credit restoration, also referred to as credit repair, is the process of disputing the accuracy or verifiability of account information in your credit reports. Disputing information in your credit reports with the credit reporting agencies (CRAs), creditors and collection agencies is a legal right afforded to consumers through provisions of the Fair Credit Reporting Act (FCRA) and other federal consumer protection laws.
Upon receiving a dispute, CRAs and creditors have 30 days to investigate and ascertain whether the accounts are incorrect, outdated or unverifiable. If so, any such accounts must be removed from the credit report and the results of the investigation sent to the consumer within 5 days.
Six Steps To Restoring Your Credit
“People don’t always understand the importance of their credit score,” says Jeff Blyskal, senior editor for Consumer Reports. “It raises the cost of credit and can keep you from getting loans.”
So what’s a credit score?
Your credit score is a three-digit number generated by analyzing your payment history and debt profile.
Banks and credit card companies use credit scores to determine whether to qualify applicants for a loan and, if so, what rate to charge them. The lower your score, the higher your interest rate.
Many landlords these days also use credit scores to determine whether prospective tenants are eligible to sign a lease.And car and home insurance companies use them to determine what premium they should charge.
2.Six Steps To Respectability
Luckily, if your credit rating is less than worthy, there are steps you can take to redeem yourself
First and foremost, start making payments on time. “Paying on time is the most important thing you can do,” says Stenstrom, noting payment history constitutes 35 percent of your total credit score.
Another tip: If you don’t have money for a minimum payment by the due date, but will the following week, pay it next week. “Don’t just double up your payment the next month, which a lot of people do,” says Stenstrom. “That makes you 30 days late and that will drop your credit score.”
3.Check Your Report For Errors
You are entitled to a free copy of your credit report every 12 months from each of the leading consumer reporting agencies –Equifax, Experianand TransUnion.
So take advantage of it. You can request a copy of your report by contacting the three credit reporting companies individually or request them all for free at www.annualcreditreport.comIf you find any errors, correct them immediately. “If there are things that have been paid but still show up as a collection account, or you find an old judgment or lien you thought was paid, pay off what you owe,” says Blyskal. “Get those off your record.”
4.Don’t Borrow Money You Don’t Need
The average American consumer carries between five and 10 credit cards in his wallet. That makes it easy to get in over your head. It also makes lenders nervous.
“A lot of stores will give you 10 percent off your purchase if you sign up for their card, but don’t fall for it,” says Blyskal, noting creditors don’t want to see consumers with too much credit available—even if you’re not using it. “Suddenly, you’ve got another card in your wallet.”
5.Call Your Creditors
If you’re having a hard time making your monthly payments, contact your credit card companies right away.
Though some planners recommend using no-cost credit counseling services to help negotiate lower rates or payments, Stenstrom says consumers can easily do the legwork themselves.
“Don’t talk to the person who picks up the phone – they don’t have the authority to help you,” she says. “Insist on speaking with a manager and tell them you’re having financial problems.”
Often, she says, the manager will work with you to establish a lower monthly payment plan, freeze the interest owed, or forgive some of your debt altogether. “They would rather get 75 cents on the dollar than have you go to bankruptcy court,” says Stenstrom.
6.Pay Off Your Balances
Next comes the hard part. Pay off what you owe—and don’t incur any new debt.
If you have multiple cards, send in as much as you can to the one with the highest interest rate, while continuing to make minimum payments to your other cards.
Once the highest rate card is paid off, start chipping away at the one with the next highest rate—and so on.
Bringing your credit card balances to zero renders you instantly more creditworthy.
1.Start Using Cash
Stop using credit until you’ve got your financial house in order.
By handing over cold hard cash for every purchase it’s easier to keep track of how much you’re spending on a daily basis.
If you struggle with self-control, try putting your credit cards in a container of water and storing them in the freezer. “If you’re tempted to use them you have to wait until it melts and hopefully by that time the impulse is gone,” says Stenstrom.
If you still have trouble saying no, cut them up, but don’t close the accounts. “If you close them and you have a good payment history you’ll loose that,” she says.
2.Create A Budget
It’s good advice for anyone, but for those who are falling behind on their bills, the value of having a budget cannot be overstated.
“If you know what it costs you to live, it’s easier to cut back here and there,” says Stenstrom.
There are plenty of ways to find more money in your budget to pay off debt and clean up your credit.
Stop paying more on your cell phone for text service. Drop cable TV. Take lunch to work and print coupons for your favorite products off the Internet.