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Credit Restoration

by: Sean Michaels

Update: 09/2021


credit restoration

Life has been tough and consequently, you have found yourself in a bit of financial trouble. To make ends meet, you take advantage of loans and bought most items on credit. However, years of acquiring debts have resulted in a negative credit score and now, you’re finding it increasingly harder (and more expensive) to get new loans. If you want to improve your credit standing and your financial situation, one of the first steps you can take is to use credit restoration or credit repair.

What is credit restoration?

In its simplest form, credit restoration involves doing anything and everything possible to improve your credit score. Credit score is the measure of one’s capacity to pay debts. Three credit bureaus – Equifax, Experian, and TransUnion – create credit reports based on filings made by banks and lending institutions. These reports then become the basis of your credit score, which ranges from 350-800, depending on the credit rating model used.

Your diligence in paying off loans or debts acquired through credit cards or banks, as well as the number of your outstanding loans, are all taken into account in creating your credit score. Therefore, the more late payments or defaults you have, the lower your score will be. A low credit score will make it a lot harder for you to acquire new loans for emergency situations such as a sudden medical issue.

Credit restoration aims to find a way to increase your score and revive your credit profile, so you will have better chances of getting your next loan or credit approved. It can be done in a number of ways, but the main idea is the same – to dispute erroneous entries in your credit profile that usually drags down a person’s credit score and makes it lower than it should be.

Why are there erroneous entries?

With our advancement in technology and software, one would think that data errors would be all but eliminated at this point, but unfortunately, they are still very much prevalent, especially in finance. We are all familiar with them – ghost transactions in your credit cards, double entries, etc. The fact is, a person’s credit score can be significantly inaccurate because of these data errors. Here are some of the main causes:

  1. Identity theft and hacking – as technologies become more sophisticated, so are the methods of criminals to rob people. Criminals often use other people’s identities to mask their activities, with illegal transactions often charged to credit accounts of unsuspecting citizens. Credit cards and online accounts of less-than-computer-savvy individuals can be rather easily hacked, which can lead to thousands of dollars of wrongly-charged purchases or transactions, which of course can do great damage to one’s credit score if not addressed.
  2. Double entries and machine error – computers will never be 100% error-free, and sometimes, glitches in the recording of our transactions with regards to our credit or loan accounts happen.
  3. Inaccurate credit reports – all of the three credit bureaus have several banks and lending institutions that submit client’s records which, in turn, have various collecting agencies to deal with clients. If your credit account in a particular bank has been transferred to several collecting agencies, there is a possibility that the single account might be stated multiple times in your credit report, thus, affecting your credit score.

How can I take advantage of credit restoration?

There are two ways a person can proceed with repairing or restoring his or her credit score. The first one is simple: you do it yourself. By doing it yourself, you’d have studied your own credit report to pinpoint each transaction that you believe is erroneous, coordinate with the lending institution, and present all your available supporting documents and evidence to convince them to strike out the item in question from your credit report. You will also need time to study your legal rights (there are many) that are applicable in your specific situation.

This is a fine approach if you just have a few loan accounts and could allot the time necessary to coordinate with the banks or lending agencies. For many people, however, this is simply not possible due to time constraints or sheer amount of work needed to be done to repair or restore their credit standing. This is where credit restoration or credit repair companies come in.

How can credit restoration companies help?

Credit restoration companies, as their name suggests, help individuals to significantly decrease the time needed for credit restoration through a variety of ways. Firstly, because they offer the service itself, they have experts in the field of credit finance who can guide you with all documentations needed when filing a credit dispute. They often start with auditing a client’s credit report and financial status. This allows them to determine the possible errors. Once the errors have been identified, credit repair companies proceed to consolidate all the necessary documents and proof that those errors should not be counted against your credit rating. They also take note of all the applicable statutes and/or laws in your favor so that they could include it when they finally file your dispute. This organized process saves the client from a significant amount of time trying to figure out the best approach to correct erroneous data in his/her accounts.

To summarize, here are the pros of acquiring the services of a credit repair company:

  1. Expert guidance – they employ experts in the field of credit finance who will guide you through the entire process of credit restoration
  2. Faster preparation – they often have established system for a variety of credit scenarios and situations, saving a lot of time for the client.
  3. Legal know-how – they are adept at figuring out which legal remedy can be applied to a specific client’s credit dispute.
  4. No downpayment – Based on the Credit Repair Organizations Act, credit restoration companies are prohibited from charging anything to any client until they have an output to present or before completing the service they have promised.

