Editors' pick: Originally published Dec. 1.
If the number of social media followers you have is not without significance at this point in the 21st Century, but the venerable credit score is still probably more important. Your credit score can affect your ability to buy a home, rent an apartment and even get a job. Fortunately, just as there are things you can do to add followers, there are ways to repair a credit score damaged by a spell of unemployment, a medical crisis or other events.
For most people, repairing credit is a do-it-yourself job. "I really think if you have the time to do it, it's not that difficult to do," says April Lewis-Parks, director of education for Consolidated Credit, a Fort Lauderdale-based non-profit consumer credit counseling organization. "It's just like anything else," she adds. "It takes time."
A typical home-brewed credit repair job might take a few to several hours, spread out over from several weeks to a few months. Costs should be limited to paying for postage, photocopies and long-distance phone calls.
You can also use a credit repair service, which will do the work for you. However, these can be expensive. A typical credit repair service may charge an upfront fee of $100 or so, plus ongoing monthly subscription fees of about that much until the matter is resolved, which could take several months.
Lewis-Parks cautions against making large advance payments, or additional payments unless and until the service can show progress in the form of negative items being removed from your credit report. "They shouldn't be paying up front," she says. "Maybe there's a nominal consulting fee, but then as items come off the credit report they should pay per item." Also avoid any service that promises a specific increase in your score or claims to be able to remove accurate, if negative, entries from your report, she adds.
If you decide to do it yourself, start by requesting copies of your credit report from the three major credit reporting agencies: Equifax, Experian and TransUnion. You get one free copy of your report annually from each of these agencies, downloaded from their websites. Plus, you can get a free copy any time you are denied credit or have another adverse event, such as being denied insurance, related to your credit score.
Next, go through the reports, looking for inaccuracies. For instance, you may find a debt incurred by someone else who has a similar name. A creditor may report you made a late payment when you actually were always on time. A closed account may still appear open. Your report may list a previous address where you never actually lived.
When you find an error, request that it be corrected. Mail the credit reporting agency a copy of the report with the error circled, an explanation of why it's wrong and any supporting documentation such as a canceled check or statement. The agency will normally respond within a month or so.
Nancy Bistritz, director of public relations and communications for Atlanta-based Equifax, notes that a credit bureau is not required to remove any information unless it is shown to be inaccurate. Sometimes the credit bureau may refer you to the creditor. You may be able to convince the creditor to ask the bureau to remove the item. Then the bureau is likely to make the change. Agencies are in the business of selling accurate information, so they're usually willing to fix proven errors.
The object of all this attention is a three-digit number, from 300 to 850, with the higher number being better. The average person's credit score is about 675, although each reporting agency typically has a slightly different number. Over 740 makes you an excellent risk, qualified for more credit and lower interest rates. Below 650 is poor and below 600 or so places you in the least attractive group.
Your score is calculated using a formula that includes the number and type of credit accounts you have, how much credit you have available and the length of your credit history. Late payments, owing a balance that is a large percentage of your available credit and having a number of recent requests for credit checks from creditors can all affect your score negatively.
Getting inaccurate items removed from your credit can be a relatively quick and easy way to repair your credit and raise your score. Longer-term, being sure you pay bills on time and in full is another effective method of raising your score, or at least to keep it from going down.