Digging yourself out of a bad credit hole is something you can get professional assistance with, but you can also make significant improvements on your own. This guide provides helpful tips on how to spot credit repair scams, how to fix bad information on your credit report, how to boost your credit score and more.
In this guide
What is negative credit information?
Negative credit information is anything that causes creditors to consider you a riskier borrower, including late payments, accounts in collections, foreclosures, bankruptcy and tax liens. Once negative credit information is introduced into your credit history, you cannot remove it on your own. However, time heals all wounds. The longer it’s been since the negative information was introduced, the less it will affect your credit score. In time, negative information falls off your credit history.
This list details the length of time that negative credit information affects your credit score:
Late payments: Seven years
Bankruptcies: Seven years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies
Foreclosures: Seven years
Collections: Generally, about Seven years, depending upon the age of the debt being collected
Public record: Generally, about Seven years, although unpaid tax liens can remain indefinitely (always pay the tax man first!)
Rather than despair over negative information, take action to improve your score.
The best way to improve your score is to have good behavior reported every month. For example, you can apply for a secured credit card, which requires that you make a refundable deposit in exchange for a credit limit, typically at least $200. Then, use the card monthly. Charge no more than 10% of the available credit limit, and pay the balance in full and on time every month. Your credit score should improve as your negative information ages and your credit report fills with positive information.
How to spot a credit repair scam
Credit repair scammers prey on people who are desperate to remove negative credit information and improve their credit score. Engaging with these scammers won’t improve your credit and may also lead you into legal hot water.
The signs below indicate that a credit repair company is a scam:
- The company wants you to pay before it provides a service.
- The company recommends that you don’t contact any credit reporting agencies directly.
- The company tells you it can get rid of negative credit information in your credit report, even if that information is accurate.
- The company advises you to dispute all information in your credit report, regardless of its accuracy or timeliness.
- The company suggests you create a new credit identity.
Companies that want you to lie about credit history or create a new credit identity can get you into legal trouble. Companies that provide “new” identifying information may use stolen Social Security numbers, and if you use this number, then you are committing fraud. Likewise, using an Employee Identification Number or Credit Profile Number provided by these companies is a crime. Rather than committing fraud, take the steps below to improve credit on your own.
Assess your credit history for free
You are entitled to receive one free credit report from each of the three major credit reporting bureaus (Experian, Equifax and TransUnion) every year. These credit reporting agencies keep detailed records of your credit history. Assessing your credit involves three simple steps:
- Download a free copy of all three credit reports.
- Review the credit report to find errors.
- Prepare a list of items you need to dispute.
Download free credit reports
AnnualCreditReport.com is a website sponsored by the three major credit reporting bureaus, and they are required to provide you with a full credit report every year. The first time that you assess your credit history, download a report from each of the major credit bureaus by following these steps.
Step one: Visit AnnualCreditReport.com and click on the “Request yours now!” link at the top of the page (in red) or the “Request your free credit reports” red box at the bottom of the page.
Step two: Follow the three-step instructions on the website. Download credit reports from all three bureaus, because a mistake may be listed only at one bureau.
Once you’ve filled out the form and requested reports from all three bureaus, you’ll answer some security questions and be directed to your report, one agency at a time. If the security questions trip you up, the website will lock you out of your report, but it will offer a phone number you can call to get your credit report via mail.
Keep in mind that you do not have to access all three credit bureau reports at the same time. If you prefer, you can space out this access over the year. So, for example, you can request a report from Experian in March, then TransUnion in June and Equifax in September.
After the bureau authenticates you, you’ll be directed to your credit report. In the next step, we’ll show you what you need to review.
Review your credit report
Review every credit reporting agency’s credit report in detail. Each report has the following sections: Credit Summary, Accounts (includes payment history), Inquiries and Negative Information. Reviewing each section can help you understand the source of a poor credit score, and if your report contains errors.
When you review your credit report, you will need to visit each section of your credit report, and keep notes about erroneous information. Remember, there are three bureaus, so you need to repeat this process for all three reports.
The next section details what you should should note.
The accounts section contains a detailed history of all accounts (open and closed), your balance and your payment history associated with each account. You should be able to see month-by-month payment information for seven years of history. Each month will have a symbol next to it that indicates whether the account was paid as expected or if it was late.
