Having good credit standing is essential. It is the first parameter that is looked into whether one wants to apply for a loan or rent a property. It also reflects on an individual’s integrity. However, there are mishaps such as unexpected losses or inappropriate forecasts that sometimes affect our credit score negatively. However, the good news is that the damage can be fixed but unfortunately, not many people are aware of this. The reason being, excessive amounts of misinformation spread on the internet as well as verbally by the “know-it-alls”. Therefore, today we will have some of the credit repair myths exposed and strive to explain the truth regarding this complicated subject.
What is credit repair?
As the name suggests, credit repair refers to bringing an improvement in the deteriorated credit score. The decline in one’s credit standing may simply be fixed by challenging any wrong information, or it may require undergoing a more complex procedure, as in the case of identity theft and the transactions associated with that.
However, the most common and relevant mode of repair is addressing the lenders’ rightful concerns, repaying the outstanding amount, and adopting a practice of making timely payments in the future.
The method of repair which needs to be adopted depends on the root cause of the damage.
Credit repair myths vs. reality
“Credit repair doesn’t work”.
Credit repair does not guarantee to restore your credit standing to the perfect score, but it can certainly help in bringing about a significant improvement.
Credit reports are not always accurate and may contain errors. The good news is that you can access a free copy of this report once a year. Hence, you must avail of this facility and check for any discrepancies or signs of fraudulent transactions that were not carried out by you. Any dispute should be immediately reported so that it can be rectified on time.
Reviewing your credit report will also help you identify late payments and indicate any unwise decisions. Once you realize your mistake, you can start avoiding such practices which would ultimately improve your credit score.
Myth-2: “Verified negative information stays on your credit report forever”.
Reality: As per the Fair Credit Reporting Act (FCRA), most of the unfavorable credit information is removed from an individual’s record after 7 years, besides some exceptions like bankruptcy details which stay on the report for almost 10 years.
Most people know that information that is challenged by the individual as incorrect, needs to be investigated by the credit bureau within 30 days. Upon being found inaccurate, it must be deleted from the individual’s credit record on an immediate basis.
Based on this understanding, many assume that negative information which can be verified would remain on their credit report forever and hence they keep worrying that an old incident of default or a past delay in payments would affect their current applications. However, the good news is that almost all negative information is removed from a person’s credit report after 7 years, as per the directives of FCRA.
However, if an old amount is still unpaid, its eradication from the report does not set you free from the liability of making that payment. Your debt would remain intact.
“Credit repair companies are nothing but fraud”.
Not all of these service providers are a scam. There exist both legitimate and fake companies in the field of credit repair, just like they do in any other industry.
If you are wondering what a credit repair company is, it is an organization that analyzes your credit report(s) for a fee and addresses the concerns regarding any discrepancy or dispute to the credit bureau. Although you may perform this task on your own, if you want to save yourself from making the effort, outsourcing options are available in the form of these companies. Sometimes such organizations can give better advice regarding credit repair because they are regularly involved in such activities and may know of certain updates and changes in the requirements.
A precautionary measure to avoid ending up with an illegitimate credit repair company is to do a background check before taking any service provider on board. Another element that must be considered before making a decision is the amount charged by a particular company and your ability to afford it.
“Self attempts at credit repair are always going to fail”.
Conscious effort to make better choices concerning finances, setting priorities, and actively trying to repay all loans will eventually improve your credit standing. Although reaching a higher score would take significant time and require an ample amount of patience.
Repairing credit by yourself would help save the cost that would have otherwise been paid to the company. The analysis bit can especially be done by any person. However, filing complaints about getting inaccurate data rectified may be somewhat tricky and outsourcing might help, but carrying out that task on your own is also not impossible.
The question which then arises is that why do so many people choose to avail the services of a credit repair company if the job can be self-performed?
- They prefer to ease.
- They lack the negotiation skills required for a convincing conversation with the credit bureaus.
- They are unaware of the legal and financial technicalities. Hence, they prefer to rely on professionals rather than undergoing the hassle of researching and developing an understanding from scratch.
- Since credit repair is an ongoing requirement, individuals who feel they lack the patience and consistency to review and analyze credit reports repeatedly may outsource this task.
Thus, there is no wrong or right approach to credit repair. A person may hire the services of a company specializing in the process, or carry out the procedure themselves, depending on their comfort level, awareness and budget.
Contrast between myth-3 and myth-4
It is amusing how two credit repair myths exposed a contrast in their very proposition, thus proving that both are baseless statements.
Myth-3 classifies credit repair companies as scams whereas myth-4 deems it rather impossible to carry out the task by yourself. If both of these statements were believed to be true, one would be left with no means of improving one’s credit standing!
“Deleted negative information can reappear on your credit report”.
This is only possible if a record was deleted in response to a claim that it is incorrect, but is later found by the credit bureau to be authentic. Otherwise, data that has been dealt with, or eradicated as a result of a lapse of time (7 years) is unlikely to make its way back to a recent report.
Since myth-5 and its correction are self-explanatory, let’s move on to our last, but most widely believed myth.
“Declaring bankruptcy is the only option if you have a really low credit score”.
Declaring bankruptcy won’t help repair credit at all.
The maximum benefit a bankruptcy pronouncement can offer is that the individual may get rid of the debt payments. Furthermore, s/he may be allowed to retain some assets. However, it would not clear the credit history, if that’s the intention behind making such a declaration. If anything, it would hurt your credit ranking and massively decrease your credit score.
An individual who files for bankruptcy once becomes less eligible for mortgages, loans, credit cards, and rental properties for the rest of their lives. Therefore, bankruptcy should only be declared if all other means of payment have failed.
With some of the credit repair myths exposed, we hope you have developed a better understanding of the dos and don’ts of improving your credit rating. Although, fixing your position promptly is an essential requirement for avoiding high interest rates in the future, but what is to be remembered is that a change in status would take time, hence you must not get irritated if you do not witness immediate results.