Complete guide to credit repair
Practical tips to help you improve your credit score and repair your financial history.
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Poor credit history can have a significant impact on your finances and your chance of being approved for future lines of credit. If you have bad credit or filed for bankruptcy, you can follow a few simple steps to increase your credit score and get your finances back on track. You can either tackle the issues yourself or enlist the help of a credit repair agency.
Use this guide to compare professional and DIY credit repair tactics, understand the steps you'll have to take and learn how to compare credit repair agencies.
How do I know if I need credit repair?
Your credit file is a detailed record of your financial history and is used by lenders to judge your ability to manage loans and repayments. Your file contains your personal information as well as any details of loans and credit cards you have held. This includes utility accounts and store cards.
If your credit score is between 0 and 550, you likely have a weak or below average credit history. This means that your credit report may include evidence of late payments or defaults, several credit enquiries in a short period, overdue accounts, bankruptcy (including discharged bankruptcy) and other negative listings. If you have poor credit, you'll struggle to get approved for a credit card and may be given higher interest rates when you apply for a loan.
Don't know your credit score? You can order a free copy of your credit score through finder and you will receive it instantly in your dashboard.
What is credit repair?
Credit repair is the process of cleaning up incorrect or negative listings on your credit file and adopting positive financial behaviours to increase your credit score. The specific steps you'll take will vary depending on whether you use a professional agency or try to do it yourself.
Using a credit repair service
Credit repair companies use credit legislation to determine whether negative listings on your file were put there without a credit provider adhering to the relevant laws. As they're experts, these agencies know what to look for and who to contact to have any incorrect listings removed from your report. The specific fees will differ between credit repair agencies, but you are likely to pay between $500 and $1,500 dollars in total to have a listing removed from your file. You normally pay per listing removed.
The process may be different between different services, but it will usually include:
- Initial consultation. You may be offered an initial consultation to explain the credit repair process. This should be complimentary and it's to ascertain whether the process will meet your needs.
- Check your credit file. Following this your credit file is checked and the first fee is charged. This stage is to see if there are incorrect listings that can be removed and if there are actionable things that can be done to improve your score.
- Formally apply for credit repair. If you want to move forward you will need to formally apply for credit repair. You'll need to list the defaults or incorrect listings you want investigated and removed and you will need to pay a fee for each.
- Contacting creditors. The credit repair company, if it accepts your application, will then contact creditors to determine which defaults can be removed from your file. Some credit repair companies may negotiate a payment plan with your creditors if you still have an amount owing.
- Listings are removed. If successful, listings are removed from your file. You will pay a fee for each successfully removed listing.
How to compare credit repair agencies
There are a few credit repair agencies that offer their services to Australian consumers. However, in order to determine whether or not an agency is reputable, there are a few important factors you need to consider:
- Licences. Check if the credit repair service has an ABN, which you should be able to find at the bottom of the company's website.
- Transparency. How upfront is each company about the fees you will have to pay? Look for a company that provides the full terms and conditions before you have to hand over any money.
- Reputation. Is the company a trusted name in the industry or does it have a reputation for being a bit dodgy? Look for a company that is respected and has an impeccable service record.
- Customer reviews. Look at online review sites to get an idea of the experiences other people have had with agencies. This gives you a good idea of how each company treats its customers.
- Overall cost. Look for the best combination of an affordable price and quality service.
You can watch the video below with Merrilyn Mansfield, financial advocate from Princeville Credit Advocates, to find out more about the credit repair process.
DIY credit repair
If you find incorrect listings on your credit report, you can try to fix them yourself for free. You can contact the credit reporting bureau that issued your report (such as Equifax or Experian) and ask them to remove the listing directly. If they refuse, you can contact Ombudsman external dispute resolution service to help resolve your case.
If you have valid negative listings such as bankruptcy or defaults, these can last on your report for two to seven years depending on the exact listing. However, you can still improve your score by adopting some positive money habits:
- Make timely repayments. Late payments and defaults can hurt your credit score, so it's important to make the minimum payments on time each statement period. If you're using a credit card, it's ideal to pay your balance as much as you can or in full each month to reduce your interest payments.
- Consolidate your debts. If your credit score is low because you're struggling to pay off multiple card or loan debts because of interest costs, you can consolidate your debts into one account with a 0% balance transfer offer. These cards don't charge any interest on the transferred amount for a promotional period (which can sometimes be as long as 26 months). You can start comparing balance transfer cards and understand how they work on Finder.
- Lower your credit limit. Your credit score is also based on how much available credit you have. If you have a large credit limit that you aren't using, you could consider lowering it. Not only will this curb any temptation to overspend, but it could have a positive impact on your credit score.
Is credit repair worth it?
The value of credit repair will depend on your situation. If you've found an incorrect listing that could remain on your report for a few years, it may be worth paying a credit repair service to have it removed. If the listing is valid, even a professional can't remove it from your report. In this case, it wouldn't be worth seeking the help of a credit repair service.
The pros and cons of credit repair
- Improve your credit score. Removing negative listings from your report and adopting positive repayment habits will increase your credit score.
- Increase chances of credit approval. Lenders use your credit report and score to assess your risk as a borrower. If you remove any incorrect black marks from your credit report and increase your credit score, your chances of approval should also improve when you're applying for a credit card or loan in the future.
- Fees and charges. If you use a credit repair agency, the credit repair process can be expensive. However, the benefits may outweigh the costs if you get your finances back in order.
- No guarantees. There are no guarantees the credit repair company will be able to remove your negative listings. If the black marks are legitimate, you'll have to wait until the set period until they're removed from your report.
Credit repair can be a great way to improve your credit score and get your finances back on track. If you decide to get help from a credit repair agency, make sure to compare your options and weigh up the costs with the benefits before you commit.
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