Repairing Bad Credit: Everything You Need to Know
Good credit is the en tryway to those big-ticket financial decisions that make a difference in your life. Renting an apartment, getting a loan, buying a car, and getting a good travel rewards credit card, are all determined by the good-ole credit score.
If your credit score could use a pick-me-up but you’re not quite sure how to do it, it might be time to initiate the credit repair process.
Keep reading to learn more about how it works and exactly how to get it done!
What is credit repair?
Credit repair is the process of fixing, restoring, or improving your credit score by communicating with your lenders and the credit bureaus about inaccurate information in your credit report.
You can take care of credit repair on your own or hire a third-party company. Some third parties are often called credit repair companies and they dispute information with the credit agencies, undoing damage from inaccurate information, identity theft, and harmful spending habits.
Does credit repair work?
Yes, credit repair can work. There are just a few things to keep in mind, including:
- There are a lot of scams out there. Lots of illegitimate credit repair companies charge illegal fees and use shady business practices to promise positive results they might not deliver. Continue reading to learn about how to choose a legitimate company.
- It takes time. And when it comes to dealing with credit bureaus and reports, it can feel overwhelming. But with the right resources, either with support from an outside organization or composure on your end, you can see results.
- You can do this yourself! If you’re someone who believes a job is done better if you do it yourself, it’s totally possible to comb through your own reports to look for inaccurate information. And this option is also free. We like free stuff.
Can you fix bad credit quickly?
First off, let’s define bad credit: Bad credit is a credit history that includes negative remarks that are damaging to your credit score, like late payments or charge-off accounts. myFICO, the official consumer division of FICO — the company that invented the FICO credit score — states that a poor or bad credit score falls between 300 and 579 out of a possible 850. Believe it or not, a one-point difference in your score, like 579 vs a 580, can make the difference in whether you qualify for the loan you want.
While the timeline for credit improvement can vary based on your credit profile, there are often opportunities to make improvements within 30-60 days. There are actions you or a credit repair company can take to repair your credit more quickly.
How to repair credit scores
Repairing a poor credit score takes time and patience, so be sure to keep this in mind if (and when) things get frustrating!
Start by reviewing your credit report and looking for any inaccurate information. You can then use a credit repair company to dispute these claims or do so yourself. You’ll also want to catch-up on any bills you haven’t paid and create a budget for all your expenses. We know budgeting isn’t the most fun thing to do, so rather than spending time to DIY, consider using a smart budgeting app or calling the pros.
You can often use a secured credit card and other types of credit cards (responsibly!) to start building or rebuilding a positive credit history. Once you begin, be sure to check your credit score regularly.
What do credit repair companies do?
Credit repair companies take the DIY out of credit repair. They offer to improve or fix your poor credit score for a fee. The process starts when you share a copy of your credit report, typically from each of the major consumer credit bureaus: Equifax, Experian, and TransUnion.
The credit repair company will review your report for inaccurate information and negative marks like bankruptcies, tax liens, and charge-offs… bleh. Then, they will create a plan to dispute any identified errors and advocate on your behalf with the company that reports your credit information to the bureaus.
The credit repair process may include validating information with creditors, disputing the negative marks altogether, and/or sending cease-and-desist letters to the debt collectors. Debt validation letters are important because if your creditors can’t prove you owe the debt, you aren’t responsible for it.
Do it yourself credit repair – is it worth it?
To determine whether or not it’s worth working with a credit repair company, ask yourself: “How much time and effort do I have available to put into fixing my credit score?”. If you’re a major DIYer, credit repair might be right up your alley. If you’d rather stop thinking about your credit score until it looks a little better – trust us, we get it – then hire the pros.
If you’re willing to put the energy into going through your report for inaccurate information and remove it, it’s definitely possible. But a credit repair company could save you a lot of time by doing most of the heavy lifting. Plus, the best pros have access and direct connections to the credit bureaus that the average DIYer just doesn’t.
How long does it take to fix bad credit?
It could take a just few weeks or several months to fix a bad credit score and it all depends on the severity of the negative history and quantity of errors bringing down your score.
Here are other things to consider when figuring out your timeline:
- The type of negative information on your credit report and how much of it there is
- The age of your negative information
- Your credit profile and history has a major impact on the way a credit issue affects your score
For example, a foreclosure or bankruptcy will most likely be more difficult to recover from than a one-time late payment.
