Discover how to take control of your finances and get your credit file back in shape.
Bad credit is a common source of concern for many people, especially if you’re thinking about how to finance a new home or car. Lenders look at your credit report to assess your ability to repay a new loan, so any black marks on it could reduce your chances of getting approved. Basically, if you have less than stellar credit history, it’s important to focus on improving your finances before approaching any prospective lenders.
Fortunately, there are ways that you can salvage your credit report, either by yourself or with the help of credit repair specialists. This guide explains credit repair, what it involves and whether it might be an option for you to consider before your next loan application.
How to repair your credit report
Step 1. Order a copy of your credit report
To kick things off, request a copy of your credit file from any or all of the credit reporting bureaus: Equifax, Dun & Bradstreet, and Experian. It is advisable to obtain all three reports because the details on your credit report may vary between each agency.
You are entitled to a free credit report from each agency once a year. It takes around 10 working days to get a copy of your credit history once you submit a request through these agencies. You may also purchase a copy of your credit file if you need it in a hurry, and receive it within one day.
Once you’ve received a copy (or copies) of your credit file, you can start looking through your history to identify any black marks or defaults.
Step 2. Identify the black marks and defaults
But what are black marks and defaults? The term “black marks” refers to any information on your credit file that may indicate you have trouble managing your money. Defaults, on the other hand, are a type of black mark – this term refers to any account with a payment that is overdue by 60 days or more. When you’ve received your report, these are the negative items or “black marks” to look for:
- Missed payments. Your credit report retains negative repayment history for two years. This means that any missed payments on your mortgage, personal loans, or credit card accounts during the last two years will show up your credit file, lowering your credit score and hurting your chances of obtaining new credit.
- Overdue accounts or payment defaults. Overdue amounts of $150 and above are recorded once they are 60 days overdue. Defaults can be extremely damaging to your credit reputation as they indicate that you are unlikely to repay your debts on time and may default on payments altogether. These listings remain on file for five years.
- Clearouts or serious credit infringements. These are overdue accounts or payment defaults where the credit provider has not been able to contact you for six months. These types of listings indicate that you may default on payment and skip town after that. Clearouts and serious credit infringements stay on your report for seven years if they remain unpaid. If paid, these listings only remain on your report for five years and are defined as “payment defaults”.
- Writs and summons. These listings relate to instances where you have been summoned to court to settle a debt. They stay on record for five years.
- Court judgments. Court judgements including bankruptcies, personal insolvencies or debt agreements can stay on file for five years or longer, depending on when the case is officially resolved. For instance, bankruptcy goes off record two years from your date of discharge or five years from your date of bankruptcy, whenever is later.
- Credit enquiries. Applications for any form of credit (including personal loans, mortgages and even utilities) can remain on your credit report for up to five years, regardless of whether they are approved. That’s why it’s important to only apply for credit you have a high change of being approved for, and to space out your applications over time.
Step 3. Remove the black marks and defaults
Please be aware that any repairs you make on your credit report are unlikely to have an immediate effect. Having said that, credit repair is a legitimate process of removing black marks from your credit file. It applies for black marks that may not belong on your credit history (i.e. errors), as well as listings that have outstayed their rightful duration.
Since the law surrounding credit reporting is complex and, in practice, not stringently enforced, lenders sometimes list defaults or missed payments without proper legal adherence. Credit repair agencies are experts at spotting these errors and may be more effective at repairing your report than you might be. But these companies can be costly to engage, so the following steps will help if you decide to attempt DIY repairs on your credit file.
- Request your credit report. You need to see an up-to-date version of your credit history before you can begin repairing it.
- Identify the negative listings. Using the list above, figure out exactly what information is hurting your credit score.
- Check for incorrect listings. Lenders can sometimes make listings in error. For example, they may list the same debt twice, list it on the wrong person’s account or wrongly list a debt as a default.
- Report any incorrect listings. If you come across any errors on your credit file, you can initiate an investigation by the credit reporting agency or agencies that have this mistake on file.
- Negotiate with your credit provider. If existing credit accounts are part of the problem, get in touch with your credit provider and try to negotiate a repayment plan that is manageable for you. This will help reduce missed payments and prevent debts from becoming defaults on your credit file.
- Consider getting external help. Aside from hiring a credit repair specialist who can potentially remove other negative listings, you may wish to consider financial counselling. This step can help assist you in long term financial planning and management.
Depending on your situation, you may find that credit repair is a priority. The cost of engaging credit repair professionals could be a mere drop in the ocean when it comes to the money you could save on loans if you have better credit history.
Things to consider before calling a credit repair specialist
- Expenses. Weigh up the costs of credit repair against the possible value of it For example, the long term benefit of a home loan with favourable terms outweighs the short term costs of hiring a credit repair specialist. But the benefit depends on them being successful. Consider your credit history carefully and what may be realistically achieved through a credit repair agency before you spend any money on it.
- No guarantees. The agency will investigate your listings but cannot offer any certainty of removing them. You can take comfort in knowing that you’ll be paying less if they fail to remove the listings though.
- Time factor. When studying your negative listings, also take note of when they will “expire”. Most credit black marks disappear from your credit file after five to seven years, so in some cases it may be worth waiting it out. If a payment default was listed on your file more than four years ago, there is a good chance it is due to disappear soon. If you can hold off your loan application for a few more months, you can do away with the whole credit repair hassle.
You can call a credit repair company for a consultation at any time, but remember that credit repair can only remove incorrect or illegitimate listings. There’s no guarantee that credit repair will work for you, and you may ultimately still have to wait for some black marks to naturally expire. But now that you understand how credit history and credit repairs work, you can make an informed decision about these options based on your individual circumstances and goals.