Good credit scores are beneficial because they can open up more financial opportunities. A high credit score can help you get excellent housing options and affordable loan terms. But if you have less than perfect credit, you may struggle to get ahead in life. If you have searched for ways to improve your credit, you may have noticed advertising for credit repair companies. But what do credit repair companies do?
What Is a Credit Repair Company?
Credit repair companies work by helping clients manage the information on their credit reports to boost credit scores. These companies work for-profit, so you must pay to take advantage of credit repair services.
Credit repair companies analyze your credit report and help you dispute negative information with credit bureaus and financial institutions. Suppose there is inaccurate information on your credit report, such as an incorrect last payment date. In that case, your credit score can be negatively impacted.
What Is the Credit Repair Organizations Act?
In 1996, the American government enacted Title IV of the Consumer Credit Protection Act to protect people from deceptive credit repair services. This Act is more commonly referred to as the Credit Repair Organizations Act (CROA).
Untrue or misleading representations are strictly prohibited, and certain affirmative disclosures are required when credit repair companies offer services. This Act requires a credit repair organization to provide written contracts with certain cancellation rights. If you sign up for a subscription, you have the right to cancel services.
The Credit Repair Organizations Act allows consumers to confidently work with credit repair agencies without worrying about misleading representations.
How Can I Verify a Credit Repair Company?
If you want to sign up for a credit repair service, it’s crucial to verify a credit repair company.
Under the federal Credit Repair Organizations Act, legitimate credit repair companies cannot request advance payment or guarantee results. Scam credit repair companies will often demand upfront payment before completing any service. But this is a clear violation of CROA.
Failure to answer specific questions about services or fees can signify a credit repair scam. A legitimate credit repair company will provide clear answers to your questions and not withhold information.
When evaluating credit repair companies, you should be aware of warning signs such as outlandish claims and promises. Credit repair takes time, so a credit repair company cannot guarantee quick service. The best credit repair companies will be honest about timeframes and expectations.
When looking to work with a company, you may refer to the Better Business Bureau (BBB). Unfortunately, the BBB does not accredit any credit repair company. But you may still be able to find helpful reviews that can sway your decision to work with a specific company.
Are Credit Counseling Agencies Different From Credit Repair Companies?
You may wonder how credit counseling companies differ from credit repair companies if you want help fixing your financial situation. Both of these companies offer helpful financial services, but in different ways.
Credit counseling provides financial guidance to borrowers to effectively manage debt and follow budget plans. A credit counselor can give financial advice that helps you get out of debt and spend your money better. Credit counseling companies can’t fix a poor credit score. Still, they can provide resources that help you manage your finances to improve your credit.
How Much Do Credit Repair Services Cost?
Credit repair companies can help people review and alter their credit reports to maximize their FICO scores. But how much does a credit repair cost?
The cost of working with a credit repair company varies depending on the company you work with and the type of service you receive. Some credit repair companies charge a one-time fee, while others charge per month. The average price of a subscription for credit repair is $50 to $100 per month.
You may even find a credit repair company that charges you for every corrected credit report. This is also known as “pay per delete.” The credit repair company charges you for every item deleted from your credit report when you choose this payment option. This may be beneficial if you only need help to address one or two items on your credit report.
Is a Credit Repair Company Worth the Money?
Many credit repair companies are successful because they help people slowly improve their credit history over time. But are they actually worth the money?
Credit repair companies can help raise your credit score by disputing negative items on a credit report. But you can remove inaccurate items on your credit report yourself. The Fair Credit Reporting Act (FCRA) allows you to dispute any inaccurate information that affects your credit.
Suppose you are willing to take the time to dispute errors with credit reporting agencies. In that case, you can improve your credit score without paying the credit repair industry.
How to Dispute Items on Your Credit Report
If you have a low credit score, you may not be to blame! According to the Federal Trade Commission (FTC), about 25% of Americans have an error on their credit report. The good news is that you can correct credit reports without going crazy.
Review Your Credit Reports
The first step toward improving your credit score is to get your credit reports. All three major credit bureaus provide one free credit report per year. You can request your credit report online from each credit reporting company’s website.
Review your credit reports and see if you can identify any inaccurate data. Common credit report errors include the following:
- Closed accounts that appear as open
- Incorrect accounts
- Accounts belonging to another person with the same or similar name
- Late or delinquent accounts
- Wrong account balance or credit limit
If you confirm an error on one of your credit reports, you can start a dispute.
Dispute Credit Report Errors
Begin by gathering any supporting documents that prove the item on a credit report is a mistake. You can provide credit card statements, bank statements, emails, etc. Once you have your supporting documents, you can choose to start a dispute by sending a letter in the mail or using an online form.
The main three credit bureaus provide an online form on their website that you can complete disputing negative information. If you prefer to dispute a credit report by mail, you must use certified mail and request a return receipt. This receipt is a record that the credit bureau received your letter. The letter should include a detailed description of the error and why you are disputing the item.
Review the Results of the Dispute
The credit repair process takes time, and there is no set time frame for resolving a dispute. However, credit bureaus have 30 days to respond to a credit report dispute.
If a credit bureau confirms the error, you will receive written confirmation and a copy of your credit report. The credit bureau will also report the error to the other credit reporting agencies. Ensure you monitor your credit report to confirm the credit bureau removed the error.
If the credit bureau disagrees with your dispute, they can choose not to conduct an investigation. However, you can expect to receive notice within five days of the decision. Are you confident that an error exists on your credit report? If so, you can choose to file a written statement of dispute and have it included in your credit report. If you think a credit bureau did not take reasonable action, you can file a complaint. You can file with the Federal Trade Commission or the Consumer Financial Protection Bureau.
Were you previously denied an online payday advance or credit line due to an error? You can ask the credit bureau to provide the statement to the financial institution. There may be a fee depending on the credit bureau.
The Bottom Line
If you have a low credit score, it’s worth checking your credit reports. Errors are made all the time, and you have the power to correct them. You can choose to work with a credit repair company or file a dispute on your own. Removing inaccurate information can help you improve your credit score and get better financial opportunities.
Credit Repair Organizations Act
Credit repair companies: how do they help?
How Do Credit Repair Companies Work?
What are common credit report errors that I should look for on my credit report?
25% of Americans have an error on their credit report