How long does a repo stay on your credit?
“Repo” stands for repossessions, which are negative items listed on your credit report that can hurt your credit score. When someone comes to take your car because you aren’t making your loan payments, that damage goes a lot farther than you might think.
It takes seven years for a repossession to come off your credit report. That countdown begins from the date of your first missed payment that led to the repossession in the first place.
Is credit repair legit?
There are legit credit repair companies out there that can help you improve a poor credit score, however, be aware of scams.
Any company that demands money up front is typically making promises they won’t be able to keep. Plus, charging fees for credit repair upfront is ILLEGAL.
Other warning signs for scams include:
- They promise to remove all negative information from your credit report. Unfortunately, no company will be able to remove accurate information, good or bad. So anyone who claims they can is probably a fraud.
- They suggest you dispute all information, even when it’s accurate. YIKES! This would just be fraudulent in the eyes of law. Don’t do it.
- They want you to pay upfront. No legitimate credit repair company will ask for money before any work has been done. It’s actually illegal to do so under the federal Credit Repair Organizations Act.
Is credit repair legal?
Credit repair is legal at the federal level. The Credit Repair Organizations Act was enacted in 1996 and regulates how a credit repair company must operate under federal law. It protects consumers from receiving untrue or misleading information from credit repair companies and requires certain disclosures in regards to the sale of “credit repair” services.
According to the Federal Trade Commission, the following practices are not allowed under the CROA:
- Suggesting customers make false statements to credit reporting agencies
- Advising credit repair customers to change their identify to dissociate with their credit information
- Charging fees for any services that have not been fully rendered
- Promising the removal of information from their customer’s credit reports
The CROA also protects credit repair customers by requiring companies to disclose the following information:
- Customers have the right to dispute their own credit report information
- Customers can sue the credit repair company if they violate the CROA
- Credit repair companies cannot force you to sign anything that would waive any of the mentioned rights in this list
- Credit repair companies cannot hide any of the following information listed above
Many states have their own laws about credit repair. A legitimate credit repair service should be diligent about the various laws at the federal level and those specific to your state but it doesn’t hurt to ask upfront.
What’s the best way to repair credit?
The best way to rebuild your credit score is to use your credit card responsibly (and by that, we mean only purchasing things you know you can afford and pay off in full every month). This ensures positive information is sent to your credit bureau every month.
If you’re not at this point quite yet, start by reviewing your credit reports for errors. You might even notice suspicious activity such as identity theft. Then, make an effort to make payments on time and pay all that is due. You’ll also want to avoid getting too close to your credit limit and applying for new credit cards if you don’t need them.
Pro Tip: Never use more than 30% of your credit card limit. For example, don’t allow your balance to go over $300 if your credit limit is $1,000.
How much does it cost for credit repair?
There are a couple ways a credit repair company could charge you for their services. And again, remember that a company:
- Can’t charge up-front fees
- Can’t charge for services until they’re delivered
A company could have you pay a one-time setup fee, which could range anywhere from $20-$90. Typically, that’s combined with a monthly service fee, which can run from $30-$130 a month depending on the services provided. Other companies may use “pay per delete,” which is when they only charge you after an item on your credit report is deleted.
Debt Management Plans: Everything You Need to Know
A Debt Management Plan (DMP) can help manage your payments and even reduce your accruing debt, and is one of many debt relief solutions available. If you’re having trouble paying your bills every month, a DMP might be exactly what you need. Keep reading to learn more about how it works.
What is a Debt Management Plan?
It’s a debt solution that combines your unsecured debt payments into one monthly payment and allows you to pay off debt in three to five years by reducing interest rates, monthly payments, and late fees.
If you’re struggling to pay off credit card debt or unsecured loans, a DMP can be a magical alternative to bankruptcy. You will make one monthly payment directly to your credit counseling agency, who then will pay the creditors an agreed-upon amount.
How do Debt Management Plans work?
Debt management plans work by discussing your current financial situation with a credit counseling agency who will then create a plan to pay off the amount you owe to creditors. The process starts by having a consultation with a financial coach who will review your current finances and help you understand your options.
