Buyer Beware: Bad credit is big business.
If you’re considering hiring a credit repair company, buyer beware. Every day consumers are inundated with advertisements from companies promising to fix your credit by removing negative items from your credit report and raising your credit score.
Before you spend money with a company making promises to repair your credit overnight, you need to know the laws governing the credit repair business and understand the limitations these companies face when trying to fix consumers’ credit files.
Credit Repair Organizations Act
As part of the Consumer Credit Protection Act, certain activities are prohibited under the Credit Repair Organizations Act.
Specifically, credit repair companies cannot require payment in advance for credit repair services.
The act further requires all contracts be in writing and that consumers have certain cancellation rights. Since this is federal law, consumers in every state are protected.
If you have been told that you can’t cancel a contract with a credit repair company, speak to an attorney in your area about your rights under the Credit Repair Organizations Act.
Why Credit Repair Companies Exist
Credit scores affect your ability to buy a car or home, get insurance, and even get utilities turned on in your name.
The ins and outs of credit scoring and reporting remain a mystery to many consumers.
As a result, many people feel they don’t have the power to remove the bad credit items that prevent them from getting what they need.
Credit repair companies know the laws that govern credit reporting. Many have relationships with creditors and lenders where they can negotiate debts on behalf on consumers.
How Credit Repair Organizations Work
First, the credit repair company will pull all 3 credit bureaus and look for the specific error you inquire about. They should also give you a copy to examine for complete accuracy.
Next, they will dispute any incorrect items and the credit bureau will have 30 days to respond. You’ll need to provide any documentation and receipts to support removal of the information. They’ll follow up with the credit bureau and lender for you to make sure everything happens in a timely manner.
Do You Really Need a Credit Repair Company?
If you only have one item to dispute, you may be able to save money by learning how to complete the credit repair process for yourself.
Remember, that under law you are entitled to a free copy of all 3 credit reports.
You can dispute any item on your credit report either by phone, in writing, or online with each of the credit bureaus. Each will give you options to fax or email supporting documentation directly to them.
If you have complex credit problems due to identity theft or divorce, you’ll want to talk to an attorney that specializes in consumer law before you proceed.
Pros and Cons of Using Credit Repair Services
Whenever you contest information on your credit report, the agency will contact the lender or collection agency to verify the debt and your information. If they don’t get a response from the company, they will remove the information and that will eventually help your credit score.
A credit repair organization may be able to help if your credit report has erroneous information from a company that is no longer in business by working with the reporting agency to remove the information quickly.
On the other hand, credit repair services are effective only to the extent that they have a good working relationship with lenders, credit card companies, and other debt collection agencies.
But be warned, not all lenders work with credit repair companies. Before you spend money on a credit repair company, make sure that your lenders will negotiate and work with them on your behalf. If not, you’ll need to know how to work directly with the lender yourself.
The Bottom Line
Many companies that claim to be able to fix your credit simply have a poor track record of delivering on their promises.
Several turn out to be credit monitoring services in disguise that do nothing more than provide you with a credit score and fancy tools to monitor your credit.
But what you’re actually paying for is the cost they incur to obtain your score and subsequent reports.
Some companies can also temporarily remove items from your credit report, but these items will eventually reappear and you’re back at square one.
When they cannot repair your credit by traditional and legal means, some credit repair companies turn to outright fraud including creating a new identity with a new social security number. These tactics are illegal and can end up costing you more in the long run.
Credit repair is a process that you can often do yourself. But maintaining good credit starts with knowing how to proactively deal with items and issues on your credit report.
Even finding an effective and reputable credit repair organization requires you to know the laws and where to find the resources to help you make the most of your time and money.