Those who have been a victim of fraud, been through a bad financial situation that made them unable to pay their bills, or made poor credit decisions when they were young, are among those whose credit score has been affected. Since credit scores are such a big influence on many life events, if you’re in this situation, you want to improve your credit. Otherwise, financial products like mortgages could be out of your reach.
One way that you can get help with your credit is to work with a credit repair company. Some people are hesitant because they have heard about credit repair scams. There are many credit repair companies out there, though, that are legitimate and could be a great resource for helping with your credit repair. That’s why it’s important to know what to look for to avoid a credit repair scam and be able to find a reputable credit repair business that can help. We’ll talk about all these things, plus how to do credit repair yourself here. So, are credit repair companies legit? Let’s dive in and find out!
What is a Credit Repair Company?
A credit repair company is an organization that helps individuals improve their credit scores and credit reports. In exchange for their services, credit repair companies receive money from the person. Credit repair companies target people with poor credit scores for your services. Most credit repair companies are for-profit businesses.
However, there are a few not-for-profit organizations out there that help people with poor credit. These are credit counseling agencies that typically provide credit advice and strategies for tackling credit repair based on their situation.
In 1996, the Credit Repair Organizations Act(CROA) was passed by Congress. It is a consumer protection legislation that regulates credit repair businesses and enforced by the Federal Trade Commission. Despite this, there are many credit repair scams out there. So to find legitimate credit repair companies you must do market research.
How Does Credit Repair Work?
Credit repair is the process of improving your creditworthiness and credit. Credit repair companies work using the four steps explained below.
Review Your Credit Reports
The first thing that a credit repair company will do is order a copy of your credit report from all three of the credit bureaus: Experian, Equifax, and TransUnion. They will analyze your credit reports to find out what items are hurting your credit score. A credit repair company will then talk to you about their findings and determine which of the negative marks are not correct.
Dispute Negative Items
Once the credit repair company has identified all the derogatory remarks on your credit reports, they will dispute these errors. It’s not as uncommon as you would think to have a mistake in your credit report. According to the Consumer Financial Protection Bureau, 1 in 5 people has an error on their credit report. An account that’s marked open or closed mistakenly, an incorrect balance, or an error caused by identity theft, are common errors that are found.
Submitting these disputes is the bulk of the work that credit repair companies do for you. Once they have submitted these errors to each of the respective credit bureaus, they have 30 days to research the dispute.
After that 30 days, credit bureaus must determine if the dispute is accurate or have the mark removed from your credit report. If there is any back and forth communication between this process, credit repair companies will also handle that.
Manage Dispute Escalation
Another part of credit repair services that a company may do is to address those negative marks that are correct. For example, let’s say many of your credit problems are due to having several accounts in collections. If you’re unable to repay them, a credit repair company can negotiate on your behalf. They could get in touch with your creditor and ask to resolve the account for a reduced amount.
Provide Coaching toward Better Credit Behaviors
Finally, after the credit repair company has worked with the consumer credit bureaus and creditors to address those negative marks, they may provide you with recommendations to keep working on your credit. For instance, if your credit history is full of late payments, they may suggest that you take proactive steps like signing up for auto-pay.
What does Credit Repair Cost?
Now that you know how credit repair companies work, you’re probably curious about how much they charge. The answer is that it depends. Credit repair companies all have different pricing models, however, they typically fall into three categories.
The first is that they may charge a one-time or flat fee. The next common fee structure is to charge for every derogatory mark that’s removed. Now, if the credit repair company removes the same mark from all three credit reporting agencies, that’s counted as three marks. Last is the monthly subscription model. In these cases, the credit repair company will put your credit card information on file to charge each month.
How to tell if a Credit Repair Company is Legit
There are many legitimate great credit repair software and companies out there. Lexington Law is an example of one of the reputable ones. Consumers should know what to look for to spot a bad apple. Below is information on the signs that a credit repair organization should be avoided.
Wants to be Paid in Advance
The federal Credit Repair Organizations Act actually makes it illegal to ask for payment prior to doing any work. Companies that have a flat-fee model shouldn’t charge you until after their services are rendered. If they have a monthly subscription fee, it should be for the services from the previous month. So any credit repair company that wants you to pay up-front for their help should be avoided.
Tells you that you can’t do Credit Repair Yourself
An illegitimate credit repair company will suggest that credit repair can’t be done on your own. The Federal Trade Commission will beg to differ. In reality, these companies work on your behalf, but you can perform these credit repair services s too. Federal law also requires that credit repair companies inform you that everything they do to help you, can be done by you.
Promise to Remove All Negative Items from your Credit Report
If a company makes a claim that they can remove all the negative items on your credit report, steer clear. No one can get accurate information deleted from your credit report. This is a major red flag when a credit repair company makes this claim.
Encourages you to Dispute Accurate Information
Suggesting that you can get accurate information disputed by making false statements is illegal. These companies cant’ actually even promise to remove anything because they can’t claim to guarantee results. Don’t give your money to any company that makes these promises.
Doesn’t Provide a Written Contract
You should be given a contract to view because being asked to sign it. What’s more, is that you should read through the contract to make sure all the important information is outlined including:
- How much you’re being charged
- Information about the services being performed on your behalf
- Date or time period the services will be performed
- Name and address of the business
- A statement that you have the ability to cancel the contract within 3 days
Wants to Create a new Identity for you
Look out for a company that or asks you to create a new “identity” by getting a new social security number or federal employer identification number. This is a scheme in the credit repair industry to create a new credit identity for you. So if you apply for credit cards or other products, it will use the credit history and information from this new profile.
Can I Do Credit Repair Myself?
The credit repair process can be done by consumers, aka by yourself. Of course, that means there’s more work that you’ll need to do. If you’d rather do the heavy lifting on your own, below are some steps you can take to improve your credit score.
Dispute Errors on your Credit Report
You are granted access to your credit report once per year from each of the bureaus. Due to the COVID-19 pandemic, the federal government has increased this to weekly so that consumers can keep more informed on this data. AnnualCreditReport.com is the official website to get your reports.
Once you review this information, you can dispute any errors you find. The bureaus will have 30 days, though sometimes more, to verify that it’s correct or have it removed.
Negotiate with your Bill Collectors
Check over your reports to find out if there are any legitimate negative marks that are affecting your credit score. For example, if you have a few credit cards in collections, reach out to these creditors. You might not have the money to pay the entire amount that you these creditors, but they might be willing to work with you.
Boost Your Credit Score
That number has so much power over your life. But when you need things like a car loan because your car isn’t reliable, it’s best to work on re-building your credit beforehand. There are many ways to go about boosting your credit, but the best thing to do is focus on the two things that affect it the most: On-time payments and credit utilization.
Having a long history of paying your bills on time will improve your credit over time. If you use a lot of your credit limit, your credit can also be improved by reducing this usage. This can be done by paying down your debt. The ideal ratio of your usage to credit limit is 30% or less.
Credit monitoring is a helpful tool in helping you track your credit. It allows you to view your credit report and score information anytime you want. Having access to this data is useful to spot potentially fraudulent activity or help you keep track of your process.
Bottom Line: Credit Repair Companies
Not everyone wants to navigate the process of repairing their credit. Companies that offer credit repair services can help many people with their credit problems. They have the knowledge and expertise to find the best ways to help your situation.
Finding repair companies that are legitimate can be done if you pay attention to reviews and research their business practices. Armed with this data, you can find legitimate companies that you can entrust.