What is Credit Repair?

There are many, many resources out there that will give you varying definition of what credit repair is, including some that will say that there is no such thing as credit repair. It's little wonder that so many people are confused about credit repair.

At its most basic, credit repair is simply working to increase your credit score and all the tips, tricks, tactics, kits, and services that claim to repair your credit are working towards this goal. The complication comes when you start talking about how to repair your credit.

There are many things people can do to repair their credit ranging from simple things like paying down certain debts to more complicated disputation strategies to illegal file segregation methods.

Credit Repair Tactics

Credit Account Management - A big portion of your credit score has to do with the current condition of your credit accounts. What types of accounts you have open, how long they have been open, your credit limits, and the amount you currently owe all factor into your credit score. Through better management of these accounts, many people are able to positively affect their credit score in a matter of a few months.

Seasoned Tradelines - Along with manging your existing credit accounts, you may be able to improve your credit score by adding new lines of credit; specifically by adding established credit accounts in good standing. This is something frequently done by parents to help establish their children's credit by allowing children to become authorized users on the parents credit cards.

Taking this a step farther, many credit repair companies began offering seasoned tradelines to their customers in exchange for a fee. These companies would find people with good credit and offer to pay them to add the customer to their account as an authorized user which would have a positive impact on their credit score. Recently, because this tactic is seen by some as a way to game the credit system and artificially increase credit scores, steps have been taken to limit the effectiveness of purchased tradelines.

Credit Bureau Disputes - The Fair Credit Reporting Act (FCRA) gives you the right to dispute with the credit bureaus any items on your credit reports that are inaccurate or untimely. Additional case law expands the idea of inaccurate to include items that you feel are misleading, biased, unverifiable, etc. Essentially, you have the right to dispute any items on your credit report that you feel give people an unfair impression of you - which is a very common occurrence when dealing with credit reports. As the name of the law implies, the FCRA is about fairness and credit bureau dispute are one way consumers like you can make sure their credit score is fair.

When disputing an item with the credit bureaus, you are requesting that they perform an investigation to prove that the negative item is being accurately reported. With some exceptions, the credit bureaus are required to contact the creditor who reported the item to verify that it is correct. If the creditor is unable or unwilling to do so, then the credit bureau must either correct or delete the negative item from your credit reports.

Creditor Negotiations and Disputes - Instead of using the credit bureau to act as an intermediary between you and your creditors, you also have the option to work with your creditors directly. Working directly with creditors has a few advantages including the potential for faster response times, and the possibility of removing negative items from your credit reports that are 100% accurate.

You have a number of options when it comes to working with your creditors to repair your credit. At the most basic level, you can simply ask creditors to stop reporting negative items or arrange a solution where they will report your account more favorably in exchange for a payment. Beyond that, you can take advantage of the various consumer protection laws concerning how creditors and debt collectors can report to the credit bureaus. Similar to credit bureau disputes, you can use these statutes to force creditors to prove the accuracy of their reporting.

Creating a New Credit Identity - While it is a credit repair tactic that has been in use for years, creating a new credit file (known as "file segregation") is not something that anyone should consider. Not only is the effectiveness of these file segregation schemes suspect (new credit files do not mean good credit scores), but they are illegal.

Frequently these schemes are targeted towards people with serious negative items on their credit reports such as bankruptcies. These people, made desperate by the thought of having bad credit for a decade or more, get suckered into schemes where a company will claim to be able to give them a fresh start. This is done by having the customer apply for an Employer Identification Number or some other identifier that they can use in place of their Social Security Number. A new credit report then gets created using this new number. When applying for a loan, the new number is used instead of the person's actual Social Security number on the application so the lender ends up requesting the new credit report.

Not only are the companies who offer file segregation services operating on the wrong side of the law, by by participating in these schemes, you are too. It is illegal to misrepresent your Social Security number on a credit application.

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