Good credit is like a large savings account at a bank. You don’t need it to live, but it sure can come in handy if you need it.

If you are here, you no doubt want to improve that safety net. We’ve found that the people looking for this information fall into three categories, so we’ll try to make the information here relevant to these groups. (1) You are looking to rebuild your credit after bankruptcy or another debt problem. (2) You have been the victim of identity theft and need to make sure your credit report is accurate. (3) You are looking for a loan and you need a better credit score to qualify for a loan or receive a lower interest rate and better terms.

In today’s financial environment, good credit is more important than ever. Financial institutions have been burned on subprime mortgages and are repricing the risk of lending to individuals. So we’ve put together this guide for people who are interested in credit repair. Whether you are looking to do it yourself, or hire a credit repair service, we believe you’ll find this information valuable.

We’ve separated our information out into the following sections to allow you to find what you are looking for easier:

1. Introduction - What to Expect
2. Why is your Credit Score Important?
3. Do it Yourself Credit Repair
a. Remove Negative Entries
b. Establish a Positive Credit History
4. Credit Repair Companies
a. Credit Repair Law
b. Credit Repair Links

1. Introduction

The FTC likes to say about credit repair that “no one can legally remove accurate negative information from a credit report.” While that’s true, managing and improving your credit score is so much more complex than this simple statement. It is almost like saying that you should buy low and sell high when investing in the stock market.

If you want to know more about how to repair your credit, read on.

2. Why is your Credit Score Important?

In many ways, your credit report is a diary of your life created by companies who have interacted with you to help those who have not done so before. In the “old days”, loans were made by bankers who had personal knowledge about the lives of their clients. If you needed a loan, you went to the bank where you held a savings account and relied on your personal relationship. The bank didn’t need a credit report because they had intimate knowledge of your life since you worked nearby, lived nearby, or had a prior history with the financial institution. Over time though, the value of a good credit history has increased. Your credit history allows institutions which you have not done business with in the past to make a judgment - increasing competition between financial institutions to lend you money and allowing you to borrow money at a better rate.

As the complexity of our credit information has increased, those providing credit have grown to rely more on the three digit representation of that history - your credit score. A good credit score now means more banks are willing to lend to you at a lower cost to yourself.

3. Do it Yourself Credit Repair

Everyone would like free credit repair help. If you had the money to pay for credit repair, then you would have had the money to pay your debts, right?

The FTC says that you can do everything that a credit repair organization can do on your behalf. However, to accomplish this, you’ll need to create a plan and learn about credit repair.

One of the best ways to learn about credit repair is to buy a book on the subject. We’ve compiled a list of credit repair books with positive user reviews to aid you in learning about credit repair.

If you don’t have the time or desire to learn about credit repair, there are credit repair businesses which will undertake efforts to remove negative inaccurate items from your credit report for a price. We’ll discuss those more below.

a. Remove or Resolve Negative Entries from Your Credit Report

The first step to improving your credit score is to remove negative, inaccurate information from your credit report. The government allows you to get a free copy of your credit report from each of the three credit agencies. You should examine your credit report for errors and challenge them. The FTC has posted a sample credit repair letter that you can send to dispute inaccurate information.

If you have unpaid debts, you will also need to decide whether you are going to pay the debt, settle the debt, wait for the entry to roll off your credit report, or declare bankruptcy. Each option has different benefits, costs, and effect on your credit score and must be weighed carefully.

b. Establish a Positive Credit History

Just because you have had bad credit in the past does not mean that you are doomed to poor credit for the rest of your life. Creditors understand that people make mistakes and learn from them. However, if you continue to rack up negative marks on your credit report, they won’t believe that you’ve learned from your mistakes.

There’s no magic bullet to increase your credit score, but you can repair your credit by slowly adding positive entries on your credit report. Over time, financial institutions looking at your credit history will give more weight to these recent, positive entries and discount the older, negative marks. After the requisite number of years, you can remove these negative marks from your credit report for all but a few credit inquiries.

4. Credit Repair Companies

If you are interested in hiring professionals to improve your credit score and remove negative inaccurate items from your credit report, you should be prepared to fully investigate their service before signing a contract and paying money. Take advantage of their free credit consultations to learn about how they plan to improve your credit, and set reasonable expectations as to what you hope they will do.

a. Credit Repair Law

Over the years, many services have been setup to take advantage of individuals looking to improve their credit score. These credit repair scams tend to over-promise and under-deliver. Because of this, credit repair organizations are governed by the Credit Repair Organizations Act. This credit repair law prohibits deceptive and misleading advertising and offers consumers engaged in credit repair certain rights, including:

(a) Payment in Advance - Credit repair organizations may not charge or receive money for credit repair services before the service is fully performed.

(b) They must provide you with a separate statment disclosing your Consumer Credit File Rights Under State and Federal Law. It will tell you, among other things, that you may dispute inaccurate information on your credit file on your own.

(c) You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.

If a credit repair company makes promises that seem to good to be true, advises you that you should lie about your credit or create a new identity, or promises to remove accurate information from your report which you could not do on your own, you are probably looking at a scam.

b. Credit Repair Links

We have selected a few credit repair companies that you should check out if you are considering paying for a credit repair service.

Ovation - Ovation has been doing credit report repair services since 2004. They offer a free consultation to review your credit situation, no fees due at signup, a “no-risk refund policy”, and they allow you to cancel anytime. They also offer a discount if you sign up as a couple or with a friend / family member!

Sky Blue Credit Repair - Sky Blue has been engaged in credit repair since 1989 and have an A+ rating at the Better Business Bureau. They claim to have “the best guarantee in the credit repair business”, and accept major credit and debit cards for payment of their low monthly fee. They will also guide you through the process of getting a secured credit card.

Veracity Credit Consultants - Veracity offers a free credit consultation and a free brochure about credit score basics before you enroll. They have been engaged in credit repair since 2003. If you decide to signup, you can choose between three levels of service, including a plan to help those engaged in do it yourself credit repair through unlimited access to their credit consultants. They also offer you the option to cancel at anytime.

SourceOneCreditRepair.com - Source One Credit Repair offers no contract, pay as you go credit repair for $35 a month.

Lexington Law - Lexington is a law firm specializing in repairing credit reports that has helped over 200,000 people repair their credit report by removing inaccurate, misleading, or unverifiable information.