Credit Repair Mistakes: 6 “Smart” Moves You Need to Avoid

Once you realize that you have a credit problem, it’s important to fix it as soon as you can. Unfortunately, consumers who make credit repair mistakes are quite common. Without carefully considering your credit repair strategy or even seeking professional help, you’re likely to make some common mistakes. Trying to repair credit is no time for trial and error. Make a smart plan and stick to it.

Fortunately, you are already on a great path by being here. Let’s take a look at some mistakes you should definitely avoid.

Incorrectly Disputing Credit Scores

In some cases, your credit score might be dismal due to a reporting error. To fix this, you need to file a dispute. First, file the dispute with the credit bureaus in order to give them a chance to fix it. If that gets you nowhere, file a complaint with your creditor. Only when you’ve tried these channels is it useful to file a legal complaint.

Don’t be tempted to settle a dispute online. You want to leave a paper trail that documents your attempts to dispute a mistake. Send written documents via certified mail and request a return receipt. Keep a record of any phone calls you made, who you spoke with, any notices you received in the mail and when, as well as any files you sent by mail to the credit bureau.

Consolidating Debt or Closing Accounts

When you consolidate your debt, everything you owe is lumped together. On the surface, this seems like a great way to keep all of your ducks in a row, because you only have one debt payment to worry about instead of three or four.The downside is that your debts may accrue greater interest. Also, a credit report that shows several well-managed accounts is more favorable than a credit report with one account.

By getting yourself organized and paying down debts on your current accounts, your credit report will be a better representation of your fiscal responsibility.

Avoiding Credit Cards

A debt-free life has great appeal, but before you renounce credit cards entirely, think about whether you’ll need a loan in the future. If you have no credit history at all, lenders lack the information that helps them decide if you’re worth the risk.

Maintaining at least one credit card is a good safety measure and it will build your credit score, which you’ll be thankful for if you need to take out a loan after some kind of emergency. While you work to improve your credit, take care to use your one credit card responsibly, when you know you already have the money to pay the balance.

Not Checking Credit Reports

You would be surprised how many people give up or don’t even try to repair their credit. It takes time, consistency and patience to repair credit.

Regularly check your credit reports to catch reporting errors. You get to look at reports from each of the three credit reporting bureaus for free once per year. Make the most of this system by looking at the score from one bureau early in the year, the score from another bureau in the middle of the year, and the score from the final bureau later in the year.

Using a Credit Repair Company

Be wary of credit repair companies. Handling your own finances is a more secure option, as you have complete control over your strategy. Credit repair companies sound too good to be true, and they often are. No one will repair your credit for free. Think long and hard about whether it is worth passing off your financial troubles to a company that will simply take more of your money.

If you need professional guidance, talk to someone at your bank, your accountant or your lawyer for advice on what to do in your unique circumstance.

Co-signing Loans

Co-signing a loan for a friend or family member seems like a great way to show support for someone you care about, but the loan will appear on your credit report. If your friend fails to pay the loan, debt collectors will come knocking on your door, expecting you to pay.

Co-signing really can be a nice way to help someone with a small loan, to help someone who is trying to repair their own credit, or to help someone get their very first loan. But it can also wreak havoc on your own credit score if your friend isn’t as responsible as you thought. Assess your own financial situation before you agree to co-sign a loan.

In the end, repairing credit isn’t as difficult as you may think. It’s important to spend and save money wisely and to honor your debts as quickly as possible. By following those main principles and avoiding the mistakes above, you can put a bad credit score behind you.

Photo Credit: DorteF