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Are you looking for easy ways to repair your credit so you can buy a house, get the lowest interest rates for a new car, or just find a better job or apartment? There are many easy steps you can take to repair your credit — and a few things you should never do. We recommend you avoid these three biggest credit repair mistakes people make.
Avoid These Credit Repair Mistakes
Mistake #1 Doing Nothing
If you’re being harassed by creditors or find you can’t make your monthly minimum credit card payments, mortgage payments or car loan payments, you can ignore the problem.
But you’ll find the phone calls from debt collection agencies won’t stop. With each payment you miss, your credit score and credit rating will continue to drop, and you’ll get another black mark on your credit reports. The lower your credit score drops, the harder it is to recover.
Meanwhile, your unpaid debts are accruing interest, digging a financial hole that you may find impossible to emerge from.
From the first month you miss a credit card payment, be open with your creditors. Call and see if you can take a payment holiday due to job loss, if you have credit card insurance that you can activate, or if you can negotiate a lower interest rate or work out a payment plan.
At this point, you may not want to negotiate for debt forgiveness, a charge-off or to have the amount owed reduced — all of these things will lower your credit score significantly for up to 10 years.
If you see no other way out, by all means, consider these tactics. But if you’re only one or two months behind with hope of catching up, be honest with your creditors and negotiate an agreement.
Mistake #2: Not Picking a Reputable Debt Settlement Firm
Before many debt settlement firms will take on your case, you must be at least 90 days late on payments. Ideally, you’ll have already started negotiating with your creditors at this point.
Most debt settlement companies buy your debts and then negotiate an agreement on your behalf with your creditors. You then make one monthly payment to the debt settlement company.
If you’ve chosen a reputable firm, they will dole out money to your creditors. But first, they will wait until you’re in default (90 days) in order to improve their bargaining position.
Your credit score is probably already ruined by this point. If you’ve fallen for one of the debt settlement scams, the company will take your money without paying any money to your creditors, and you’ll be worse off than you are before.
Anything a debt settlement and debt negotiation firm can do for you, you can do yourself with a little bit of time and the strength to make the necessary phone calls and negotiate a settlement.
Remember, if you negotiate a settlement to pay back less than you owe, it will be noted as “settled” on your credit report. If you negotiate to not pay anything, it’s called a charge-off, and this is almost as bad as a bankruptcy.
Mistake #3: Believing The Ads from a Quick-Fix-It Company
Some companies advertise that they can fix your credit report in as little as 24 hours.
These companies — all of them — are scams. There is no legal way to fix your credit in 24 hours.
What these companies usually do is create a second identity for you — often a business name, and obtain a new Employer ID Number or Tax Identification Number. (These numbers are the business equivalent of a Social Security Number). You’ll then use this alternate identity to begin building a new credit profile for yourself.
It’s illegal. Steer clear.