How to Repair Bad Credit

The effects from damaged credit can be far reaching. When it comes to credit repair it's hard to know where to go or how to start. No matter how bad your credit is, there are always steps you can take to make it better. Everyone's situation is unique, so what might be the best thing for you right now, may not be the best thing for someone else. To repair your bad credit, you must find a starting point.

The best way to do that is to obtain a copy of your credit reports from the 3 major consumer reporting agencies,  Experian, Equifax and Transunion, also known as credit bureaus. Why should you order all three credit reports? Some of your creditors and lenders might report only to one of the credit bureaus. And, since credit bureaus don’t typically share information, it’s possible to have different information on each of your reports. Ordering all three reports will give you a complete view of your credit history.

Once you have your reports, you'll want to make sure all the information is accurate. There are mistakes in about 75% of all credit reports. If you find an inaccuracy or any negative accounts that you are unsure of, dispute it with the credit bureaus. If the account can't be verified, it must be deleted. Many times the credit bureaus, who get thousands of disputes each day, don't do a very thorough job of investigating items you've disputed. So, it may take a few rounds of letters until the credit bureaus remove the account. Be patient and wait at least 30-35 days before sending another round.

Credit Counseling Organizations

If your debts are overwhelming, creditors aren’t willing to work with you, and you can’t seem to come up with a payment plan on your own, consumer credit counseling is an option for getting back on track. Consumer credit counseling is an alternative to filing bankruptcy. It is professional counseling that provides you with financial education and debt counseling according to your situation.

Once you consult with a credit counselor, the counselor will assess your debt level and work out a debt management plan (DMP) based on your income. Once your creditors agree to the DMP proposed by your counselor, you begin making payments to the credit counseling agency. The credit counselor disburses payment to each of your creditors in accordance with the DMP. In most cases, your credit accounts are closed to future charges as long as you are on the DMP.

A consumer credit counseling agency doesn’t have any rights or privileges that you don’t also have. Even so, there are many people who enjoy the convenience of the services provided by credit counselors. If you aren’t sure how to negotiate a payment plan with your creditors or if you don’t think you will be disciplined enough to distribute payment to your creditors each month, it’s usually better to work with a credit counselor. That way, you are responsible for making one monthly payment to cover your credit card bills. The credit counselor does the rest.

Costs

A lot of credit counseling agencies claim to be non-profit. Even if the credit counseling agency says it’s non-profit, that doesn’t mean the services provided to you are free. In many cases there’s some kind of fee involved. Some agencies use your first payment to cover their fees, while others deduct a flat amount from your monthly payment. You should never pay a fee just to obtain information about the company and services offered.

Conclusion

Should you decide to pursue consumer credit counseling as a solution for your debts, it’s important to choose a reputable credit counselor  that will help you get out of debt. Stay away from companies that aren’t clear about their services and fees. Get a referral from a trusted financial advisor to help you find a reputable credit counselor.