14 Mistakes to Avoid When Trying to Repair Your Credit
The process of repairing your credit begins with correcting or removing inaccurate items from your credit report to provide a clearer picture of your financial situation. It also involves adjusting your spending habits so that you can boost your score and avoid future credit issues. You can handle all this on your own or hire an agency that specializes in credit restoration. Whichever way you decide to go, there is always a risk of errors and omissions.
Before we move on to discussing the most common mistakes to avoid when trying to repair your credit, let’s take a quick look at your rights as a consumer.
When it comes to credit, there are several laws that promote accuracy and protect consumers: the Fair Credit Reporting Act (FCRA), Credit Repair Organizations Act (CROA), the Fair Debt Collections Practices Act (FDCPA) of 2010, and the Fair and Accurate Credit Transactions Act (FACTA) of 2003. Here are some of the key components of these laws:
- All consumers must have free access to their credit reports once a year.
- Consumers are allowed to dispute credit report errors, and credit bureaus must remove them if those errors cannot be verified.
- Your credit information cannot be provided to someone else without your permission.
- You must be informed each time your credit report is used to reject a credit card application, for example.
- The amount of time a derogatory mark stays on your report must be regulated.
- Creditors must follow strict rules when getting in touch with you regarding your debt, which don’t permit them to inform your family about your debt or make threats.
- Credit repair agencies aren’t allowed to lie to your creditors or misrepresent the scope or efficiency of their services. Furthermore, they cannot encourage you to falsify documents or alter your identity in any way. If you aren’t provided a contract with a three-day cooling-off period, you may be dealing with a scammer.
Learning about your rights is just the beginning. Not complicating your credit situation even further while trying to improve your score is another important piece of the puzzle. Here are the most common mistakes in credit repair to watch for.
Mistake 1: Avoiding Credit Education
Whether you’re trying to remove or correct inaccurate items on your credit information or simply want to reduce your debt and create a better financial path forward, the more information you gather, the better. This includes everything from understanding the penalties for a missed payment or optimum conditions for requesting a credit increase to learning how to manage your debt and dispute wrong information on your reports.
Mistake 2: Failing to Check Your Credit Reports Regularly
The most obvious step you need to take when starting your credit file repair journey is going through your credit record. Remember that you’re entitled to a free copy of your report from the three major credit reporting agencies (Experian, Equifax, and TransUnion) once a year. To get the reports, all you have to do is visit the Federal Trade Commission’s website, go to the Free Credit Reports page, and follow the instructions.
There are other ways to obtain your reports, as certain websites can provide access to your credit record for a fee. However, following the FTC gateway will give you peace of mind knowing that the reports are guaranteed by the FCRA.
Once you get access to your credit files, make sure to read all the reports carefully and look for items you believe are either incomplete or completely false.
Mistake 3: Putting Off Credit Repair
When it comes to credit repair, procrastination is probably your greatest enemy. If you identify incorrect negative information on your record, file a credit dispute as soon as possible. Putting off credit repair is a poor strategy, especially because most negative items stay on your report for seven years - a long time to live with poor credit.
Mistake 4: Not Keeping Necessary Documentation
Complete paperwork regarding all the debt you’ve taken on is essential not only for disputing items on your credit report but also for protecting your rights as a consumer. In other words, if you suspect that there’s an incorrect piece of information on your report, you should be able to back up your claims with corresponding paperwork, thus proving, for example, that payments have been made on time.
Mistake 5: Trying to Dispute Everything
While it makes sense to only dispute the derogatory marks you believe are inaccurate, some credit repair service providers try to remove all items in the hope that the effort would pay off, at least to a certain extent. The problem with such an approach is that credit bureaus are unlikely to take it seriously - your request may be dismissed as frivolous. Even if they do take it seriously, disputing all items could lead to the removal of positive information that plays a significant role in increasing your credit score.
It’s also important to mention that taking your dispute to the right entity is of utmost importance. In most cases, that’s the credit bureau - sending dispute letters to creditors is rarely a good idea.
Mistake 6: Falling for a Credit Repair Scam
Some people feel like they lack the time and expertise to tackle credit repair on their own. For those individuals, hiring a credit repair professional can be beneficial even though such convenience comes at a cost. This can either be a flat fee, a monthly subscription, or per deletion charges.
Keep in mind that there are many shady credit repair service providers that prey on desperate consumers by claiming they can clean up their credit history in a matter of weeks. Offers that sound too good to be true usually are, and you should stay away from them. Even if you decide to work with a reputable company that will actually help you repair your credit over time, make sure to review your rights before signing the contract.
