Do Your Homework Before Calling a Credit Repair Specialist
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If you have bad credit and are thinking of hiring a credit repair company to help improve your credit, this article is for you. Knowing how credit repair companies work and what your rights are will help you weed out legitimate credit repair companies and specialists from scammers. Also, it is helpful to remember that you can do any of the credit repair services a credit repair company does on your own, for free. But, if you don’t feel comfortable doing your own credit repair and prefer to hire an individual specialist or a company, do your homework first. Read on to learn more.
Written by Attorney Eric Hansen.
Updated September 13, 2021
Having good credit can open a lot of doors for you. If you have bad credit and are thinking of hiring a credit repair company to help improve your credit, this article is for you. Knowing how credit repair companies work and what your rights are will help you weed out legitimate credit repair companies and specialists from scammers. Also, it is helpful to remember that you can do any of the credit repair services a credit repair company does on your own, for free. But, if you don’t feel comfortable doing your own credit repair and prefer to hire an individual specialist or a company, do your homework first. Read on to learn more.
Do I Need To Repair My Credit?
Not everybody needs to repair their credit. But most people could increase their credit score if they put in a little time and effort. Your credit score is a three-digit number that gives lenders a sense of how responsible you’ve been with your credit and how risky it will be to lend you money. A credit report is a detailed record of all your credit accounts. It includes your credit history for the past seven years. The information in this report is run through a credit-scoring model to produce your credit score.
Having a good credit score is important because it will help you get approved for financing and new lines of credit at lower interest rates. In some cases, it’ll even help you get approved for rental housing or jobs. If you want to improve your credit, it helps to educate yourself about how your credit score is calculated. Knowing what affects your credit score can help you build good financial habits.
Also, it’s important to get your free credit report and monitor your credit history for errors. If you find errors, you want to address them by sending a dispute letter. This is the process of credit repair. Disputing errors and negative items on your credit file is a good short-term approach to boost your credit score. It’s also good to take the long view and work on long-term credit repair. You can start by making all your monthly payments on time and not using too much of your credit limit on your credit cards. This helps keep your credit utilization ratio low, which increases your score.
What Can a Credit Repair Service Do for Me?
An individual specialist or a credit repair company will repair your credit file for a fee, though some offer free consultations. A credit repair service can be a huge help if you’re not familiar with the credit repair process and don’t know where to start or if you simply don’t have the time. They’ll help you develop a plan to address your credit issues. Often they begin by reviewing your finances and your credit reports from all three credit reporting agencies: Experian, Equifax, and TransUnion. This usually includes looking for inaccuracies, incorrect information, signs of identity theft, and other negative items on your credit report.
The credit repair company will dispute any errors they see and negotiate with credit bureaus, creditors/lenders, bill collectors, and/or debt collection agencies on your behalf. Their goal is to dispute, correct, and remove derogatory marks on your credit history. Credit repair companies typically have a streamlined, proven process for this that they can tailor to your specific credit issues.
Credit repair companies also sift through the information on your credit reports and help with debt validation and verification. They’ll send dispute letters to address incorrect, outdated, or duplicate items in your credit report. They can also send cease-and-desist letters to any debt collectors that are contacting you for a debt that’s being disputed or that you don’t owe. Credit repair companies can also help you clean up inaccurate information on your credit history following a case of identity theft. They may also offer identity theft protection services.
It’s important to note that credit repair companies cannot remove accurate information from your credit history. Negative items like repossession, bankruptcy, or charge-offs will negatively affect your credit score, but creditors must legally report them to the credit bureaus. So credit repair companies cannot get them removed. But most negative items will fall off your report after seven years.
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How Do I Identify the Best Credit Repair Companies?
Credit repair companies and specialists aren’t required to have specific certifications or licenses but it certainly helps if they have a financial education or a background in credit counseling. The best credit repair companies have perfected their credit repair process over time and have a track record of consistently getting positive results for their customers.
Good credit repair companies or specialists usually come highly recommended from previous clients. If you have a family member or friend who’s used a credit repair company, ask them about their experience and if they would recommend them. You also can research companies on your own.
