Credit score and credit report play an important role in the processing and approval of a loan/credit card application. A lower score can have a negative impact on your application. In the case of a low score, you would want to improve the score so you will not have to face a hard time convincing the lender. How can you repair your credit score? What could have gone wrong that lowered the score? Can a credit repair agency help you?
1. What does credit repair mean?
Credit repair is a process of correcting/rectifying your credit score by filing a dispute with the help of a credit repair agency. You must provide a detailed explanation of your debts and supporting documents to prove your stand about your credit score.
2. What is a credit repair agency?
A credit repair agency is an organisation that helps consumers to deal with their bad credit score and improve it. Consumers may not have the required knowledge and/or time to file their disputes for a correction in their credit score. Such consumers can get the help of credit repair agencies to file their disputes.
It is advised to verify the authenticity of a credit repair agency before you trust them with your personal information. As per the Federal Trade Commission, there are a number of agencies that are not authorised; they intend to scam the customers.
3. What issues can occur with a credit information report?
There can be two sorts of issues causing errors in your credit information report:
a. Incorrect information stored in your credit history and credit report.
b. Defaulting on the payment can cause a wrong impression on your credit report for the following reasons:
- Financial hardship.
- Missed payments on credit cards due to relocating domestically/internationally.
- Disputes with the lender regarding charges or annual fees.
- Non-receipt of card statement leading to missed payments.
- Disputes with the lender on account of fraud.
4. Understanding your credit report
There are certain aspects you must check on your credit report that could be faulty, leading to a low score.
- Check all the open accounts: There are two cases in which an account can be stated ‘open’ without your knowledge.
- The lending institution may have missed communicating the closure of an account.
- The open account may not be yours.
In case there are any of the above errors found, dispute it with the credit rating agency.
- Check the status of accounts: If any of your accounts has a status of ‘written-off’ or ‘settled’, it can be viewed negatively by lenders. Verify if any account is tagged incorrectly and raise a dispute if required.
- Check the payment history of every action: Any entry other than ‘000’ or ‘XXX’ under the Days Past Due section in the payment history will indicate that you have missed some payments. Alongside, make sure that you are making bill payments on time. This can help big time in improving your score; however, a minimum period of 6-8 months is required to see a change in your credit score.
5. Actions to be taken
Since the possible issues that can impact on a credit report are discussed above, here are the actions you can take in each case.
- Incorrect information: Upon identifying the incorrect information, you can initiate a dispute on the concerned credit agency’s website. In the case of CIBIL, you can follow the steps given in this page.
If lenders re-confirm that the information in the report is correct, no changes will be made in your report. In this case, you have to communicate with the lender and get clarification directly.
- Defaulting Payments:
- Financial hardship: If you have missed payments due to genuine financial hardship, loss of a job, or an unforeseen circumstance, you can pay back the amount when your situation gets better. Also, it is recommended to inform the lender about your financial situation so that the lender will not take further legal actions that can hamper your credit history.
- International/domestic relocation: Transferring your loan and credit card accounts is as important as transferring savings account when you are planning to relocate. Make sure to inform lenders about your relocation plan. Otherwise, you may end up having to pay a fortune concerning missed payments, service charges, and late payment fees. This also leads to a dip in your credit score. It is necessary to keep the savings account linked to your credit card or loan active at all times, after the relocation as well.
- Disputes with a lender about charges/annual fee: There may be different charges applicable to a credit card or loan you are going to pursue. Some may be required to pay once while the others in regular intervals such as interest rate, penalty, processing charge, maintenance charge, issuance charge, annual fee, replacement charge, transfer charge, pre-closure fee, and more.
You must be aware of how and when each of them is applicable. If you didn’t pay attention to these while signing up and later dispute the charges, it would affect your score.
- Non-receipt of the statement: You may not have paid the due amount because you have not received the credit card statement. However, the terms and conditions state that you are obliged to pay the outstanding balance irrespective of receiving the statement. Your reason will not be considered valid for missing out on payments.
Failing to pay the balance will lead you to pay a late payment fee along with service charge additionally. Try and resolve the issue sooner so that it does not affect your credit score.
- Disputes with a lender on account of fraud: If you figure out a fraudulent transaction mentioned in the report, raise the issue to the concerned lender. The lender processes your concern to give a final say. Get such disputes resolved as soon as possible, so it does not leave a trail on your credit report.
6. Things to remember
- A credit repair agency cannot remove or edit the information in your credit report directly.
- The online dispute resolution process is available free of cost on credit rating agency websites such as CIBIL.
- The bank/financial institution must approve of any modifications to your credit report.
- Even if you apply for credit repair through an agency, the final credit report will be sent only to the consumer on their email address or postal address. The information in the report is confidential and will not be shared with others.