But just as there are pros, there are also some cons when dealing with credit restoration companies:

  1. Cost – although you won’t be charged anything before the service is completed, hiring credit restoration companies is still definitely more expensive than doing it on your own. The cost of hiring credit restoration companies varies greatly based on the complexity of the credit situation, as well as the state or area where the client resides.
  2. Finding a good credit restoration company – As with any other service, the success of credit restoration can be largely based on the competency of the company that you’re going to hire. There is no tried and true method of finding out which ones are good, but generally, clients should stay away from credit restoration companies guaranteeing exact credit point improvements or other exaggerated credit improvement claims. A company should clearly state what their services entail, and what they can or cannot do for a client.
  3. No guarantees – although the process of credit restoration seems straightforward, no credit restoration company can fully guarantee that your credit score will improve or that your credit profile will become positive. This is because the outcome of their work will still be based on your particular financial situation. If your poor credit rating is found to have been caused by lifestyle decisions rather than credit data errors, then no credit restoration service can help you improve that.

Whether you choose to do the credit restoration process yourself or through a credit restoration company, just remember to do your research so you will able to maximize the benefits of each approach towards improving your credit standing.

Credit restoration through lifestyle change

Updating and making sure that your credit report is as accurate as possible either by doing it yourself or by hiring a credit restoration company may be the fastest option to repair your credit, but it certainly is not the only way. Bad debts and credit accumulate over time generally because of bad spending habits and inadequate financial education, both of which can be addressed by a comprehensive lifestyle change.

Some of the things we can do to improve our financial situation might seem really simple, but it is surprising how many people do not do it or, worse, don’t know it entirely. In a 2017 study, it showed that an average American household carries a credit card debt balance of almost $16,000. And while some of those expenses are of the important kind like medical bills, many of the respondents also admitted to spending a lot on unnecessary purchases.

To help you start on a more responsible spending habit and work your way towards a permanent credit restoration plan, here are a few tips you can follow:

  1. Audit your expenses – what do you spend your money on and how much? Are they really necessary? You can’t start organizing your finances without taking stock of your spending habits. Categorize your expenses into a necessary and not necessary list. Allot your salary or income towards the necessary list first. Put credit card or loan payments on this list as well and include a percentage of the principal amount in your payment allotment. Weed out as much of the items in the unnecessary list as you can, and you’ll be on your way to a better credit profile sooner than later.
  2. Stop using credit cards for everything – credit cards are really a convenient way of paying for just about anything, but they also have one of the highest interest rates of any loan vehicle. As much as possible, use credit cards only when necessary, such as when conducting business online (online shopping should be kept to a minimum, obviously). For everyday purchases, use cash whenever you can (and whenever it is safe to do so, of course). This will allow you to “feel” that you are actually spending, and thus, you will most likely be able to think about what you’re buying and whether it is really important or not.
  3. Educate yourself – nowadays, if we want to learn anything, it is as easy as opening your computer and connecting to the internet – everything is available online. And one of the most productive things you can do is learn about money and the financial system. Even basic know-how about the concept of investments, passive income, and other basic financial ideas can make a huge impact on your personal finances and, by extension, on your credit restoration efforts. Knowing that it is not a sound investment to buy a 60-inch LED TV when you already have a smaller one can have tremendous effect on your credit, as you can use that money to pay off a huge chunk of your outstanding balances.
  4. Stop being swayed by sales and promos – this might seem too simple to include as a tip, but this is probably one of the most potent marketing tactics that causes a lot of people to have bad debts. Consumerism can really be destructive to people with bad spending habits and is one of the main causes of bad credit scores as well. Learn to be content with what you have and only buy what you really need. Sales and promos will happen regardless if you have the latest gadget or not, and it will continue to happen whether you are already in debt or not. So, do yourself a favor and focus on restoring your credit and clearing all your outstanding balances instead of looking for the next available sale, online or otherwise.

This list is far from being complete, but it contains tips that are simple enough for anyone who wants to repair their credit profile to follow. Combine these lifestyle changes with a proper credit restoration process outlined above, and you will be on your way to a positive credit score.

Remember, however, that depending on your financial situation and amount of debt you have, credit restoration will probably take time. This only highlights the importance of starting with your credit restoration plan as soon as possible, as interest rates, especially ones accrued via credit cards, compound quickly. But while it may seem daunting, a sound financial and credit restoration plan will help you attain a debt-free and pressure-free life, sooner rather than later.