Your coach can then negotiate with your creditors on your behalf to create new payment plans, such as reducing minimum payments, lowering interest rates, and stopping late fees. Then, rather than pay your creditors separately each month, you pay a one-time monthly payment to the credit counseling agency. The goal is to do so in a way you can afford and ultimately become debt-free while the creditors get paid. It’s a win-win.
Can creditors refuse a DMP?
A creditor does have the right to refuse any Debt Management Plan sent to them. Each company has its own set of rules for what they will and will not accept. That said, even if your account hasn’t always been in great standing, there’s still a change your creditors will work with you.
How long is a Debt Management Plan?
The timeline for full repayment is often three to five years. The timeline depends on how much debt you have and how much you can afford to pay each month.
Do DMPs really work?
Debt management plans can help someone struggling to pay back overwhelming amounts of unsecured debt. But, these plans are not for everyone.
Depending on your situation, bankruptcy or another form of debt relief may provide even more benefit. We recommend consulting with a professional to understand all of your financial options.
What are the benefits of a Debt Management Plan?
Here are some of the benefits you may find from a DMP:
- Reduced stress.
Having debt without a plan to pay it off can feel like a never-ending cycle. With professional advice, you’ll be able to create financial goals, review your budget, and figure out the options to best serve you in the future.
- Waived fees and lower payments.
A financial coach can negotiate with your creditor to waive fees and lower your monthly payments, which will help pay off your debt faster and create space in your budget for other necessary expenses.
- You’ll pay off debt faster.
If your coach can negotiate a lower interest rate, a larger percentage of your payment will go to your debt balance, meaning less debt more quickly.
- It’s a one-time monthly payment.
Managing one bill is much easier than trying to stay on top of multiple bills from several different creditors.
- You have someone on your side.
Your coach is there to help you, not pressure you into a more difficult financial situation. Unlike some debt relief solutions, it’s comforting to know someone is there to have your back and keep you on track to success.
Disadvantages of a Debt Management Plan
Here are some other factors to consider when deciding if it’s the right decision for you.
- DMPs only resolve unsecured debt.
Mortgages, car loans, student loans, and most medical bills are often not covered with Debt Management Plans.
- You can’t have open credit cards.
Plus, applying for a new credit card during this period may lead creditors to cancel the agreement made with your financial agency.
- A missed payment can end it.
Sticking to the plan you and your coach made is essential to ensure your Debt Management Plan isn’t cancelled by missing a payment here and there.
Are Debt Management Plans legally binding?
Debt Management Plans are an agreement between you and your credit counseling agency. If you’ve enrolled in a DMP and are struggling to stay on track, contact your coach and explain your circumstances as soon as possible.
Does a Debt Management Plan affect your mortgage?
A Debt Management Plan doesn’t include secured debts (a.k.a debts secured against property that you own like cars or other property), so it won’t affect your mortgage payments. Before committing to a DMP, you will work with your financial coach to make sure the amount you pay towards your mortgage will be factored into your budget. This way, you’ll reach an affordable figure to pay back to creditors instead of continuing to struggle to pay all your bills.
Can you get a mortgage after a Debt Management Plan?
You’ll be able to get a mortgage more easily than you would have if you’d applied prior to completing your Debt Management Plan. This is because you won’t have any unsecured debt to worry about and you’ll have your full income available to use for a mortgage plus other expenses.
How will a Debt Management Plan affect my credit rating?
Short answer: a Debt Management Plan won’t directly impact your credit score.
In fact, ensuring that your accounts are paid on time will likely give your credit score a boost. These plans do require you to make monthly payments, so if you don’t stick with it, there can be significant negative impacts on your credit history and score. If your Debt Management Plan includes your creditors re-aging your past due accounts and setting them as current, your monthly DMP payment will ensure payments on all accounts included in your DMP. This will help you build a positive payment history, thus making your credit score higher. Also, you’ll be repaying your accounts in full, which is better than settling your debts for less than the full amount owed.
One important factor to consider is closing your account(s). This could increase your credit utilization ratio, or the percentage of your total available credit on all the accounts (like credit cards) you’re currently using. You want a lower utilization ratio to keep your credit score high, so closing credit cards can decrease your available credit. The impact this has varies person-to-person and depends on your exact situation, so be sure to talk with your coach about this first.
How much do Debt Management Plans cost?
