While the terms, “credit restoration” and “credit repair” are often used interchangeably, they are quite different. Credit restoration entails the deletion of adverse information from your credit reports, but it involves much more than that. Because lenders require your FICO number prior to advancing credit on items, such as credit cards, automobiles, and mortgages, they must be fairly certain that you can repay the loan. Your FICO score gives them insight into your credit history that allows to them to ascertain how well you pay your bills, what type of credit history you have, what liabilities you have, and whether you are a suitable risk.
Inaccuracies on credit reports occur more frequently than you might realize. The goal is to have the correct information reported accurately to the credit agencies. Simply removing credit information can be a double-edged sword. If you delete questionable information that may be detrimental to your score, while that same information is indicative of credit history, it may hinder, rather than help, your score because credit history is one of the slices of the pie that make up your overall score.
The following guidelines are used to determine your FICO score:
- 10% New credit
- 10% Credit mix
- 15% Credit history span
- 30% Utilization rate
- 35% Payment history
Consumer protection laws mandate that credit bureaus diligently work toward maintaining accurate information for each person. While this gives some measure of assurance regarding the accurateness on credit reports, it does not alleviate the ongoing glitches that may cause records to be reported incorrectly. Credit restoration can be an effective tool to rectify erroneous data.
Issues, such as late payments, charge offs, bankruptcies, judgments, collections, and tax liens can play havoc with your credit score. Credit restoration, performed by you personally, or by a reputable company, can ferret out the options that will help put you back on a more solid footing. If you do not feel savvy enough to handle the process on your own, find a reliable credit restoration firm to help. They will have experienced all of the concerns that you find problematic. Identity theft is a modern-day dilemma about which you may not be cognizant enough to handle alone.
Restoring your credit to its former glory not only helps to re-establish your good standing, but it also helps you secure the best interest rates on loans. It is helpful to know the reasons your scores are low, and the agencies use a set of codes to address that issue. Knowing the reason for a low score can help you make adjustments that will address the problem. All three credit reporting agencies (Experian, Equifax, and TransUnion) primarily use the same numbers. This may prevent you from taking the wrong item off of the report and, thereby, creating a more harmful situation.
Credit Restoration vs. Credit Repair
Credit repair companies have gotten some bad press in the past because they were disputing negative information even when it was valid. The objective is to rebuild credit, not blindly challenge every deleterious remark. This type of shotgun approach could do more harm than good because credit reporting agencies are now shutting them out rather than attempting to corroborate each claim. It is more practical for the consumer to choose a course that will create strategies to help them reverse the financial practices that created the problems in the first place.
Credit restoration firms take a different approach. Rather than inappropriately using the rights allowed by law to dispute any and all allegations, credit restoration companies look at the big picture and help the consumer understand the negatives on the report. Knowing what to leave on or to take off the report is critical. In addition, it is empowering to understand how different companies make a determination of your creditworthiness based on the reason codes on the report. If there are inaccuracies, they will address those issues that will benefit you. This more ethical approach allows you to address current derogatory information, as well as understand the practices that brought about this situation.
It is incumbent upon you to be a good steward over your finances. Once inaccurate information has been removed, you have the responsibility to develop the financial habits that will keep negative reports at bay. In addition, safeguard any future negative reports by examining your credit data frequently so that any harmful information can be dealt with immediately. Safeguarding personal information is a first step toward keeping your credit in good shape, but with today’s highly sophisticated technology, it becomes more and more difficult.
To prevent becoming a victim of inaccurate reporting, conscientiously keep track of what you owe and to whom you owe it. Maintain good records and save important documents to substantiate your claims. Rebuilding credit is doable when you approach the process in a sensible way. When negative items are removed, consumers who make the effort, and are willing to do the work, can eventually have an enviable score.
Credit repair firms may wipe out charges on your credit report, but credit restoration works with the whole individual. There are pros and cons to doing it yourself as well as hiring a company to do the work for you. If you have all of the facts, you can better decide the best course of action.
What Credit Restoration Services Can Help With
Because statutes are in place to require credit bureaus to be able to confirm items on your credit report, it gives you, or a hired company, the upper hand. After the required 30-day investigation, you will be notified about the outcome, and, if the credit bureau has made a mistake, your credit report will be adjusted to reflect the new information. If it is determined that the information was correct, it will be seven years before it comes off your credit report unless it is a bankruptcy, in which case it stays on for ten years.
Restoration companies have the experience and the know-how to speak the language of the credit bureaus. As a layperson, you may not have the esoteric advantage of understanding terminology that may be pertinent to your case. Credit restoration companies may be able to collaborate with creditors on your behalf to develop a repayment schedule that you can easily handle.
It is much simpler for restoration companies to work on your behalf if you have a legitimate mistake on your report as opposed to trying to relinquish your responsibility for debts you have validly incurred. The Credit Repair Organization Act (CROA) is a watchdog for credit repair companies. They help assure the consumer that the information provided by the agency is truthful, and they prevent companies from charging you a fee until the job has been completed. The services they will provide and the cost of those services must be in writing.
Companies that resolve credit issues understand that errors, such as reporting a short sale as a charge off, or showing a deficiency balance on a foreclosure, can be major roadblocks to cleaning up your credit. They can also assist clients with harassing collection calls and letters. These businesses know the various factors involved in charge-offs and the proper steps to clear a default. They are mindful of illegal tactics often used by some collection agencies to collect a debt.
Look for companies that offer a guarantee of their services and check the Better Business Bureau rating. Some companies will go the extra mile, and, in addition to helping improve your credit score, will also monitor your progress to help you stay on track. Of course, if you feel that you can dive into the murky waters of restoring your credit yourself, tools are available online to assist you.
Be aware that if you try to restore your credit alone, you will need to speak the language, understand how to read a credit report, and cite the law that pertains to your issue. You must have a plan of attack and follow-up judiciously. Hiring a professional to take care of the details will give you a greater sense of peace, and you may find that the cost of the service is worth it to be liberated from the mind-numbing tedium of having to send letters via certified mail or waiting on the phone and being passed around from one department after another.
Reliable companies keep abreast of changes in case laws and stay up-to-date on the most current processes that will help them resolve cases quickly and efficiently. The education and consultation that a good company offers are invaluable to improve your credit score maximally. A higher credit score can substantially reduce financing and insurance rates, provide employment opportunities (where credit is a factor), and enhance chances of securing favorable rental agreements.
Credit restoration works because it allows you to get back on an even plane, and if you learn from your mistakes, you can keep a glowing credit score for the rest of your life.
Matthew is the founder of UpgradedDollar and is a graduate from the University of Auckland. He holds a Bachelor of Commerce (BCom) majoring in Finance and Economics and Bachelor of Arts (BA) majoring in Economics and History.