Understanding credit repair and your options

Credit repair is one option

Nobody sets out to have trouble with credit. Bankruptcy is a last resort for serious debt problems, but for credit reports that contain mistakes or reflect past difficulties, credit repair is another option to understand.

"Credit repair" means working to improve your credit report using methods such as disputing information you believe is inaccurate and building positive credit over time. It cannot legally remove accurate, current negative information simply because it is unfavorable.

Your rights under federal law

You are responsible for keeping an eye on the accuracy of your credit reports, and federal law gives you tools to do it. The Fair Credit Reporting Act (FCRA) gives you the right to contact the credit bureaus directly to dispute items you believe are inaccurate, incomplete, or unverifiable. If disputed information cannot be verified, the credit reporting company generally must correct or delete it. Filing a dispute yourself is free.

You can also address an item directly with the creditor that reported it. The Fair and Accurate Credit Transactions Act (FACTA) adds protections that are mainly used in identity-theft situations.

Why reviewing every report matters

Errors on credit reports are not unusual. Common problems include misspelled or outdated personal information, information that belongs to someone else, accounts you closed that still show as open, and differences between what each of the three bureaus reports. Your scores can also differ from bureau to bureau because the information they hold is not always the same.

What affects a credit score

Many factors affect a credit score, and understanding them helps you plan. Payment history, how much you owe compared with your available credit, the length of your credit history, your mix of credit types, and recent applications are among the biggest. Your score is calculated by a scoring model that weighs these factors.

Steps to repair your own credit

Step 1: Get your credit reports. Use AnnualCreditReport.com, the federally authorized source for free reports from Equifax, Experian, and TransUnion.

Step 2: Review each report carefully. Check your accounts, public records, and any collections. Look at the major areas that affect your score and see how you are doing in each one. Verify all personal information and look for errors. Do this for each of your three reports.

Step 3: Begin. Start the dispute process with the creditor or the credit reporting company, as each situation calls for. Evaluate your debts and create an action plan, review your credit mix, and address any need for positive credit. Avoid steps that could hurt your credit, such as a plan that is too aggressive or poorly thought out, and consider the risks of any outside help you use.

Step 4: Document and stay organized. Keep copies of your disputes and communications, review the results, and adjust your approach if needed.

Our free Credit Rebuild Guide walks through these steps and includes sample dispute letters and credit-bureau contact information.

If you would rather have help

If you would rather have a professional company handle the process, The Credit People is an independent company offering paid credit-repair services. A paid provider can only do what you are allowed to do yourself for free; the difference is convenience and support. Federal law, including the Credit Repair Organizations Act, generally prohibits covered credit-repair companies from charging before services are performed, requires a written contract, and gives you three business days to cancel.

Either way, you have options. Read more about choosing a credit-repair company, or see our credit disclosures.