When your credit score drops below a certain level you will find that more and more of your usual lending streams will be closed off to you, credit card limits will be reduced and credit will become more and more difficult to obtain. The only way to turn things around at this point is to take the necessary steps to repair your credit rating, but is it ever a wise move to pay a credit repair company to do this for you?

Credit repair is something that you can undertake by yourself but it can be a painstaking process, particularly if you have a number of creditors or if your debts have been passed onto various debt collection agencies.

There are a lot of companies around that will take on all of the work involved in repairing your credit score and, if you choose a reputable company to do this for you, this can save a lot of time and give you the piece of mind that a thorough job is being done. The major downside is that this will cost somewhere between $500 and $1500, a lot of money to pay out when you are already in a parlous financial position.

Moreover, although credit repair companies will do a lot of the leg work, it is still down to you to do the ground work, i.e. compiling a list of your debts and creditors, and this can be the most time consuming part of the process, particularly if your debts have been passed on to third parties.

It’s also worth bearing in mind that, whilst there are a lot of reputable companies offering a credit repair service, there are those out there that will happily take your money and then take their time, which is of no use to you as you’ll want to see an improvement in your credit score as soon as possible.

This leads to another problem with paid for credit repair services, they very rarely guarantee to repair your credit score and instead will caveat any agreements so they cannot be held responsible should they fail to improve your credit rating.

So if you haven’t the means to, or simply don’t want to, pay a credit repair service to improve your credit score then what steps should you take to try and repair your own credit rating?

The first thing to consider is how you actually ended up with a poor credit rating and examine the factors that can have a negative impact ons your credit score. Your credit score can be adversely affected by any of the following:

• Falling behind on mortgage, loan or finance repayments or making late payments to credit card and utility companies.
• Being close to the credit limit allowed on your credit cards or overdraft.
• Having no previous credit history or a short credit history.
• Applying for a multiple credit cards, loans or overdrafts in a short space of time.
• Not having enough different credit lines, for example, installment loans (fixed payments such as car finance) and revolving loans (unsecured borrowing such as credit cards).
• Being bankrupt.

Once you know where you were going wrong, the next step is to prepare an income and expenditure sheet to cover all of your financial ins and outs. This should include everything from mortgage and rent payments, to utility bills, cell phone bills and the current payment requirements on any loans or credit cards you have. If done properly, this will highlight just how much disposable income you have at the end of each month and give you an idea of whether or not you can meet the demands of your creditors.

If you find that you cannot at least meet the minimum demands of your creditors then it is vital that you contact them and discuss the options regarding a compromise on your repayments. It may be that you come to a temporary agreement whereby you pay a nominal fee each month to give yourself a bit of breathing space to sort out the best solution to paying off the debts. Whilst an agreement like this doesn’t help to actually pay off any of the debt, it will ensure that you do not fall behind on payments and damage your credit score even further.

One way forward may be to take out a debt consolidation loan as, although it may seem like madness to take on more credit, it is far easier to manage one monthly payment to one creditor rather than servicing the debts of several other creditors. Furthermore, in consolidating debts, particularly credit card debts, in one loan, then you may well save money on interest payments.

Another idea could be to transfer any balances you may have on to interest free balance transfer credit cards. Again, whilst taking on another credit card may not seem like the best idea, this will massively cut down your outgoings as you’re not paying any interest and will also ensure that you are paying off your actual debt and not simply lining the lender’s pockets through interest payments.

When you have a handle on your financial situation it is time to start rebuilding your credit rating and there are numerous ways in which you can do this. One of the best ways to do this is to explore any credit avenues that you may have previously ignored such as cell phone contracts, prepaid credit cards or car finance.

It may also be worthwhile to use an existing credit card to pay for everyday expenses such as petrol and grocery shopping as this is a straightforward way to keep a regularly updated credit file and improve your credit score month on month. But, to get any benefit from this, it is vital that you pay off the balance of your card in full at the end of each month so as not to incur interest fees and fall further into debt.

Overall, it is probably best to try and undertake credit repair yourself as, if you are in a position whereby you have a bad credit score then it’s unlikely that you will be in a position to pay anywhere up to $1500 to repair your credit rating. However, if you simply cannot get yourself in a position to go it alone and require an external credit repair service, it is vital that you choose a reputable company that have your interest, and not just your money, in mind.

This article was written by Les Roberts, credit journalist at Moneysupermarket.com.