Credit Repair vs. Credit Reestablishment

Consumers with bad credit may be interested in boosting their credit through credit repair techniques. While credit repair is effective for improving credit, it should usually be followed by the logical next step: reestablishing credit. Keep reading to understand the difference between credit repair and credit reestablishment and how to use them both to fix your credit.

What Is Credit Repair?

Credit repair, simply put, is the process of fixing bad credit. This process can take many forms depending on the reason for someone’s bad credit.

For example, someone who has been the victim of identity theft may need to do extensive credit repair to correct the damage that has resulted from the crime.

In addition, studies have shown that over one in four consumers have errors on their credit report that are significant enough to potentially affect their credit score. For example, a credit account from someone with the same name as you might show up on your report, or perhaps a family member who lives at the same address as you. Unfortunately, the credit bureaus and banks are not always 100% accurate in their reporting, so mistakes do happen.

Disputing Errors

Problems arise when erroneous information on your credit report damages your credit, which can result in you getting denied for credit or having higher costs associated with getting credit. Credit repair aims to fix bad credit resulting from errors in your credit reporting by disputing these errors with the credit bureaus.

The Fair Credit Reporting Act protects the rights of consumers to dispute and delete items on their credit report that are inaccurate, misleading, biased, untimely, incomplete, or unverifiable. When you dispute an item on your credit report, the credit bureaus must conduct an investigation to verify whether the item should be listed on your credit report. If they cannot verify it, they have to correct or delete the item.

Negotiating With Your Creditor

Another credit repair tactic is to work directly with your creditors to remove negative information from your credit report. For example, if your credit card company incorrectly reported a late payment, you can ask them directly to remove the negative mark.

Alternatively, if you actually did make a late payment, you could try to negotiate with your creditor. Often, they may be willing to remove the late if you made the payment soon after and have otherwise been a good customer.

The common thread in all these examples is removing negative information from your credit report. But what happens after the negative information is deleted? There is still work to be done to build good credit, especially if the credit repair process leaves you with a lackluster credit file.

Credit Reestablishment

Once you have removed all inaccurate and unverifiable information from your credit report, you may need to reestablish your credit. Credit reestablishment means rebuilding your credit file with positive credit history. To do this, you will need to add more accounts to your credit mix.

The goal is to open primary accounts in your own name and establish a positive credit history with those accounts. However, opening new accounts can be challenging when you are trying to rebuild your credit, especially if you are left with a thin credit file. Credit cards and loans may have high interest rates, if you get approved for them at all.

Yet, building a good mix of several different credit accounts is crucial for reestablishing credit. So what are some options for those trying to rebuild their credit after credit repair?

High-Interest Rate Credit Card

Opening a credit card can help rebuild credit because with enough on-time payments, it shows that you can manage credit responsibly. However, the terms of an unsecured credit card for someone reestablishing credit likely won’t be ideal. It may come with a steep interest rate upwards of 20%. If you choose to go this route, you’ll want to pay off your charges in full every billing cycle to keep your credit score up and to avoid paying high interest fees.

If you can’t get approved for a major credit card, you could try applying for a retail store credit card. They are known for approving applicants with limited credit history.

Secured Credit Card

If you have trouble getting approved for an unsecured credit card while reestablishing credit, a secured credit card allows you to put a deposit down as collateral. Since these cards are secured by your deposit, even those in the process of rebuilding credit may be able to get one. Making payments on time will help rebuild a positive credit history. Again, be sure to pay your balance every month to avoid paying interest.

Apply for Credit With a Cosigner or Joint Account Holder

Another effective way to reestablish credit is to “piggyback” on someone else’s positive credit history. If you can find a trusted cosigner or joint account holder to sign onto an account with you, you may be able to get approved for credit that you wouldn’t have qualified for on your own or get better terms.

Become an Authorized User

If you know someone with good credit, you can ask them to add you as an authorized user to one of their credit cards. This can be an ideal way to build credit fast because often (with some exceptions depending on the bank), the account’s full history is shown in the credit reports of both the primary cardholder and the authorized user, regardless of when the authorized user was added to the card.

Therefore, this method has some advantages over opening a new account, which can actually hurt your credit at first.

For those that do not have the privilege of knowing someone who can help them build credit, there is a marketplace in which consumers can buy authorized user tradelines. In other words, they can pay a fee to “rent” authorized user positions on accounts with positive credit histories. While this industry of people buying and selling tradelines has existed for quite a while, many consumers have been unaware of this option. By doing a simple Google search for “tradelines” you can research more about the topic. 

Credit Repair vs. Credit Reestablishment: Conclusion

Credit repair and credit reestablishment go hand in hand. While repairing your credit by removing negative information from your credit report may help boost your credit score, you may also need to reestablish your credit by adding positive accounts back into your credit file.

On the other hand, if you add more accounts to your credit profile without repairing bad credit, the negative accounts are still going to heavily impact your credit and dampen any positive effect from the additional accounts.

While both strategies can be beneficial on their own, together they can create a synergistic effect that neither one nor the other strategy can achieve on its own. To make the best of your credit, be sure to consider all your options when it comes to credit repair and credit reestablishment.

Leave a Reply

Your email address will not be published. Required fields are marked *