Take some time to do your homework. Look for positive reviews from objective third-party websites. Don’t put too much trust in the reviews on the credit repair company’s website. Also, it’s not unusual for a credit repair company to say that it has an A+ rating on its website, but you can independently verify this by looking at their rating with the Better Business Bureau (BBB). The BBB will also show reviews and consumer complaints. The Consumer Financial Protection Bureau (CFPB) is also a good resource. The CFPB tracks and publishes complaints against credit repair companies.
The best credit repair companies and specialists are transparent, upfront, and abide by state laws and federal laws that govern credit reporting and the credit repair industry. They don’t hide things from their clients, nor do they try to skirt the law or act shady. If you do encounter a company that you suspect might be a scam, remember there are several laws and government agencies that help protect your rights.
The Federal Trade Commission (FTC)
The Federal Trade Commission (FTC) is a consumer protection agency that monitors financial institutions and consumer credit companies like credit repair companies. It also provides educational materials and resources to consumers. The FTC routinely takes action against credit repair companies that are predatory or that break the law.
The Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA) governs how the three major credit bureaus (Experian, Equifax, and TransUnion) and credit information furnishers (creditors like lenders and debt collection agencies) report consumer credit information. Creditors and credit reporting bureaus must publish information that they know is accurate, regardless of whether it is negative or positive. They cannot publish information that they know is inaccurate or incorrect. The FCRA protects your right to dispute negative items on your credit report if they are incorrect or inaccurate.
The Credit Repair Organizations Act (CROA)
The Credit Repair Organizations Act (CROA) governs the credit repair industry. It provides a roadmap to credit repair companies about how to behave when providing services. Under the CROA, credit repair companies can’t take upfront fees, overpromise what they can deliver, or make unwarranted guarantees about their credit repair services. Also, the CROA requires credit repair companies to provide customers with a detailed written contract outlining their services, pricing, and timeframe. It should also include a penalty-free cancellation policy that gives the client the right to walk away from the prospective credit repair services without a hassle for whatever reason.
The Telemarketing Sales Rule
Another federal law that protects consumers is the Telemarketing Sales Rule (TSR). The TSR generally applies to credit repair companies and debt relief services, but may not apply to nonprofit organizations or law firms. The TSR is meant to reduce or eliminate deceptive or sketchy practices used by telemarketers to get potential customers to sign up for services from the telemarketers’ debt relief company. Under the TSR, for-profit companies that provide debt relief or credit repair services cannot charge upfront fees or make false promises or egregious guarantees about their services. The law also requires telemarketers to clearly state important information about the services including pricing and potential consequences.
A reputable credit repair company will have positive reviews on unbiased third-party websites, won’t have a history of complaints with the BBB, CFPB, or the FTC, and will be able to discuss the FCRA, the CROA, the TSR, and other consumer credit laws. The best credit repair companies are honest and realistic about what they can and can’t do for you. They will offer a detailed written contract after an appropriate consultation that contains language from the CROA and also has a three-day cancellation window that allows you to cancel the contract with no charge.
How Can I Identify Credit Repair Scams?
Unfortunately, there are many disreputable credit repair organizations in business despite the number of laws, protection agencies, and enforcers in the credit repair industry. You can identify a credit repair scam by looking for red flags and by trusting your gut instinct.
The following red flags should sound the scam alarm in your head and tell you to run away:
They charge upfront fees (including monthly payment plans). A reputable credit repair company will not charge upfront fees. They’ll only bill you once they have completed their services.
They misrepresent their services. Avoid any credit repair company that misrepresents, lies, exaggerates, or makes outrageous promises and guarantees.
They make specific guarantees. A credit repair company that guarantees that it can remove accurate negative information from your credit file is wrong. This is illegal under the FCRA. Also, it is suspicious if the credit repair company guarantees a specific credit score increase.
They advise you to lie. Avoid credit repair companies that tell you to lie or fudge information on your credit history when you complete a credit application.
They tell you to create a new identity. If the credit repair company tells you to create a new credit identity or offers to create a new identity for you for the purpose of starting a new credit file, that’s a bad sign. Fraudulent and deceptive credit repair scams sometimes advise clients to get an EIN (Employer Identification Number) to be used in place of the customer’s Social Security number on credit applications. This is illegal.
