Bad credit can make life hell. You often need a voucher credit score to rent an apartment, get a cell phone and do other basic tasks of life. So when your score is in the dumps it is easy to get desperate.
This desperation can lead to bad decisions, like transferring hard earned money to a shady credit repair company. While there are some legitimate credit repair services, not all of them put your best interests first.
So, before you turn to a credit repair company to fix your poor credit, be sure to work with the right one first.
What credit repair companies do
A credit repair company works with your creditors and the credit bureaus to remove negative items from your credit reports. By cleaning up your reports, your credit score will improve.
Credit repair companies often accomplish this by disputing credit report errors with the credit bureaus on your behalf. They may also try to negotiate a “pay-to-delete” agreement with individual creditors or collectors, which involves you paying the balance of a debt or an agreed-upon settlement amount in exchange for deleting the transaction line from the. account of your reports.
Of course, these services come at a cost, which can range from a fixed fee per negative item removed to an ongoing monthly fee for as long as you employ the business. Usually you can expect to spend around $ 100 per month.
It’s important to point out that credit repair companies don’t do anything that you can’t do on your own for little or no cost. That said, some people don’t have the negotiating skills or the time to sit on the phone for hours every day. Just as you might pay to mow your lawn or change the oil, some people would rather pay for a service to repair their credit than spend the time doing it themselves.
Unfortunately, not all credit repair companies operate legally. Last year, consumers submitted 1000 complaints to the Consumer Financial Protection Bureau regarding credit repair companies. Some don’t keep all of their promises, according to complaints, while others simply take the money and run away. So, if you do decide to work with a credit repair company, you want to be sure that it is legitimate.
How To Find A Legitimate Credit Repair Company
Because people looking for help repairing their credit tend to be in a very vulnerable situation and access to information (at least before the internet) has been quite one-sided, the government has put in place laws to protect consumers from shady credits. repair practices, explained Don Petersen, lawyer specializing in consumer rights.
Credit repair companies are regulated by the Credit Repair Agencies Act, which describes several rules to follow, including:
- Inform you that you have the right to obtain copies of your credit reports and to dispute inaccurate information yourself.
- Provide a detailed description of the services they will provide and how long it will take.
- Clearly establish payment terms.
- Note all guarantees.
- Request payment only after the services have been provided.
Any credit repair company you work with should do all of the things described above. Otherwise, they don’t work legally and are probably scamming. In addition, there are a few more steps you can take to check if a credit repair business is legitimate, according to Dana Marineau, vice president of branding, design and communications at Credit Karma:
Avoid these credit repair red flags
In general, tThe key is to be extremely careful when working with a credit repair company and to follow your instincts, Marineau said, adding, “Avoid companies that sound too good to be true.” If a credit repair service does any of the following, it’s a red flag and possibly a sign of a scam:
1. Promise to remove negative – but accurate – information from your reports: While you have the legal right to remove inaccurate information from your credit reports, credit bureaus have no obligation to remove negative information that is true. So, if you have an account in collection, for example, and the amount owed and the payment status are correct, a credit repair company cannot legally guarantee that it will be deleted. In fact, it probably won’t.
2. Offer to create a new credit identity for you: One strategy that fraudulent credit repair companies will use is called “file segregationThis involves applying for a new employer identification number and using it in place of your social security number on new credit applications. This essentially creates a new credit identity for you, promising a clean slate. The only problem is, it’s illegal and doesn’t work in the long run.
3. Provide cookie cutter service: If you sign up to work with a credit repair service but no one ever gets your information or advice you, you should go elsewhere, according to Petersen. “True credit repair requires a professional to interview you and review your documents to become familiar with your situation,” said Petersen. Fraudulent companies, on the other hand, will send your creditors sample letters that may not even accurately represent your situation.
4. Insist that you pay up front: The Credit Repair Agencies Act prohibits credit repair companies from collecting money from you until they have obtained all of the services described in your contract. If a business asks for money up front, run.
If you are the victim of fraudulent credit repair services or if the company does not deliver everything that is promised, the Federal Trade Commission presents some options. First, report the credit repair fraud to your local consumer affairs office or to your state attorney general. You should too file a complaint with the FTC, which can take action against a business once a potential fraud pattern becomes apparent.
You may also want to take legal action. One option is to sue the company in federal court for the losses you have suffered. You can also seek punitive damages or even join a class action lawsuit.
Is Paying For Credit Repair Services Worth It?
There are definitely pros and cons to paying for credit repair, depending on your situation. “The benefit for some is that the credit repair companies will do the heavy lifting for you,” Marineau said. “They’ll look at your credit reports for disparaging marks, like write-offs and bankruptcies. Then, they will establish a plan to dispute the errors and negotiate with the creditors to remove these items. “
The main downside is definitely the cost, as you can theoretically accomplish these things yourself for free.
“The only benefit I’ve seen consumers gain is [credit repair companies] is that they have enough experience to know which debt collectors will agree to ‘pay to remove’ agreements and stick to them, ”Petersen said.
In fact, according to Petersen, DIY credit repair is really the way to go in most cases. “Legitimate credit repair isn’t just something consumers can do on their own, they should be doing it,” he said.
If you decide to go the DIY route, here are some steps you can take to improve your credit score.
Dispute Credit Report Errors: The first thing to do is to request copies of your credit reports and review them for incorrect or outdated information. You are entitled to a free report from each of the three major bureaus once a year for free at freeannualcreditreport.com.
Look for credit advice: If you need hands-on help with getting your debt under control and making a plan to repair your credit, search local consumer credit counseling services. Certified credit counselors are verified by the National Foundation for Credit Counseling, a nonprofit organization. Credit counselors can help you build a personalized plan and even negotiate with your creditors if you are behind on payments. These services are often free or require a small fee.