Skip Credit Repair Clinics and Do It Yourself Instead!

When you’re planning on buying a home, your credit score will have a big impact on your interest rate and loan terms. If your score falls on the lower end of the scale, you’ll pay a higher interest rate. Dip too low, and you may not get approved at all.

Boosting your credit score can help you find a better mortgage deal, but be careful how you go about it. Companies promising to repair your credit for a fee may seem like a good bet, but you’re better off saving your money and rebuilding your credit yourself.

Credit Repair Clinics

Credit repair clinics all have the same promise – they’ll fix your credit seemingly overnight. But as the saying goes, if something sounds too good to be true, it probably is. Rather than use legitimate tactics, “Credit repair companies simply bombard the credit bureaus with letter after letter in the hopes of getting legitimate, accurate information removed from your credit report,” said Michael Mack, consumer lawyer and founder of the Bankruptcy Credit Foundation.

While this occasionally works, Mack warned that the results don’t stick. Many creditors will do a soft-delete, meaning the negative mark will reappear on your credit report 60 to 90 days after the credit repair clinic has done its work.

As a result, you’ll end up paying the clinic either by the month or per item deleted, and the cost can add up quickly.

DIY Credit Repair

Repairing and rebuilding credit scores yourself is free and something anyone can do. Mack recommended starting by ordering a copy of your reports from Equifax, TransUnion and Experian. By law, you’re entitled to free copies once per year through AnnualCreditReport.com. Once you have your reports, order your credit scores through an authorized website like myFICO.

Look for “obvious errors and inaccuracies like wrong name, address, accounts showing twice, collections which continue to be reported twice for the same account,” Mack said. If you find errors, send a certified letter to the credit bureaus asking them to investigate and correct the problem. Send a letter for each error you find. “Even though this is more time-consuming, you will get better results.”
Pay off your old debts through a negotiating tactic known as goodwill letters.

“Even negative items on your credit report that are accurate can be legally and ethically and permanently deleted through goodwill letters,” Mack said. “State politely how you were late, or how you were delinquent, and what you’re doing to correct your bad habits.” You can offer to pay the debt, or settle for a portion of the amount owed in exchange for the creditor removing the negative remark from your credit report, he said.

Meanwhile, pay your bills on time each month — payment history accounts for 35 percent of your credit score — and keep your credit card balances low. Mack recommends keeping your balance under 9 percent of your total available credit limit.

Avoid These Mistakes

Don’t close old accounts: “Closing accounts hurts your score,” Mack said. Instead, pay off the balance and leave the account open.

Don’t apply for several new credit-card accounts: “FICO allows ‘rate shopping,” Mack said. “You can apply for 20 different mortgages in a 45-day period and it only accounts as one inquiry under FICO. Likewise you can apply 20 different times for a car loan or installment loan and it only accounts for one inquiry. But with revolving credit it’s different, and the more inquiries you have in a 12 month period, the lower your FICO score.”

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