Whether credit repair is new to you or you’ve been at it for months, take the time to review what’s different in 2018 and what stays the same.
Granted, the basics haven’t changed, but your credit repair efforts need to reflect what happened with the Equifax hack and Text for Credit technology in 2017.
You need to keep credit freezes on all of your credit files
Also known as a security freeze, a credit freeze prevents anyone from accessing your credit reports and scores. The goal? To stop fraudsters from trying to open credit accounts in your name. Unfortunately, it also prevents you from opening new lines of credit, too. You can work around it, but doing so requires lifting or removing the freeze when you want to apply for credit followed by the subsequent re-freezing – tasks that can come with nominal fees that vary by state.
For these reasons, credit freezes have not really caught on as a practical credit protection tool. That all changed in 2017.
In September, we learned about the Equifax hack that exposed the data of 143 million Americans in July 2017. We’re not just talking about data that can be changed, like credit card numbers. We’re talking about names, dates of birth, and social security numbers that never change. In other words, half the country is going to have to worry about fraudulent credit accounts stemming from the Equifax hack for the rest of our lives. So, when weighed against a threat like that, credit freezes now represent the most practical means of protecting yourself from fraud.
With your bad credit, maybe you’re thinking no one would be able to open an account in your name anyway. You may be right. But what about when your credit repair efforts work and you have good credit again? Fraudsters will still have all the information they need to open a fraudulent account for years to come.
You don’t have as many free credit monitoring options
Yes, plenty of free credit monitoring services still exist. The problem is that many of them won’t work while a credit freeze is in place. That’s bad news during the credit repair process, when you need regular access to reports for tracking your credit repair efforts (and the last thing you want to do is pay expensive fees for the access). Fortunately, our number one recommended free credit monitoring site works just fine with a credit freeze – Credit Karma.
While you will need to lift the freeze (or wait to place it) until after you have signed up, once Credit Karma has been granted access to your credit files, they’re in. You can re-freeze your credit (or place the freeze) after the sign-up process and Credit Karma will continue to work while the freeze is in place.
Of course, Credit Karma only monitors two of the three major credit reporting bureaus – TransUnion and Equifax. Thankfully, the third bureau – Experian – has its own free credit monitoring service called CreditWorks Basic that you can sign up for anytime (whether a credit freeze is in place or not).
You may be tempted by Text for Credit
When you’re just getting started with credit repair, addressing existing credit accounts should take precedence over adding new ones. However, at some point, it will be a good idea for you to apply for new credit to help boost your credit score even more. The easier this process, the better it might seem, but beware of temptations that may not be in your best interest. Case in point? Text for Credit.
In July 2017, credit bureau Experian launched Text for Credit, an industry-first technology that allows you to quickly apply for credit from your smartphone.
This raises a couple of concerns:
- If it’s too easy to apply for credit, you may be tempted to apply for more than you need. While applying for credit here and there is no big deal, multiple inquiries – especially over a short period of time – doesn’t look good to creditors. Also, the more credit accounts you have, the more susceptible you are to getting in over your head.
- The offers available through Text for Credit may not represent the best terms you can get. So before you apply, shop around for other offers first. And read the fine print. You need to know interest fees and rates (including how long introductory rates are going to last).
What stays the same
DIY credit repair
Yes, you can pay a credit repair company to do it for you, but there is nothing they can do that you cannot do for yourself (see steps outlined below). That said, DIY credit repair isn’t for everyone. Just do yourself a big favor and educate yourself about what to look for in a legitimate credit repair company before you hire one.
Checking your credit reports through AnnualCreditReport.com
Every 12 months, you are entitled to see your credit reports for free – from all three credit bureaus – through AnnualCreditReport.com. You don’t have to sign up for anything (though you will need to provide the personally-identifying information necessary to prove your identity). This should serve as the foundation for your credit monitoring efforts, which you can supplement with free monitoring services (referenced above through Credit Karma and Experian CreditWorks Basic) throughout the year.
Disputing errors on your credit reports
While the majority of your credit problems may stem from listings you know to be correct, you never know what sort of errors could be making your situation worse. Plus, listings on your credit report must not only be accurate, but also verifiable. In other words, if you suspect something on your credit report is either inaccurate or unverifiable, you should dispute it through the appropriate bureau.
Requesting debt validation from debt collectors
When an original creditor turns your debt over to a collection agency, you will receive a notice from the agency demanding payment. As soon as you receive this notice from the collection agency, request debt validation from them. This means asking them to prove that the debt exists, belongs to you, and they have the right to collect on it.
Just keep in mind, you only have 30 days from their first communication with you to request debt validation, so act immediately. If they are unable to provide this validation, you not only owe them nothing, but they must also remove any negative associated listing they reported to the credit bureaus (which does not apply to negative listings reported by the original creditor).
Note, you can use this same technique for debt every time it changes hands from one collection agency to the next, if applicable.
Checking the statute of limitations on old debt
Before you pay an old debt – or even request debt validation when the debt changes hands – check the statute of limitations. The number of years varies by state, but there comes a time when you are no longer legally required to pay on a debt. You can check the statute of limitations here. If it’s up, and a collection agency is still trying to collect on it (known as “zombie debt”), tweak and send this sample letter to the collection agency.
Settling old debt that cannot be dealt with any other way
If the statute of limitations has not been reached yet and the collection agency validates the debt, it’s probably a good idea to try and settle the debt. The key to improving your credit is including pay-for-delete in the settlement arrangement. There’s no guarantee it will work, but it’s worth a try.
Note, if the statute of limitations will be up soon, you may want to just wait it out. Just keep in mind there is always the possibility that you could be sued for the unpaid debt.
Paying delinquent debts that have not been charged off
If you have debt that the original creditor has yet to turn over to a collection agency, contact them about getting on a payment plan. Because as harmful as late payments with the original creditor may be to your credit, they’re not as bad as the charge-off and collections listings that are sure to follow if you let it go that far.
That said, never agree to a payment plan that you cannot afford. Look at your finances carefully before you call the original creditor to be sure any offer you accept is one you can follow through on.
Paying down high credit card balances
Thirty percent of your FICO Score is determined by amounts owed on your credit accounts. This includes your credit utilization ratio on your revolving credit accounts. That is, the amount of credit you are using relative to how much you have available to you on credit cards (as well as home equity lines of credit).
In other words, the higher the balances on your revolving credit accounts, the worse it is for your credit score. So, if you cannot pay them off altogether, by all means, put yourself on a payment plan to pay down your credit card debt.
Building positive credit
As much good as it will do your credit to deal with negative listings that are dragging down your score, equally important is adding positives into the mix. There are numerous ways you can do this, including:
- Paying your bills on time, every time
- Keeping your credit utilization ratio between 10 and 30 percent
- Returning your credit card balances to zero every month
- Applying for a secured credit card
- Applying for a credit builder loan
- Keeping credit applications to a minimum