Credit Repair Strategies That Work

By Barbara O’Neill, Ph.D., CFP®, AFC® boneill@njaes.rutgers.edu

A topic of interest that frequently surfaces on webinar evaluation surveys is credit repair. Personal Financial Management (PFM) staff are frequently called upon to help military families with credit “blemishes” apply time-tested strategies to help fix poor credit history. Creditworthiness may have deteriorated for any number of reasons including overspending, medical bills, a reduction in household income, and/or identity theft.

A hand holding a credit card near a laptop
Photo by Negative Space, from Pexels.com, CC0

A key fact to remember is that credit repair takes time. It is virtually impossible to reverse a poor credit history overnight and promises that this can be done in a short period are typically a “red flag” for fraud. Negative information (e.g., charge-offs, collections, foreclosures, judgments, late payments, liens, and repossessions) generally drop off after seven years (from the last scheduled payment date) and bankruptcies after ten years.

Below are eight proactive strategies to help military families (referenced as “you,” below) repair their credit:

  1. Check Your Credit Report- Request a free credit report from each “big three” credit bureau- Experian, Equifax, and TransUnion- and review it carefully to pinpoint correct negative information and potential errors or evidence of identity theft. Contact the credit bureaus promptly if the last two instances apply.
  2. Dispute Incorrect Negative Information- Provide documentation to prove that credit report information is incorrect and request that it be removed. A common example is derogatory marks, such as late payments or collection accounts, for medical expenses that were eventually paid by health insurance. Credit bureaus are required to investigate a dispute- typically within 30 days- and report back on its resolution.
  3. Improve Your Credit Utilization Ratio– Calculate the amount of revolving debt (i.e., credit used) relative to credit limits (i.e., available credit). For example, the ratio for a $1,500 balance on a credit card with a $5,000 limit is 30%. Credit experts note that a ratio of 30% or less is best and about 10% is ideal. Two ways to improve a credit utilization ratio are paying down debt balances and increasing credit limits.
  4. Stop the Bleeding– Avoid making new purchases on credit that would further increase debt balances and credit utilization ratios. Instead, create a bare-bones budget to free up money to pay off existing debt. There are three sustainable ways to “find” extra cash: increase income, decrease expenses, or do a little of both. Occasional sales of unwanted items online or at garage sales or flea markets is another way to raise cash.
  5. PowerPay Existing Debt– Use the free online PowerPay program from Utah State University to develop a personalized debt-elimination plan. When a creditor is repaid, add the monthly payment for that paid off debt to the balance owed to a remaining creditor. Extra “power” payments can be made toward the debt with the smallest balance first (snowball method) or debt with the highest interest rate first (avalanche method).
  6. Get Help from Others– Consider asking a spouse, parent, or other trusted family to add you as an authorized user on their credit account, assuming they have a positive credit history themselves. On-time payments by the primary cardholder will help build a positive credit history for the authorized user. Walk away from credit repair companies that demand upfront payment or ask you to misrepresent information.
  7. Obtain Secured Credit- Apply for a secured credit card which provides a credit line equal to a cash security deposit (e.g., $1,000). Because there is collateral, secured credit cards are often easier to obtain than others. Another “starter” product is a credit-builder loan that holds the amount borrowed in a bank account while the borrower makes payments. When the final loan payment is made, the borrower gets the money.
  8. Practice Good Credit Hygiene– Rebuild a credit history gradually by paying bills on time. If you need to “juggle” expenses, consider the consequences of late payments. Credit card and mortgage companies generally report late payments to credit bureaus promptly while cell phone providers and utilities may not.

For additional information about credit repair strategies and credit repair fraud, review the Federal Trade Commission fact sheet Credit Repair: How to Help Yourself.

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