You see the advertisements on the Internet, in your inbox and even on television; “We can fix your bad credit!” All that negative stuff on your credit report—gone in a flash. These companies know how to take your hot mess of a credit report and turn it into a bright, shiny, new credit report with no negative information.
Fine. Dandy. Except that no, they can’t.
First, let’s get our definitions straight: there is credit counseling and credit repair. The first can be a legitimate way to fix the situation you’re in. The fact that you’re in credit counseling shows up as a negative hit on your credit report and will lower your score for a while, but when you’re in over your head, it’s probably worth it.
The second one is basically a sham.
You see, while the Fair Credit Reporting Act gives consumers the right to challenge (and ultimately have removed) inaccurate or outdated items on their credit reports, information that is timely and accurate stays. There is no “secret” method to getting it removed; if you defaulted on a credit card two years ago, that’s going to haunt you for a while. If you’re staying afloat but have a massive amount of debt racked up, that’s going to show up on your report. There’s no way around it.
In other words, any company that’s promising to erase your bad credit history is scamming you.
However, that doesn’t mean your credit can’t be repaired. The thing is, you have to take the initiative to do it yourself, and it takes time—several years, in some cases.
This may not be the answer you wanted, but it’s the only true answer.
So how do you repair your bad credit on your own? First, pay off everything you owe. Don’t take on new debt if you can avoid it. If you have to take on some debt, pay it on time, every time. Visit a credit union, too—many offer small “payday alternative” loans that make those Payday Loans look like the rip-off they are. These loans are for small amounts, with very low interest rates and easy repayment terms. You’ll probably have to verify employment to show you can and will repay the loan—this is why credit unions weren’t a part or cause of Economic Crash-N-Burn ’08—they generally only gave loans to people who could handle them. REGIONAL calls its version of this loan the Step Up Loan, by the way.
At any rate, showing that you can repay a small payday alternative loan will help you re-establish your credit history and start to swing the pendulum back towards “good credit.”
Okay, I know…Dave Ramsey says that all debt is bad debt, so he’d probably bristle at my mentioning this route towards rebuilding your credit. Obviously, the ultimate goal is to not owe anyone and be able to buy most things with cash. However, you’re probably not going to hit that “able to buy a house with a briefcase full of C-notes” point for several years. In the meantime, you’re going to need to rebuild your credit so you can borrow a little here and there. And heck, if you can operate without credit once you’ve got your old debts paid off, more power to you. But let’s stay grounded in the here-and-now reality of most people for the moment.
If you’re at the point where your debts and bad credit are overwhelming, it may be time to call in a good credit counseling agency. Just be sure to remember these points:
- Only use credit counseling services that are not-for-profit
- Never pay a credit counseling service up front
- Make sure the agency is Better Business Bureau accredited
- Make sure they have an A or A+ rating from the BBB
- Remember that it takes time and effort on your part to fix your credit; there are no free rides.