Credit Repair: How to Get Back on Track to Qualify for a Home Mortgage

By Lorraine Watkins
Mortgage Credit Problems Columnist

Credit repair is not instant, and you must be prepared to do some work. But your efforts will pay off with more favorable interest rates and the peace of mind that comes with a good FICO score. Follow these guidelines to clean up your bad credit.

If you Have Been Denied Credit

If you have been declined for a home loan, you can obtain a free copy of your credit report if you request it within 60 days. Free is good, so make something positive out of this otherwise negative experience, and get your free report.

Free Annual Credit Report

Before you can begin repairing your credit, you need to know exactly what is on your report. Even if you think you know, get your free report at www.annualcreditreport.com. This site allows you to get your free annual report from Equifax, TransUnion and Experian. You do not need to order all three free reports at the same time. For example, you might want to order your Equifax report today, then wait 60 days to order your TransUnion report, and wait an additional 60 days before ordering your Experian report. That way, you can monitor your credit repair progress all year.  These will give you your credit report, but not your credit score. 

Credit Report versus Credit Score

When you order your credit report, you will be offered the opportunity to purchase your credit score. Your report will show payment histories, open and closed accounts, and so on. Your score is a number. You can dispute items on your report with the credit bureaus, but you cannot dispute your score. You can get your credit score from a company such as GoFreeCredit which will give you both your credit report AND credit score - a fee usually applies to get your credit score.

How to Dispute Inaccuracies

There are two basic ways to dispute items on your credit report: either do it yourself or hire a service to do it for you. These firms, called credit resellers or rapid re-scorers (not to be confused with "credit repair" shops), often work with mortgage companies. They can update and remove inaccurate or outdated credit information quickly, often much more quickly than you or I can. Studies show nearly everyone has some inaccurate derogatory information on their reports. When a few points can make all the difference, why not remove it and improve your score?

Do It Yourself Disputes

If you choose the do-it-yourself route, you can find a free sample dispute letter at www.ftc.gov/credit. You can copy and paste it for multiple usage. If you dispute, be sure to do so in writing. Send your letters via the U.S. Postal Service "Return Receipt Requested," and then carefully retain the return receipts. Both the credit bureau and the company that submitted the item to the bureau must reply to you within 30 days, which is one reason you want to retain your return receipts.

Using a Credit Repair Service

Whether you seek out credit repair services or are solicited by them, be sure to check their references. There are many legitimate credit repair or debt settlement companies, and you want to be sure you are doing business with one of them. Be sure to check with the Better Business Bureau, and your state's Website before sharing your personal information.

Watch out for Scams

If you use a third party, here are some red flags that signal possible danger:

• Your are promised a new Social Security Number or Taxpayer ID

• You are told not to contact the credit bureaus or your creditors directly

• You are asked to pay for information

• You are asked to pay for services before they are provided

Negotiate your Legitimate Debts

If you know that legitimate items on your credit report are dragging your score down, negotiate with your creditors. Many times, you can settle for less or set up a payment plan. You can negotiate on your own or, if you have hired a debt settlement company, it will do the negotiating for you.

Debt Management Plans

Whatever the reason for your credit problems, you might benefit from a debt management plan. Even when a third party is paying your creditors from the single payment you provide to them, it is still your responsibility to monitor the debt management company to be sure that your obligations are being paid on time and that your debts are in fact being reduced.

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