Review each account, the balance and the payment history, and ask these questions:
- Do you recognize all of the accounts on your credit report?
- Are all your closed accounts noted as closed?
- Does each account have the appropriate account balance listed?
- Is your payment history accurate?
If you see missed payments that shouldn’t have been there, write them down. Your credit score is negatively impacted when you are 30 days or more past due. If you see a balance on a card that you haven’t used in years, it could be because the account has been stolen. Misinformation in the accounts section harms your credit score, so make a note of all of it.
For your own records, you should also take note of the following:
- What is my current balance relative to my available credit (credit utilization)?
- Do I have any open accounts that have associated late payments?
Resolving these issues can help you improve your credit score moving forward.
Credit inquiries are records of new credit for which you’ve applied. For example, if you apply for a new credit card, a car loan or a mortgage, you will see records of credit inquiries.
- Do you recognize all the inquiries on your credit report?
If someone steals your identity and tries to apply for new credit in your name, an unrecognizable credit inquiry is usually the first sign of a problem. Make a note of any unrecognizable credit inquiries.
You will also want to take note if you see many credit inquiries where you did not receive the line of credit you wanted. Credit inquiries have a slight negative effect on your credit score, so if you’re applying for a lot of credit, you may need to slow down until your credit score improves.
Negative information includes negative accounts, collections or public records. Negative information has the biggest impact on your credit score.
- Do you recognize all of the negative information on your credit report?
If the negative information in your account is not accurate, you will need to contact the credit bureaus to correct it.
Negative information hurts your credit score, but as it gets older, the effect lessens. Take note of all accurate negative information, so you can follow our strategy to avoid it in the future.
If all the information in your credit report is correct, learn how to monitor your credit score for free and how to improve your score.
On the other hand, if you don’t recognize all the information, you will need to take steps to remove incorrect information. And if your identity has been stolen, there will be even more steps required.
Resolve incorrect information on your report
Incorrect information appears on your report for four reasons:
- Someone stole your identity and opened new accounts in your name.
- Someone stole one of your existing accounts, and started using it.
- The bank made an error and reported a delinquency or default that never happened.
- A collection agency made an error and reported a collection item on debt that was never yours.
If someone stole your identity
Incorrect information due to identity theft is a serious issue that you need to resolve as soon as possible. These are some common signs of identity theft:
- You don’t get your bills or other mail because someone has changed the mailing address on your accounts.
- Debt collectors call you about debts that aren’t yours.
- Medical providers bill you for services you didn’t use.
- Your health plan rejects your legitimate medical claims because records show you’ve reached your benefits limit.
- The IRS notifies you that more than one tax return was filed in your name.
- You are arrested for a crime someone else allegedly committed in your name.
Warning: A common form of identity theft is when a family member steals your Social Security number and uses it to apply for credit.
You can start to resolve identity theft issues by visiting www.identitytheft.gov to report identity theft and get a recovery plan. This is an excellent, free website created by the Federal Trade Commission. In addition to reporting identity theft, you will receive a free action plan, and you’ll gain access to people who can guide you through the identity resolution process.
Below we detail some important action items you can take.
- Place a fraud alert on your account with the credit reporting agencies by calling each credit bureau (numbers below).
- Equifax: 1-800-525-6285
- Experian: 1-888-397-3742
- TransUnion: 1-800-680-7289
- Put a freeze on your credit reports. A freeze blocks potential creditors from getting access to your credit report, making it less likely an identity thief can open new accounts in your name.
- Create an Identity Theft Report by submitting a complaint about the theft to the FTC and filing a police report.
If someone stole your account
If someone stole the account information of an existing account, you should immediately contact your bank or credit card company. Once you report your card as lost or stolen, the bank will typically reissue a new card and correct information on the credit report directly.
Dispute credit report errors
If you do not think you were the victim of identity theft, but believe there is incorrect information on your credit report, you can dispute the information directly with the credit reporting agencies. We will explain how.
Disputing incorrect information involves three steps:
- Dispute the item online with each credit reporting agency.
- Write a letter to each credit reporting agency, and keep copies of your correspondence.