They’re ambiguous or evasive. If a credit repair company is not forthcoming and can’t provide specific information about their services and pricing, then that credit repair company is not for you.
They tell you to waive your rights. If the credit repair company tries to get you to give up your legal rights by signing a waiver form or an addendum, that company is a scam. The CROA is clear that this is illegal and makes any contract for credit repair services with a waiver completely void.
They just give you a bad feeling. If a prospective credit repair company or individual specialist is telling you something that seems too good to be true, it probably is.
How Long Will It Take for My Credit Score To Improve?
As with most things, this varies by person and depends on the severity of your credit issues and your overall credit history. Generally, credit bureaus and creditors have 30 days to investigate and verify a dispute after they receive a dispute letter from you or from an organization acting on your behalf. Then they have five days after concluding the investigation to inform you of the results. Many creditors report information to the credit bureaus monthly, so if there is a correction or change to be made, it may take a reporting cycle or two to show up on your credit report.
You can sometimes see an immediate boost in your credit score after inaccurate information is removed from or corrected on your credit report. If you were disputing something as simple as a late payment or a few late payments, you may see your FICO credit score increase within a few months. But it typically takes longer to see a bump in your credit score if you were disputing more serious issues like identity theft or a combination of issues.
When it comes to repairing your credit and addressing accurate negative credit issues like bankruptcy, repossession, or charge-offs, your best bet is to be patient and work on adding positive information to your credit file. You can start by adding alternative credit reporting sources using a service like Experian Boost. This service allows you to report your phone, utility, and other recurring bills to the credit bureaus, which adds positive payment history to your record and may help boost your score.
Also, remember that most negative items will fall off your account in seven years due to the statute of limitations. And as time passes, negative items affect your score less and less. Though it takes time, effort, patience, and determination to see significant increases in your credit score, it’s worth it.
How Much Will the Credit Repair Process Cost Me?
Again, this varies from company to company. Some credit repair companies may charge significant setup fees, while others charge a flat rate for their services. You may also see companies with monthly fees ranging anywhere from $50 a month to $100 a month or more. Remember, credit repair companies can’t ask for or receive fees from you before they have completed their services. This is stated in the CROA.
Under the CROA, credit repair companies are also required to offer a written contract that has all the important details of their services, including pricing, timeframe, services to be rendered, and the three-day cancellation window. Any notable credit repair company will detail its credit repair services in a written contract. Those services may include but are not limited to:
Identity theft protection;
Debt validation with validation letters, goodwill letters, cease-and-desist letters;
Dispute letters with unlimited disputes;
A follow-up several months after cleaning up your credit issues;
Credit score analysis; and
Some sort of money-back policy like a 90-day money-back guarantee.
Remember, you can do all of these things and repair your credit yourself. Though it takes time and effort, you’ll also avoid paying fees to a company.
Can I Repair My Credit Myself?
Yes, absolutely. Anything that a credit repair company can do, you can do for yourself for free. Credit repair companies are required to tell you this. Before you get into the credit repair process, you may want to schedule credit counseling with a credit counselor at a nonprofit organization. These professionals will help you review your credit history and finances for free. They’ll also help you make a personalized debt management and credit repair plan.
Good things come to those who put in the work. You’ll have to monitor your credit reports, dispute any inaccuracies, and negotiate with creditors and debt collectors. At the same time, you’ll want to make on-time payments, reduce your credit utilization ratio, have a good credit mix, and avoid credit inquiries. Keep detailed records and keep track of your correspondence.
If you have bad credit or simply want to improve your credit score, you may be considering hiring a credit repair company. It’s important to do your homework on the credit repair process and any prospective credit repair company before hiring one. Watch out for the red flags listed above. Remember that there are laws and agencies that protect your consumer rights in the credit repair process. If you think you’ve been scammed or your rights have been violated, contact a private attorney, your state’s attorney general, or the FTC to protect your legal rights.
Also, remember that you can do credit repair yourself or with the help of a nonprofit credit counselor.