You can stop holding your breath! Debt management plans are always either free or low cost. There may sometimes be an enrollment fee of $50, and sometimes there’s a monthly administrative fee, which maxes out at $75. It all depends on what state you live in, so be sure to ask up-front. Most times, your interest savings can cover these costs.
52 Week Money Saving Challenge 
Saving money can be a challenge. Every time it seems as if you are caught up, an abrupt change of events occurs and your wallet is drained yet again. Life happens, and we’ve all been there. From the unexpected car maintenance, to the medical bills, to all the other unavoidable obstacles life throws your way.
Unfortunately, while your expenses may increase, the chances are your paychecks stay the same. That said, there are ways to save a bit more by making a few, simple lifestyle changes. Join our 15-day savings challenge and rack up some extra change! The sooner you start, the more you’ll save.
Downloadable 52 Week Money Saving Challenge Spreadsheet
If you’d prefer to track your Money Saving Challenge progress in a spreadsheet, Credit & Debt is providing a free template you can use:
Instructions for Google Sheets – Money Saving Challenge Template
If you haven’t done so already, click here to open the spreadsheet template. You’ll need to make a copy of your own, so click File > Make a Copy and save it to a folder of your choice in your Google Drive:
Now that you have your own copy, you can edit the template each week. In the ‘Recommended Deposit’ Column, you’ll see our recommended weekly challenge dollar amount to help you save $1,170 in just 52 weeks!
Each week, note how much you saved in the ‘Actual Deposit’ Column. The first cell is filled in for you ($15,) and the ‘Total Balance Saved’ Column will update with each additional entry.
Instructions for Microsoft Excel – Money Saving Challenge Template
To use the Microsoft Excel spreadsheet, first click here to open the template and click the download icon in the top right corner:
Save your copy to a location you’ll remember. Once you have your own copy, you can edit the template every week. In the ‘Recommended Deposit’ Column, you’ll see our recommended weekly challenge dollar amount to help you save $1,170 in just 52 weeks!
Each week, note how much you saved in the ‘Actual Deposit’ Column. The first cell is filled in for you ($15,) and the ‘Total Balance Saved’ Column will update with each additional entry.
Printable 52 Week Money Saving Challenge Chart
You can print this chart to help you track your savings each week:
We’d recommend putting it somewhere where it’s hard to miss, perhaps in an area where you sit down to go through your monthly finances.
How to Save $1,170 in Just 52 Weeks
So now that you have the template saved or chart printed, how can you start saving money each week? Here are 10 ways you can cut back on spending and save some extra cash:
1. Avoid Unnecessary Shopping
This is one of the most important rules to set if you want to save that extra cash. It’s easy to get caught up when we have credit cards and don’t always have to pay cash right upfront. However, this also leads to unnecessary shopping and purchases that might not be fundamental to your daily needs. We’ve all made purchases we look back on and regret, so sometimes being more strategic in your buying habits can actually make you feel better–allowing you to avoid clutter and save money.
You can still allow room to reward yourself every now and then! We all deserve it. But do be thoughtful in your daily purchasing habits to avoid spending cash in unneeded places. Make lists to stick to when grocery shopping, ditch the weekend mall browsing, and make a budget that leaves no room for avoidable purchases. Making these small changes can help save you big bucks at the end of each month.
2. No Eating Out
We all love a good meal, but eating good doesn’t have to mean eating out. Sometimes stopping for fast food seems like the easiest thing to do, but those cheap meals add up! Refraining from spending money at fast food and dine in restaurants can easily save you hundreds of dollars a month. Instead, use the money you would typically spend on eating out towards your monthly groceries! Your money will go much farther–and who knows you might even find a new hobby!
Pro Tip: To save even more money on food, begin learning how to coupon. Pay attention to the weekly sales in your local grocer, and download your store’s app that offers digital coupons as well. Seeing your savings on the receipt at the end of each grocery store run can be rewarding and inspire you to start saving other ways. It’s simple, free and can even be fun. Saving money on things you are already going to buy will help you towards having a larger amount to save each month!
3. Cut The Drinks
Perhaps you’ve heard of –or even participated in– “Sober October”, “No Drink November” or “Dry December”. The idea of this trendy challenge, which has really taken hold in the past few years, is to avoid drinking any alcohol for the whole month. Alcohol can get expensive, and cutting it out for a bit may help you grow your savings more than you think!
