How Does the Credit Repair Process Work?

Aaron Hall

Last Updated: June 30th, 2020

Believe it or not, there is one number that can control a great deal of what you can and can't buy. It's not the number in your bank account; it's your credit score.

Your credit score is a number that rates you based on your credit habits. The most common type of credit score is the FICO score, which is a number ranging from 300 to 850. To create your FICO score, an algorithm measures your credit habits based on your payment history, amounts owed, type of credit, duration of account, and frequency of credit applications.

There's a major problem, though. A study by the Federal Trade Commission has shown that five percent of consumers has an error on one of their credit report that will create less favorable loan terms. That means of the 242 million adults living in the United States, nearly 12 million may have an inaccuracy on a credit report. This is more than the entire population of Sweden. Concerning? Absolutely.

Consumers can potentially be charged thousands of dollars through an error on their credit report, and this happens more often than you think. This doesn't mean that thousands of dollars are suddenly going to disappear from your bank account; but most of that money is lost due to the charge of substantial interest rates and loan terms. You see, because your credit score reflects your credit habits, your credit score will affect what loans you can take out, what apartments you can rent, what kind of insurance you can afford, what employers will hire you, and so on. The money you could potentially lose due to tall interest rates and long loan terms could add up to thousands over time.

What Credit Repair Does

So how do you dispute unfair errors on your credit report? That's what credit repair companies are for. Credit repair companies exist for the sole purpose of disputing unfair and untruthful claims on credit reports. They usually consist of a team of credit experts that go to battle for you against the three major credit bureaus (Experian, Equifax, and TransUnion) and charge a monthly retainer for their services. Since it can be hard to know if you've reached the point of needing a credit repair company, The Balance has put together a useful list to explain a few signs:

  1. You've been denied for credit
  2. Your electricity is in someone else's name
  3. Debt collectors are calling you
  4. You can't find anyone to co-sign your loans
  5. Your credit report is keeping you from getting a job
  6. Landlords won't rent to you
  7. You're afraid to check your own credit report
  8. Your credit score is low (under 650)
  9. Your interest rates keep going up
  10. Card issuers are closing your credit cards

Buyer Beware

If you need credit repair, be careful. You've probably seen ads on TV and in your social media feed urging you to call immediately under the guise of "fixing your credit 100% guaranteed" or "removing bankruptcies, liens, and bad loans from your file forever." Also look to see if a company pressures you to pay upfront fees, promises to remove negative info from your credit report, won't explain your rights to you, or tells you not to contact credit reporting companies. A good rule of thumb is if it sounds too good to be true, it probably is. Though some of these phony businesses exist, there are a handful of reputable credit repair companies that stand at the ready to help you.

If a few of the points above apply to you, it might be time to call a reputable credit repair company. Here's the breakdown of the process:

  1. Analysis. Credit repair companies will evaluate your credit score by pulling your credit reports from the three major credit bureaus: TransUnion, Equifax, and Experian. When a credit repair professional acquires your credit reports, they can find inaccurate negative information that has been recorded by one of the credit bureaus. Credit repair pros pull credit reports from all three major bureaus because each bureau has its own "data furnishers" that collect credit information.
  2. Legal Action. At this point, your credit repair expert will be able to analyze your credit reports with you and find inaccurate information that may be hurting your score. When that's been analyzed, the expert can take legal action against the credit bureaus for erroneous charges placed on your credit report. For this reason, it's best if a credit repair company has legal staff such as attorneys and paralegals on board. Sometimes these erroneous charges can be as serious as violations of the Fair Debt Collection Practices Act (FDCPA) or the Fair Credit Reporting Act (FCRA). If this is the case, a customer may be entitled to compensation of $1,000.
  3. Credit Bureau Investigation. When legal action is taken against a credit bureau, the credit bureau is charged to investigate the problem. Each charge could take between 30 and 45 days to resolve. For this reason, most credit repair companies charge a monthly retainer for their services, which can range anywhere from $50 and $150.
  4. Resolution. This takes time. Some consumers will see improvements on their score in a matter of months, but to see their credit fully restored, the process could take years. Again, credit repair experts can do much of what consumers can't when it comes to pressing legal action for erroneous charges, but it's up to the consumer to practice smart spending habits such as quickly making payments and not spending more than one-third of a credit card's max limits.

A list of reputable credit repair companies, ranked from best to worst, can be found at BestCompany.com.

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