- Write a letter to each organization (bank, collection agency, credit union, etc.) that submitted incorrect information, and keep copies of those letters.
When you dispute incorrect information, you must keep a copy of your mailed correspondence in case the issue does not get resolved right away. Keeping copies of your correspondence will allow you to get help from the Consumer Federal Protection Bureau if necessary. Your dispute should include all of the following:
- A copy of your report.
- Specific information about what is incorrect.
- Any documents that support your position.
- An explicit request to remove or correct incorrect information.
If you need to dispute information, download the following step-by-step instructions and letter templates that will make disputing incorrect information as pain free as possible.
Reporting to debt collections agencies can be trickier, as collection agents are more aggressive in their tactics. The Consumer Federal Protection Bureau has a letter template you can use to make it clear that you do not owe the debt.
After you dispute the incorrect information, you will need to follow up to be sure the information gets resolved.
If following the steps above seems daunting, some organizations specialize in paid credit repair services. Most of the services require a monthly subscription fee between $60-$100 per month, and most reviews report that the negative items are completely removed within three to five months. Despite the high cost, legitimate companies provide a valuable service if you’ve been the victim of identity theft and you want someone else to do the work for you.
Follow up on disputes
Once you register your dispute with the credit reporting agencies, they must investigate the item in question within 30 days, and they must forward all the relevant data you provide about the inaccuracy to the organization that provided the information.
If the information provider finds the disputed information is inaccurate, it must notify all three nationwide credit reporting companies so they can correct the information in your file.
When the investigation is complete, the credit reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. This free report does not count as your annual free report.
If you ask, the credit reporting company must send notices of any corrections to anyone who received your report over the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.
What if my dispute isn’t resolved?
If an investigation doesn’t resolve your dispute with the credit reporting company, you can request that a statement of the dispute be included in your file and in future reports. You can also ask the credit reporting company to provide a statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service, and a dispute on your credit report does not improve your credit score.
Do I have any other options?
If you are unhappy with the way your case was investigated by the credit reporting agencies, you don’t have to give up. Instead, you can complain to the Consumer Financial Protection Bureau (CFPB).
When you complain to the CFPB, you can should provide copies of all of your correspondence to prove your case. The CFPB will reach out to the credit reporting agencies on your behalf and try to help get your situation resolved. At MagnifyMoney, we have worked with many people who have had good outcomes working with the CFPB.
Monitoring your credit score
In order to catch issues, and stay on top of your credit score, you should implement a credit monitoring strategy. You can monitor your credit for free with LendingTree, MagnifyMoney’s parent company. Keep in mind that LendingTree uses VantageScore, which is slightly different than the FICO score, although it has the same score range.
If you prefer more monitoring and additional credit protection, you can pay a fee for services that provide daily three-bureau credit monitoring, resolution assistance if your identity is stolen and insurance if you have to engage in a legal battle. This guide ranks the top identity theft protection services.
Whether you choose a free or paid version, credit monitoring is a great service. As soon as you detect suspicious activity, you can take action. The sooner you work to deal with issues in your credit report, the less the damage may be.
Improve your credit score
Once you resolve issues on your credit report, it’s time to implement a strategy to start improving your credit score. The single best thing that you can do to improve your credit score is to pay current accounts on time and in full every month. You can picture it as burying negative information under a mountain of positive credit information.
Your top priority should be keeping accounts current. Continue to pay whatever account has the most positive information.
Your next priority should be keeping accounts out of collections. If you owe late payments, work to pay them back before the item goes into collections. Once these accounts are current, they will start to work positively toward your score.
Next, work on paying down your debt to provide positive information. Paying off installment credit (such as mortgages and car loans) will also add good information to your credit report.
If you have no current accounts, consider taking out a secured credit card and using less than 10% of the available credit each month to add positive information to your report.
The last thing you should do is attempt to resolve debts in collections. Once an item is in collections, paying it off will not improve your credit score.
Going forward, take care to avoid taking on more debt than you can handle, and implement a strategy to pay down your debt quickly. Once you start making positive changes, your credit score should improve, and within a few years, you’re likely to have good credit and be a more desirable loan applicant.