Not only does this help save money, but it also improves your health in many ways. Whether you enjoy a glass of wine in the evening or a couple of beers with dinner on the weekend, cut it out for a week and see how it positively impacts your wallet, and your health! Take it a step further and try it for the whole month.
4. Hold The Phone!
In today’s world, convenience is a huge determining factor in most of our daily decisions. We have companies that bring you whatever we want all with the simple push of a button. While these services bring convenience and ease to our everyday life, they come with a pretty price tag. If you’re notorious for ordering food on UberEats, using Favor to have your midnight snack cravings delivered to you, or paying to have your groceries brought to your doorstep–stop for a week and see how you save by not racking up these extra fees.
5. No Online Shopping
Just like with using convenience apps, online shopping can seem like a good idea in the moment but later prove to be a wallet drainer. It’s easy to get distracted by all the promotional emails in our inboxes, the online sales, and free 2 day shipping provided by huge names like Amazon Prime. However, online shopping can lead to debts that you wouldn’t have accumulated otherwise. Go a week without logging in to your favorite online retailer and save the money towards something more rewarding than a quick impulse buy.
6. Check Your Subscriptions
Are you drowning in subscriptions? Do you NEED the subscriptions? Can you remember what all you are even subscribed to? Use this week to go through and clean out all the products and services you are subscribed to. Since most subscriptions are set up on autopay and come directly out of your bank account each month, they are easy to overlook and forget about. Having 5 different streaming services is probably not necessary and cancelling some that you can do without could be a great way to save monthly.
Pro Tip: Talk to your friends and family and see what services they are subscribed to. You can all team up and get a different one and share accounts so that each of you is only paying for one, but can enjoy multiple! You pay for Netflix and your friend can pay for Hulu!
7. Sell Clothes or Home Items to Consignment Stores
Get a kick-start on spring cleaning and make some extra cash this holiday season by cleaning out your closets. There are plenty of consignment stores that buy clothes on the spot.
Some require the items to be seasonal or trendy in order to hand over any cash. Other stores will pay you after your items sell. Dig through your drawers and see if you have any trendy items that don’t fit your lifestyle anymore! This is an awesome way to declutter, give back, and get some extra cash while doing it!
8. Become a Homebody
We all enjoy going out and spending time with friends. But if you are one to hit the town every weekend, your eventful Saturday nights might be catching up with you. Start hosting dinner parties, game nights, and get togethers at home instead. Everyone can bring a different dish, bottle of wine, etc., taking the weight off of you to provide it all and allowing you to still enjoy company and a drink all in the comfort of your own home. In just one weekend of staying in vs. going out, you could be saving well over a hundred dollars just by eliminating the need for Ubers, valets, expensive drinks and much more.
Gas is expensive, and if you live in places like LA, you know just how expensive it can get. If you commute to work everyday, try getting a friend and carpooling instead. You can alternate weeks and save a ton on gas money. If you’re all going to the same place anyways, might as well utilize the opportunity! Think about it: if you spend $45 a week to fill up your tank for your work commute, you could carpool with 3 colleagues and each vow to drive one week. You just saved 3 weeks worth of gas money, equalling $135 a month! That could be a total of $1,620 savings or more each year.
10. Reward Yourself
Budgeting is hard and can make you feel like you’re a prisoner in your own home. Saving money doesn’t always have to be bad though. After you make a strategic budget for yourself and make simple changes in your everyday life, vow to reward yourself at the end of it all with a bit of the money you have saved. Don’t go overboard, as that will defeat the purpose, but do be sure to give yourself a nice treat for sticking to it. You will feel like your efforts were worthwhile and satisfied with saying no to certain decisions leading up. If you’ve stuck to our 10 week, you have most likely saved hundreds of dollars. So reward yourself for doing great, stick the rest in savings, and continue to find other creative ways to save!
Debt Settlement: Everything You Need to Know
Debt Settlement is one of many debt relief solutions at your disposal for getting out of debt and rebuilding your credit. Ready to learn more? Read on to learn how it works.
What is debt settlement?
To put it simply, you make a deal with your creditor or lender to accept one large payment instead of your full debt amount.
How does debt settlement work?
Debt settlement works by negotiating your current debt with your creditors (lenders) and debt collectors. The goal is to lower the amount you owe into something you can afford to pay so that you become debt-free and the creditor gets paid.
