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Credit repair companies offer to help you repair your credit score for a fee, usually around $ 100 per month. Many of these companies provide legitimate credit repair services, but unfortunately many more are basically a scam.
Your credit score affects whether or not you qualify for a credit card, apartment rental, or loan. Therefore, if you are looking for help rebuilding your credit, it is essential that you select a reputable and trustworthy credit repair company that will deliver on their promises.
How to tell if a credit repair company is a scam or legitimate
One of the easiest ways to identify a fraudulent credit repair business is to find out if they are breaking Credit Repair Organizations Act (CROA) statutes. CROA is federal law that aims to protect consumers from scams by setting guidelines on what credit repair services can and cannot do.
You will know that a credit repair service is in violation of the CROA if the company:
- Request payment before doing any work on your behalf
- Promises or guarantees to remove negative data from your credit report, even when it is correct
- Asks or advises you to mislead credit reporting companies about one or more of your accounts
- Tells you not to contact credit bureaus directly
- Suggest or imply that you change or modify your identity to alter your credit history
- Advises you to enter false information on credit or loan applications
- Does not provide you with a written contract detailing the services it promises to provide and the terms of payment.
If you come across a credit repair service with any of the above red flags, you should probably look for a more reputable company or consider repairing your credit yourself. It is important to note that even if you have already signed a contract, CROA offers you three days to cancel at no cost.
You can also check for a credit repair service by researching the Consumer Financial Protection Bureau (CFPB) database for complaints and read business reviews on the Better Business Bureau website.
Do Credit Repair Companies Really Work?
The best credit repair companies can often be successful in identifying and correcting factual inaccuracies and errors in your credit report. But no matter how many cases a business files on your behalf, the credit bureaus are unlikely to suppress the information your lenders accurately report.
It’s worth pointing out that even the most reputable and trusted credit repair services can’t legally do something that you couldn’t do on your own. Remember, you can file disputes with the three major credit bureaus (Equifax, Experian, and TransUnion) for free.
When you file disputes with these agencies, they should investigate the accuracy of the negative elements in your report. If your creditor cannot prove that the information is correct, the bureau may remove the information from your credit report.
Whether you repair your credit yourself or pay for a service to do it for you, having a plan to repair and maintain your credit is essential.
How to repair your credit yourself
If you have the time and the inclination to repair your credit on your own, here’s how:
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Get up-to-date copies of your credit reports
The first step in repairing your credit is knowing what needs to be fixed. Your credit report contains all the positive and negative information that affects your credit score. Review your report to identify negative items that may be affecting your score.
The law entitles you to one free credit report each year from each of the three credit bureaus. The most popular way to get your free credit report is to AnnualCreditReport.com, a joint service of Experian, Equifax and TransUnion.
The law entitles you to free credit reports from each of the three credit bureaus each year.
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Dispute errors on your credit report
Examine each of your credit reports for errors, including:
- Inaccurate personal data, such as pseudonyms that are not attributable to you
- Incorrect dates or balance amounts
- Accounts that are not your own or duplicate accounts
- One-off payments erroneously flagged as missing or late
- Collection accounts that don’t belong to you
Dispute any errors you find directly with the three major credit bureaus. These agencies offer an online process for filing disputes, which is often the fastest option for resolving a problem.
When you file a dispute with an office, the office must resolve the issue within 30 days or less.
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Make payment arrangements if necessary
Begin your credit repair process by updating your overdue balances. The longer the payments stay behind, the worse the impact on your credit score.
Design a plan that allows you to pay at least the minimum payment for all of your accounts. You may need to make a payment agreement with your creditors to make it work, but there are no penalties for making agreements with your creditors.
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Improve your credit history
Your payment history represents approximately 35% of your FICO credit score. Even a single late or missed payment can lower your score. If you have overdue accounts, update them as soon as possible and continue to make your payments on time each month. Making regular payments before their due date is one of the most common ways to positively impact your credit scores.
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Reduce your credit utilization rate
The ratio of your outstanding credit card balances to your credit card limits is called the credit utilization rate. It measures how much of your available credit you are using. If your total credit card limits are $ 10,000 and your outstanding balances are $ 2,500, your credit utilization rate is 25%.
The lower your credit utilization rate, the better your score should be. While credit experts generally recommend keeping your credit utilization rate below 30%, top FICO scores tend to use less than 10% of their total available credit limit, according to FICO.
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Seek credit counseling
If you’re struggling to pay off your debt, consider getting help from a nonprofit credit counseling service. A reputable credit counselor can review your goals and help you develop a realistic plan to achieve them and restore your financial health.
Visit the Department of Justice website for a list of approved credit counseling agencies in your region.
How to repair your business credit
Just like with personal credit, you can hire a credit repair company to clean up your business credit, or you can do it yourself. While business credit scores are different from personal credit scores, the best practices for repairing your business credit are basically the same as the steps for improving your personal credit, with a few exceptions:
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Watch out for notifications
Business credit bureaus often send you warning notifications when a derogatory mark is about to be added to your credit report. These notifications give the business owner time to update themselves on the overdue account and prevent a negative rating from damaging your credit report.
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Repair business credit with debt validation letters
Dun and Bradstreet, Equifax, and Experian are the three major credit bureaus that keep your business credit reports. If you want to dispute inaccurate information on your report, you will need to create a debt validation letter, which is similar to a credit dispute letter. Send the letter to your creditor and the credit bureaus, as some creditors do not share information with the credit bureaus.
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Request removal of debt settlements from your report
Unlike a personal credit report, if you make an agreement with a creditor to settle a debt that is less than the outstanding balance, you can have it removed from your business credit report. To initiate the deletion of your report, contact the business credit agency with the appropriate documentation that proves that you have paid off the debt.
The bottom line
The credit repair industry is notorious for its scams, so it is important that the buyer beware of anyone looking to outsource their credit repair. Look for red flags of a scam, like when companies ask for money up front or if they promise to remove exact information from your credit report.
You can find legitimate credit repair services that comply with CROA standards. But whether they’re legitimate or not, no company can legally do a job for you that you couldn’t do for free on your own. Filing disputes with the credit bureaus and practicing good credit habits are the best ways to repair your credit.
If you want help from a third party to resolve your credit issues, consider working with a nonprofit credit counseling service, which will likely provide more value than a credit repair company.
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