Top Consumer Choice
Top Consumer Choice
Many people turn to credit repair after realizing they can’t get approved for a mortgage or auto loan with a reasonable interest rate. However, having good credit can be important even when you’re not looking to buy a home or car.
Good credit can make it easier to get a credit card, find a job, or rent an apartment. In many states, your home and auto insurance premiums can even be partially based on your credit. In short, good credit can make life easier and less expensive.
But negative marks in your credit history can stay in your credit report for up to 10 years, long after you’ve gotten your finances in order. While the impact of a negative mark can diminish over time, credit repair may speed up the process by helping you remove negative marks.
Credit repair companies charge a fee for trying to get negative marks removed from your credit reports. When negative items fall off of your credit report, you may see your credit scores increase as a result.
To start, credit repair companies look over your credit reports and try to identify negative marks that could be hurting your credit. These could include late payments, charge-offs, collection accounts, repossessions, and bankruptcies. The credit repair company may then work with you to identify which negative marks might not be entirely accurate.
A federal law, the Fair Credit Reporting Act (FCRA) gives you the right to dispute inaccurate and incomplete information in your credit report. You can do this by filing disputes with credit bureaus and “data furnishers,” the companies that send information to the credit bureaus.
After submitting a dispute, the FCRA requires the credit bureau — Equifax, Experian, or TransUnion — to investigate your claim. Credit bureaus generally have 30 days to complete their investigation, and the credit bureau may then verify, update, or delete the disputed item.
Negative items should fall off your credit reports within 7 to 10 years on their own. Credit repair may speed up the process by getting negative marks removed or changed earlier.
The primary ongoing service that credit repair companies offer is preparing and filing disputes. But by law, you can dispute items in your credit report on your own for free, you don’t need to work with a credit repair company.
Some people choose to hire credit repair companies to outsource the work. Credit repair companies, with your permission, could file a dispute on your behalf. Others may prepare dispute letters for you and send you a copy with an instruction to sign and mail the dispute letter to a credit bureau.
People may also hire a credit repair company after trying to dispute items on their own without success. While you have the right to dispute items in your credit reports, the credit bureaus don’t need to change or delete accurately reported information — even if it’s hurting your credit. Credit bureaus can also dismiss disputes they deem frivolous or irrelevant without an investigation, such as when a consumer repeatedly disputes the same thing but doesn’t offer any new evidence.
Reputable credit repair companies may get better results based on their understanding of the credit bureaus’ systems, data furnishers’ systems, credit reporting laws, and experience filing disputes on behalf of consumers.
For example, the credit repair company might recognize collection agencies that often don’t keep complete records. If you can’t remember all the details related to a collection account from years ago, the credit repair company might send a debt validation letter to the collection agency. If the agency can’t verify that it has the right to collect the debt, then the credit bureau may have to remove the negative account from your credit report.
While professional credit repair companies might be able to use their industry knowledge to your benefit, you shouldn’t be asked to lie and say you don’t remember details about an incident when you know exactly what happened. Similarly, you should never be asked to lie and say something is being inaccurately reported when you believe it’s accurate.
In the end, there’s no guarantee the credit repair company will improve your credit. In fact, if a company promises to remove negative items or improve your credit score, those are red flags that the company may be scamming consumers or using unethical or illegal practices.
Most credit repair companies either charge you a monthly subscription or use a pay-for-delete model. In either case, there may be an initial work or audit fee to get set up with the company.
Pay-for-delete, or pay-for-performance, means you’ll only pay a fee when a negative item gets removed from your credit report. It can be an appealing option as the company is incentivized to work quickly and remove many negative items. But it can also become expensive because there are three major credit bureaus and you’ll want negative items removed from all three of your credit reports.
Alternatively, companies may charge a monthly subscription fee. A monthly fee can wind up being cheaper, especially if many negative items are removed from your credit reports. But companies limit how many items they’ll dispute each month to keep customers subscribed.
In either case, don’t expect results within a week or two. Credit repair companies can’t guarantee results, and credit bureaus have up to 30 days (sometimes 45) to investigate and respond to disputes. It can also take several “rounds” of back-and-forth correspondence for a credit repair company to get an inaccurately reported item removed from your credit reports.
If you plan on hiring a credit repair company, you may also want to be familiar with the federal Credit Repair Organizations Act (CROA). The law governs what credit repair companies can and cannot do and your rights as a consumer. Some states also have additional laws regulating credit repair companies that operate in the state.
Legitimate credit repair companies should follow the applicable state and federal laws. Some of the CROA protections include:
If you believe a credit repair company may be acting outside the law, you can report it to your state’s attorney general or to the Federal Trade Commission.
While hiring a credit repair company may save you time and help you clean up your credit report, know that you’ll still need to be actively involved in the process. You may have to send the credit repair company copies of your identification and mail disputes, as well as relay the credit bureaus’ or creditors’ responses.
Improving your credit can also involve adding positive information to your credit — not just removing negative items. Making on-time payments and paying down credit card debt could help your credit scores, and are good financial habits to continue after you stop working with the credit repair company.
If you have poor credit because of negative marks in your credit history, credit repair may be able to help you remove or change those if they’re not entirely accurate. However, credit repair can’t get completely accurate negative marks removed.
In general, people may stick with a credit repair company for three to six months. However, there’s no specific time or guarantee that credit repair will “fix” your credit; it depends on your overall credit profile. Also, removing old negative marks won’t necessarily lead to a good credit score if you continue missing payments or using a large portion of your available credit limits.
If there are clear errors in your credit reports, such as a late payment that you paid on time or a fraudulently opened account, you may want to dispute these on your own for free. If you want help or think other items may be disputable, but aren’t sure, you may want to consult with a credit repair company.
Following the credit repair company’s instructions and suggestions may help speed up the process. For example, if you’re asked to forward copies of letters that the credit bureaus send you, a delay on your part could slow down the entire process. Additionally, responsibly using and building positive credit could help your scores.
Opening new credit accounts can be important for building credit if you don’t currently have any credit cards or loans. However, some credit repair companies earn commissions when you sign up for certain credit monitoring products or new credit accounts, and highly recommend those options. You may find them beneficial, but there could also be alternative options that work just as well (or better) and cost less.
The impact of a negative mark on your credit score depends on your entire credit profile. Some of the potentially largest negative factors include a bankruptcy filing, collection account, and falling 90 days behind on a payment. Using a large portion of your available credit on revolving accounts can also hurt your scores.
Making on-time payments and using a small portion of your available credit on revolving accounts can help you build good credit. Additionally, having a long history with credit accounts, high average age of accounts, and both revolving and installment accounts in your credit history can all help your credit.
There are many honest and hardworking credit repair specialists, but there have also been scammers who prey on people with poor credit. Red flags may include a company guaranteeing a result, not asking you to sign a contract, advising you to create a new “identification number,” telling you to dispute information you know is accurate, and not imposing a three-day waiting period when you first sign up.
Look for a credit repair company that operates in your state and has positive reviews. Additionally, consider what type of service you want and how involved in the process you want to be, and look for a company that matches.
May 7th, 2021
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