When you use debt settlement negotiation services from a reputable company, they negotiate on your behalf. Alternatively, you could negotiate directly with your creditors and attempt to settle your debt on your own. Read on to understand how negotiation works.
You may find it helpful to speak to a financial coach to explore your options and determine if you’re a good candidate for debt settlement.
How to negotiate debt settlement
Before you can negotiate your debt, your accounts usually need to be delinquent by at least 90 days. It’s common for creditors to sell your debt to a debt collector at around 180 days, so your window to negotiate is often within 90 to 180 days of delinquency.
Additionally, you’ll need some money saved to settle your debt. Some creditors accept payment plans, but usually, you’ll pay a lump-sum that’s less than the amount you owe.
Using debt settlement negotiation services
Negotiating on your own can require a considerable amount of effort and time, which is why many people seek out professional services.
There are many benefits to using a debt settlement company to negotiate your debt vs. doing it yourself. If you’re new to debt settlement then you may find it easier to have a professional negotiate on your behalf. Additionally, debt settlement companies can customize debt relief plans based on your goals, your total debt, and your budget. Guidance from a professional service provider will ultimately help you stay on track to eliminate your debt and reach your financial goals.
When choosing a debt settlement company, it’s important to ensure that they are compliant with the Federal Trade Commission regulations for the industry. Consider the amount of time they’ve been in business, ask questions about negotiation fees and associated costs, and look for honest reviews about the business. Our coaches have experience with some of the most trusted debt settlement companies so, if you have questions, you can reach out and ask us, anytime!
How to negotiate a debt settlement on your own
If you choose to do a DIY debt settlement, there are some things you should know:
- You’ll need to negotiate how much you can pay.
- You’ll need to negotiate how it’ll be reflected on your credit reports.
Be prepared to make a few calls before you come to an agreement. You’ll need to be convincing and purposeful in your approach to persuade them. You’re ultimately trying to convince your creditor that it’s worth it for them to reduce your debt, and you may not be able to resolve the settlement with just one conversation.
If you previously sent a hardship letter, your creditor may already have an understanding of your financial situation or life events that may have affected your ability to make payments. If not, you’ll need to clearly outline the financial hardship that you’re experiencing when you’re negotiating.
Lastly, it’s crucial to get all the terms outlined in writing from your creditor before you make a payment. This holds the creditor accountable to honor the agreement, and holds you accountable to pay according to the debt settlement plan.
Because each financial situation is different, we’d highly recommend you speak to one of our certified Financial Coaches to explore your options. Talking to our coaches is always free – just sign up and request a coaching session right from your personalized Money Sensei™ dashboard!
Is debt settlement worth it?
Debt settlement is not for everyone, but it could be worth it if you’ve explored all of your options, as there are many pros and cons to consider:
- It helps you lower your debt
- It reduces multiple monthly payments into one monthly payment
- It helps you avoid bankruptcy, and provides better repayment terms than bankruptcy
- It helps you stop creditors and collectors from contacting you
- Your creditors might not negotiate your debt
- You could end up with more debt (interest and fees still accrue during the negotiation process)
- Forgiven debt may be considered taxable income
- Your credit score may be negatively affected
Debt settlement FAQs
Am I eligible for debt settlement?
You may be eligible for debt settlement if you have more than $7,500 in unsecured debt. Our coaches can help you determine if debt settlement is a good fit for you.
How long does debt settlement take?
Debt settlement can eliminate debt in as few as two to four years. Compared to other debt options, which could take up to 9 years to eliminate debt.
How much does debt settlement affect your credit score?
Debt settlement can lower your credit score by up to 100 points at first, with less of an affect as time goes on. The impact of debt settlement on your score varies based on your current credit standing.
How long does debt settlement stay on your credit report?
Debt settlement stays on your credit for up to seven years. The impact on your score minimizes overtime.
Can I buy a house during debt settlement?
If you are pursuing debt settlement, to begin with, then you’re likely unable to make payments on existing debt. Your credit score was negatively affected (or will be), and it’s unlikely you’ll secure a mortgage at the best available terms. While you could try to purchase a home during debt settlement, it’s a better idea to take care of an existing debt, repair your credit score, and purchase one after debt settlement.