The Basics of Credit Repair:
Your credit score is a number that represents the financial risk you pose to a company. This three digit number makes it possible for lenders to quickly judge your ability to pay back borrowed money. A credit score is used as a qualifier for loans, mortgages, apartment rentals, and even employment. It even has implications beyond your monetary life, due to its ability to affect employment, apartment rentals, and insurance
coverage.
A poor score can directly cost you more money by raising interest and insurance rates. Credit repair is the process in which a company uses specific techniques to increase your credit score number.
What is Credit Repair?
Since a credit score can affect so many aspects of your life, companies that can successfully fix these problems are in high demand. But, not all repair companies are reputable. Some will make far reaching promises.
A company might say that they “can remove all bankruptcies, judgements and liens”. This is just not possible and any company making claims like these should be avoided.
Other credit repair companies are honest 
about the services that they can perform and take care of their clients trying to deliver the best results, legally. Repairing credit is not a simple process, but it can be done completely on your own. Since a large percentage of credit files contain errors or falsely reported data, a credit repair company can help remove them.
These companies also have the ability to figure out what part of your score needs improvement and make recommendations that will boost your score. These companies may have direct contacts within credit bureaus which can help them remove this bad information more quickly. There are many different types of errors that can show up on a credit report. The job of a credit bureau is to present the data that is given to them by creditors, not to ensure that it is 100% accurate.
In addition to removing this inaccurate data, credit repair services will give you direction on how to boost your score. These include things such as getting a credit builder loan, making use of a secured credit card, and setting up a budget to reduce outstanding debts. Even though you can accomplish many of these repair methods on your own, a repair company has the ability to guide you through this difficult process.
What Credit Repair Companies CANNOT do:
If you have a legitimate bankruptcy or default on your record, these companies will NOT be able to remove them. They can work with creditors, 
collection agencies, and the bureaus to fix many problems, but no repair company can make an accurately recorded bankruptcy go away. Some less reputable companies will make big claims, promising to remove accurate information or even “create a “new credit identity”. These should be avoided at all costs.
When companies talk about creating a new credit identity, it is referred to as “file segregation”. File segregation is the process where a consumer gets an Employer Identification Number (or E.I.N) and uses it in place of your social security number to apply for loans or new credit. In theory, this will provide the consumer with a fresh credit identity. BUT, file segregation is illegal, and any company that promises to do this for you is helping your commit fraud. If you do apply for a loan or mortgage under this E.I.N. number, you can be charged with federal and state crimes.
Reputable Credit Repair Companies will use the below techniques to repair credit:
1) Removing Credit Errors
Credit repair services can clean up any errors on your file which will drop your score. A 2004 study stated that over 30% of all credit reports were found to contain errors serious enough to cause a person to be denied a loan or new credit. Having this bad data removed involves filing a disputing the claim and contacting the creditors that filed the inaccurate information.
2) Pay For Delete
Pay for delete is a term that is used when you pay to have a collection agency remove a damaging collection item from your credit report. Many times this can be done without paying the entire amount owed. It can be carried out through a repair agency or on your own. It is done by contacting the collection agency in writing and making an offer to pay a percentage of the debt in return for full removal of the credit entry. Some companies suggest offering around 25% of what you owe in total. 25% of the total debt will allow the collection agency to make a profit so they can close your account and remove this entry. If you contact the collection agency in writing, some experts recommend stating you would rather settle this matter with cash, instead of dragging it through the expensive legal system. Dealing with collection agencies can be tough. This is where the experience of a qualified credit repair agent can come in.
3) Using a Credit Builder Loan
Some credit repair companies can offer you a credit builder loan to improve your score. This type of loan can also be done at an extremely low cost by a credit union. A “Credit Builder Loan” is a loan that is performed solely for the purpose of building a credit history or improving a poor score. With this type of loan, a credit repair company (or credit union) will lend you a small amount of money, ranging from $300 to 
$500 dollars. This money would then be placed in an interest bearing CD. Payments on this loan are made over a period of usually three to six months. The interest rates on these loans are very reasonable and should allow most borrowers the ability to easily pay it back. After the interest is repaid, the borrower collects the money from the CD. This loan will be reported to the credit bureaus and will improve your score. The process of getting the loan and paying it back demonstrates your ability to successfully handle this type of debt. You will be rewarded with a better credit score in return for completing this successfully.
4) Debt Reduction Strategies
A Credit Repair Service may also help to set you up monthly payments to reduce your outstanding debts. Your debt makes up 30% of your credit score and includes 3 different type of debt including: revolving debt, installment debt, and open debt. Constructing a budget that is within your means and allows you to successfully pay back these outstanding balances will improve your credit score over time. This is a strategy that can also be done on your own, but it may help to have a company create a proper budget.
5) Secured Credit Cards
If you have a poor credit score and are having difficulty qualifying for an unsecured credit card, your repair company may recommend that you use a “secured card” to rebuild credit. Secured cards are just like traditional credit cards, except money is deducted from a prepaid account. These cards will be approve in spite of poor credit and over time can be used to rebuild a bad score.
**When you get a secured credit card, it is important to apply for one that reports back to all 3 major credit bureaus.
6) Filing a Dispute Letter
When you or your repair company has looked through your credit report, you may find inaccurate information such as overdue balances that have actually been paid. In this instance you or your repair company may need to file a dispute letter with the credit bureau that has the inaccurate data. A dispute letter should describe your situation, provide a copy of your credit report with the inaccurate data circled in red, and some proof that you have paid the debt. A bureau will usually address the issue within 30 days from receiving the report. The bureau must legally follow up with the creditor that filed the report.
Sample Dispute Letter
Here is a sample dispute letter form taken directly from the FTC’s website. It should be sent certified mail in order to prove that this letter was received.
———————————————————————————————————
Date
Name,
Address, City, State, Zip
Complaint Department
Name of Company
Address
City, State, Zip Code
Dear Sir or Madam:
I am writing this letter to dispute the following credit information in my file. I dispute the items that i have circled in red on the attached copy of the credit report.
This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why).
I am requesting that the item be removed (or request another specific change) to correct the information.
Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records and court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.
Your name
Enclosures: (List the documents you have enclosed)
——————————————————————————————-
Here are the names and phone numbers of the 3 major bureaus: Call to ask for the address to send your dispute letter:
Experian: 1-888-397-3742
TransUnion: 1-800-916-8800
Equifax: 1-800-685-1111
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Keeping Your Credit Score In Good Standing
1) Keep A Close Watch on Your Credit Information
Keeping tabs on your credit can be done on your own, or through a credit monitoring service. AnnualCreditReport.com gives all U.S. citizens the ability to check their credit information for free, one time per year. It is important to keep watch on this information to ensure its accuracy and watch for any incidents of identity theft. (It can also give you an idea of how likely you are to be approved or denied for a loan.)
2) Don’t Close Aged Credit Accounts That Are In Good Standing
If you have credit cards in good standing with a long history, it can be important to keep them open (even if you don’t use them). Cards like these can maintain your “Credit to Debt” Ratio.
Also, the length of an open account is a big factor in your score. The “Credit File Age” makes up about 15% of of your total score. A good payment history on this open credit card is also important to maintain your good score.
6) Watch For Identity Theft
Identity theft has become very common in the internet age. It can leave your credit destroyed and be very difficult to fix up after such an incident. The best policy to handle identity theft is to keep close watch on you credit by checking it often.
If you are very worried about this, you may want to subscribe to a credit monitoring service that will send you alerts ever time thee is a change on your credit file. Some credit monitoring companies also provide insurance against any losses incurred by identity theft.
