3 Lessons Learned From Failed Attempts at Credit Repair

These days, I'm a Certified Financial Planner™ and make a living educating others about things like investing, retirement planning, and managing their credit. But I wasn't always a knowledgeable and financially savvy individual.

Quite the opposite, actually. I've openly discussed this many times, but I completely destroyed my credit in college due to some financial stupidity on my part. To be sure, this was before the CARD Act and creditors were allowed to use predatory tactics on college students that aren't allowed today, but ultimately, I'm the one who made the mistakes and had to pay the price.

Not only did I destroy my credit (I graduated with a credit score in the low 500s), but I also had absolutely no idea how to go about fixing it. Navigating the process in the several years that followed was a big reason I ended up wanting to become a financial planner, but there was a lot I learned along the way. Thankfully, here I am nearly 20 years later and with a credit score that has been in the "excellent" range for a long time. Here are three lessons I learned from my own failed attempts at credit repair.

Lesson No. 1: There's no such thing as "fast credit repair"

If you see advertisements promising to fix your credit quickly, ignore them. If your credit is truly damaged, there is no quick path to fixing it.

Many "debt repair" companies use a strategy that involves disputing all of the negative items on your credit report with the credit bureaus. Legally, your creditors have 30 days to verify the debt, or it must be removed from your record. Invariably, creditors and collection agencies don't always respond quickly, so in many cases, the information will be removed, and your credit score can go up -- for a little while.

However, one key point to know is that creditors want their money. So, the information will usually be verified and reported eventually, and will then reappear on your credit report.

In a nutshell, there are valid ways to do damage control on your credit report. This isn't one of them. (I'll talk about a more effective approach in a bit.)

To be perfectly clear, I'm not talking about nonprofit credit counseling services, which do add a lot of value for consumers. These are agencies that can negotiate with creditors on your behalf for lower interest rates and payments and can help you get your debts under control, while helping to mitigate the impact on your credit score.

Lesson No. 2: Getting rid of bad credit is only half of the battle

If you want to take your credit score from bad to good, it isn't enough to simply pay off collection accounts and address the negative information in your report. You need some positive information in your report as well.

The problem is that without a decent credit score, it can seem like a big challenge to open a new credit account.

One way I ended up boosting my credit score when I was in repair mode was by getting a secured credit card. These work just like standard credit cards but require an initial deposit equal to your credit limit, so they are easier to get. Some even offer cash back rewards. Alternatively, you can convince a responsible friend or relative to add you as an authorized user on one of their credit accounts, which can also help you establish a positive payment history.

Lesson No. 3: Calling your creditors can make a world of difference

One lesson that is important to learn early in the credit repair process is that ignoring the problem doesn't make it go away. And it is in your creditors' best interest to work with you to find an agreeable solution.

For example, let's say that you have a collection account on your credit report, and the agency offers to settle the balance for 40% less than you owe. Maybe you can offer the full amount in exchange for the account being deleted from your credit report entirely. Whatever the agreement, get it in writing, but it's not uncommon for creditors and collectors to agree to things like that.

You might also be able to get your creditors to stop reporting missed payments on your credit cards once your account is caught up. You'll never know unless you ask, and the worst they'll say is no.

The bottom line

This is by no means intended to be an exhaustive guide to credit repair. There's a lot to the process. But these are three factors that are either not well-known, or that many people get wrong. Doing these three things the right way can save you time on credit repair and can help your credit score rise much faster than it otherwise would.