Mistake 7: Sending Uncertified Mail
Any paperwork you exchange with a creditor, collection agency, or credit bureau should be sent via certified mail. Although correspondence via snail mail may seem outdated, if you send documentation such as a credit bureau dispute via registered mail with delivery confirmation, you’ll have proof that the agency received your letter. While it’s not ideal, communicating via email is also a good option. Most importantly, remember not to make any verbal agreements. Even if you’re dealing with creditors from credit bureaus, insist on proofs in writing every step of the way.
Mistake 8: Transferring Credit Card Balances
Playing the balance transfer game is a poor credit repair tactic. Transferring a balance from one credit card to another to avoid making a payment is nothing more than delaying the inevitable. This approach can only get you so far - you’ll still owe the same amount, and although you may save a little on interest, balance transfer fees may completely outweigh any advantages.
This is also true for consolidating your debt onto a single loan or credit card, especially if you close the other credit card accounts.
Mistake 9: Canceling Credit Card Accounts
After going through a bad credit period, many people swear off credit cards. However, considering that about one-third of your score is based on your credit history, closing a credit card account is rarely a good idea. Without these pieces of plastic, you’ll have a hard time qualifying for personal loans or other types of credit. Moreover, using a credit card responsibly can help you boost your score as you go through the credit repair process. Instead of cutting up the card, try maintaining a small balance and making regular monthly payments. While it might take discipline to avoid falling into debt, you’ll be rewarded for it with an increased credit score.
Mistake 10: Submitting Too Many Applications for New Credit
While you’re on a mission to repair your credit, your chances of getting approved for additional credit are slim, especially if you apply for a major unsecured credit card. It goes without saying that you shouldn’t waste hard inquiries on credit applications that are going to be rejected. Multiple hard credit pulls in a short period could ultimately decrease your score at the same time you’re trying to increase it. The smartest thing is to wait and apply for new credit after your credit starts improving.
Mistake 11: Missing Payments
Another important point on the list of mistakes to avoid when trying to repair your credit involves late payments. While prioritizing payments is smart, skipping payments on one account to focus on another is not. The reason for this is simple - your credit will continue to get worse if you don’t follow repayment schedules.
The only exception to this rule may be charged-off accounts or those that have already gone to collections. If you find yourself in a situation where you need to decide whether to make a payment on a collection account or one that is current, always opt for the latter.
Mistake 12: Paying an Old Debt
Although it may sound counterintuitive, one of the worst credit repair mistakes is paying an ancient debt that has outlived the statute of limitations set by your state. Making a payment could restart that debt, ultimately keeping that negative item on your report for much longer than it would have been there if you hadn’t made the payment.
If you’re unsure about the status of your debt, it’s crucial not to make any payments until your debt collector approaches you with proof that your debt is both current and legit. Keep in mind that debt collectors could try to frighten you into paying up - that is why you should insist on written communication instead of making verbal agreements.
Mistake 13: Filing for Bankruptcy
Some people believe that the best way to repair credit mistakes is by filing for bankruptcy and starting fresh. However, this is a poor credit repair tactic. Not only will bankruptcy lower your credit score, but it will also stay on your credit record for seven to 10 years. Furthermore, even when it’s gone, it could haunt you as some lenders ask whether you’ve ever filed for bankruptcy during the evaluation process and can reject your application due to that filing.
Mistake 14: Forgetting About Secured Credit Cards
As a poor-credit applicant, you’ll have a hard time getting approved for a major unsecured credit card. We recommend getting a secured credit card as the next best thing. Almost everybody can get approved for these financial products as they’re geared towards consumers with less-than-perfect credit scores.
Responsible use of a secured credit card is one of the best ways to start the process of building a good credit history.
If you think that you don’t have the time or skills to handle credit repair on your own, you can hire a credit repair agency - as long as you can afford it. While credit restoration professionals can help you work on your credit in exchange for a fee, they cannot promise results.
Some of the things you shouldn’t do when trying to fix your credit include sending a credit dispute for every piece of negative information regardless of whether it’s correct or not, hiring a shady credit repair agency, canceling credit card accounts, selectively missing payments, applying for a lot of credit at the same time, not informing yourself about your rights and obligations, and not keeping necessary documentation.
A section of the Fair Credit Reporting Act referred to as the 609 loophole states that if there’s an incorrect item on your credit report, you have the right to send a credit dispute letter to correct it.
An unpaid debt drops off a consumer’s credit report after seven years, meaning that late payments associated with it won’t affect the individual’s credit score anymore. That’s why one of the mistakes to avoid when trying to repair your credit is making a payment on an ancient debt. After seven years, creditors can still sue you, but the case will be discarded if you prove that the debt is time-barred.
For years, the clients I worked for were banks. That gave me an insider’s view of how banks and other institutions create financial products and services. Then I entered the world of journalism. Fortunly is the result of our fantastic team’s hard work. I use the knowledge I acquired as a bank copywriter to create valuable content that will help you make the best possible financial decisions.
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