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A Guide to Do-It-Yourself Credit Repair

March 13, 2013
Ask Erica
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QDear Erica,

I've had nothing but tragedy in the past year. I was laid off. I got divorced from my wife of 23 years. She moved out. My credit card bills all went into collections. My phone and utility services were shut off for a month while I was waiting for emergency services. My car was repossessed. I could go on. But I finally got a job. It pays less than my last job, but enough to pay my rent and the basics. I am determined to build myself up though, and part of it is dealing with my horrible credit. How can I do this right and fast? Do you suggest using a credit repair business? – Richard

AHi Richard,

I'm so sorry that you've had such a hard time lately. It sounds painful, and I'm glad you're ready to claim power over the situation.

The great thing about credit problems is that you can fix most of them yourself. I never recommend that people go to credit repair companies. They tend to be expensive, and if you have the money to pay them, why not just pay your debts? Besides, no matter what they may promise, they can't do anything that you can't do for free. Another consideration is that some of these companies operate illegally. You certainly don't want to get involved in anything shady.Ask Erica

Here's a plan for you get your financial affairs into great shape — without outside help.

  1. Get your “before” picture taken. To know how far you need to go, you've got to have a clear starting point. So log onto to pull your reports for free, then purchase your FICO score from for about $20. Don't get discouraged if your reports and score look even more terrible than you fear. In fact, the worse they are now, the more impressive your progress will be later.
  2. Develop a debt spreadsheet. From the information you see on your credit reports, list all the collection accounts. Add any others that aren't showing up, such as personal loans from friends or family members. Then arrange them in order of priority. Assign any debts that you might be sued for in the top spots, then the rest by balance, from highest to lowest.
  3. Create a cash flow statement. Subtract the total of your essential expenses from your new job's net monthly income. Think hard about each cost, paring down your budget in a realistic way. You want to be in total control of your money, and it starts with how you spend it.
  4. Start saving. Set any cash left over after paying bills aside to begin accumulating a debt repayment fund. All a collector wants is for you to send a lump sum so they can get the account off their books. That means you need money in the bank — so flex your savings muscles by squirreling away every spare buck so that you can send it on to the collectors.
  5. Negotiate settlements. The collection agencies bought the accounts for pennies on the dollar, so see if they'll accept a negotiated sum. Because your credit rating is already very poor, a settlement won't damage it further. Starting with the most pressing account, contact the creditor and begin bargaining. As each account is paid, move on to the next on your list. While you may have to pay income taxes on forgiven debts, you'll almost definitely come out ahead on the savings a settlement will offer you.
  6. Get a secured credit card. When your old debts are satisfied, apply for a new secured credit card. Because you have to put down a deposit in exchange for a credit line, you'll still be able to get this type of card, despite your credit scars. Charge a couple of times a month, but pay the balance on time and in full. After about a year of responsibly borrowing behavior, you should be able to qualify for an unsecured credit card and retire that secured card.

And that's it. After your debts have been paid, you'll have whipped your credit into shape because you deleted the bad balances and created a good borrowing history. Then pull your reports and scores again and compare the “after” pictures to the “before” one. I bet you'll be pretty impressed by your progress.

Got a question for Erica? Send her an email.




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