterns, not one-time instances. They want to see a pattern of you consistently paying your bills on time and in full.
How much of your credit you’re using – 30%
Using too much of your credit at once makes credit bureaus nervous. They tend to be happiest when your credit utilization ratio is less than 30%.
How long you’ve had credit – 15%
This goes hand in hand with credit history. Someone who’s only recently started using credit doesn’t have a pattern for the bureaus to evaluate. Being new to credit will be reflected in a slightly lower credit score. This is why many experts recommend leaving credit open, even if you’re not using it at the moment.
The type of credit you have – 10%
There are two types of credit, installment and revolving. Credit bureaus really like seeing that you’re good at managing both types. It’s best to have a mix of both kinds.
Any credit taken out recently – 10%
When someone starts taking out a whole bunch of credit at once credit bureaus start wondering if there may be financial issues looming. Anytime a lender does a hard credit check you’ll see a small drop in your credit score that tends to be very temporary.
Bad info be gone
The other way credit users can impact their credit score is to regularly check their credit reports and remove any inaccurate information. Not only is this helpful for keeping a good credit score it can alert you to issues, like credit fraud, in a timely manner.
Removing information from your credit report is a pretty straightforward process. You can approach the process in a couple of different ways.
Directly
One way is to contact the lender directly. The lender will do an internal investigation to verify the information. If it’s found to be inaccurate they will work directly with the credit bureaus to get the information removed from your report.
Credit bureaus
Conversely, you can work with the credit bureaus. Each of the main credit bureaus, Equifax and TransUnion, have dispute forms online. You can either fill in the information online or print out the form and mail your information to them. Once they receive your information they will verify it with the lender and remove it if necessary.
Dispute filing tips
The bureaus work independently from one another so it’s important that you file a dispute with both of them.
Don’t assume. Once the bureau or your lender has confirmed the information has been removed. Wait a couple of months and verify your credit report again to ensure everything’s in line.
No matter what a credit repair company says, neither bureau will remove accurate data based on a dispute filing.
Wrap up
Fixing credit is doable! While getting help to do so might be tempting, but beware. Do your due diligence to ensure you’re working with a legitimate and ethical company or may end up in an even worse situation than where you started.
If your credit score has taken a hit because of unmanageable debt, we can help you get back on track. Call one of our trained Credit Counsellors for a free consultation on how to get your debt back under control.