How To Find Reputable Credit Repair Services | Credit card
If you’ve been turned down for a credit card or loan because of an embarrassing credit score, you might think credit repair services could help. But don’t sign a credit repair service contract until you understand what these companies can — and can’t — do for you.
“It’s important to know that there is no magic pill that credit repair companies can give you to repair your credit,” says Carolyn Warren, author of “Repair Your Credit Like the Pros.” “Anything they can do, anyone can do themselves.”
What are credit repair services?
A credit repair service reviews your credit reports from each credit bureau, reviews negative items and looks for errors. The company can then request that the errors be removed and negotiate with your creditors to resolve any disputes.
“While individuals can dispute incorrect information themselves, they often choose to use a credit repair company because they don’t want to deal with credit bureaus or their creditors themselves,” says John. Ulzheimer, a credit expert who worked at credit bureau Equifax and credit analysis firm FICO.
“Sometimes they get frustrated with the lack of progress if they tried to fix things themselves,” he says. “Sometimes it’s their natural inclination to outsource personal services, just like hiring someone to do your taxes.”
Credit repair services can vary in cost, charging monthly fees between $50 and $129, Ulzheimer says. A simple correction on your credit report can take a month or two, while reports with multiple errors requiring negotiations and extensive documentation can take a year or more.
For years, credit repair companies have had a reputation for charging high fees without helping consumers and sometimes making financial hardship worse. But Ulzheimer says the federal Credit Repair Organizations Act of 1996 established rules for these types of services, and self-monitoring by the credit repair services trade association has helped clean up the industry. Additionally, the Federal Trade Commission has charged many credit repair companies with violating federal law and imposed penalties on them.
“Today there are many more legitimate credit repair companies than 20 years ago,” Ulzheimer says.
Meanwhile, Bruce McClary, vice president of communications for the National Foundation for Credit Counseling, says it’s always important to do research to find out if credit repair services are your best option and, if so, is the case, which companies will do the best job.
“I recently saw a van parked in a mall with signs all over it that said, ‘Need help with your credit? Call me!'” McClary said. “People who are in dire straits might think it makes sense to call a guy whose phone number is on a truck, but it’s never so bad that you can’t take a few hours to study your options first.”
If you decide to use a credit repair service, avoid companies that:
- Require an upfront payment. This practice is prohibited by the CROA.
- Do not provide a contract. Businesses are required to provide a written contract that includes cancellation rights for consumers.
- Promise a simple and quick solution. No credit repair company should tell you they can help you quickly, Warren says. “By law, the credit bureau has 30 days to respond when you dispute something on your report,” Warren says. “Then, if the credit bureau does not agree with your dispute, you can go directly to the creditor, who then has 30 days to respond. The credit bureau has another 30 days to respond after you have provided your creditor information.”
- Guarantee that they will increase your score or fix a mistake. “Run if someone guarantees they can remove something from your report,” Ulzheimer says.
- Have complaints against them. McClary suggests reading reviews online and checking the Consumer Financial Protection Bureau’s complaints database. You should also check with the attorney general and corporations commission offices in your state as well as the state where the company is headquartered.
- Suggest that they delete legitimate negative information. You want to avoid working with a company that’s doing anything illegal on your behalf, McClary says.
- Asking you to lie. Asking you to misrepresent your credit report information is a clear violation of the CROA, says Ulzheimer.
- Suggest that you create a parallel identity. While this strategy isn’t common, Ulzheimer says some nefarious companies offer to create a new credit profile based on a new Employer ID number, rather than your Social Security number.
What to do before contacting a credit repair service
When deciding if you need professional credit repair, consider your own credit history. You can get a free credit report each year from each of the three credit bureaus – Equifax, Experian and TransUnion – at AnnualCreditReport.com. Checking the reports of all three is essential because they do not always contain the same information.
When reviewing your credit report, check for derogatory marks, such as missed payments or errors. For example, the credit bureau or your lender may have confused you with someone else with a similar name, and as a result your credit file may contain incorrect address and account information. According to the CFPB, errors related to your account status, balance, and credit limit are also common.
If you hire a credit repair service, you will review each credit report with a company representative and provide documentation to support your dispute, such as paid bills or court records. Be prepared to frequently answer questions about your credit history throughout the credit repair process.
How can I fix my credit myself?
“A lot of genuine mistakes can be corrected by individuals, like a medical bill you paid that wasn’t reported as paid in full,” Warren says. “You can submit copies of paid bills to the credit bureau, but you should always keep the original yourself.”
You also have the right to challenge a derogatory mark that isn’t 100% accurate, Warren says, such as a creditor reporting you were 90 days late paying a bill when you were only 60 days late. If a bill that went to collection was sold to another collection agent and your credit report incorrectly shows the same outstanding balance multiple times, you can ask the credit bureau to correct it.
Keep in mind that some legitimate derogatory information, like bankruptcies and accounts sent to collections, will remain on your credit report for seven to ten years.
Signs of a Good Credit Repair Company
Just because a company is a CROA member doesn’t necessarily mean they’ll be good at helping you with your credit report, says Ulzheimer. The best credit repair companies should:
- Offer a free consultation. A credit repair company will review your report and tell you what they can and cannot do, Warren says. For example, he can delete duplicate accounts, but he cannot delete a public bankruptcy.
- Have a track record. “Longevity has value,” says Ulzheimer. Companies that have been around for at least five years and have not been shut down by the FTC for infringement are more likely to be legitimate, he says. Similarly, when checking out credit repair companies, Warren suggests asking if they’ve resolved situations similar to what you’re facing, such as clearing a credit report error.
- Explain your options. You need to understand your recourse if your goals aren’t met, says McClary.
- Offer a performance guarantee. Warren says companies should offer a performance guarantee that says they won’t charge you if they can’t remove a number of disputed items on the credit report.
- Obey local laws. “Always check that a company is licensed, bonded, and insured,” says Warren.
Another caveat for consumers: “Read all the information in the contract and don’t set up an automatic deduction payment plan,” says Warren. “It’s best to provide post-dated checks to have more control over your money.”
What is a good alternative to credit repair companies?
If you’d rather not do your own credit repair, another option is to work with a nonprofit credit counselor. Non-profit credit counseling services are usually free or for a nominal fee. They can help you learn how to dispute mistakes, handle identity theft or credit card fraud yourself, develop a spending plan, and offer strategies to improve your long-term credit score. You could get a debt management plan with a nonprofit credit counselor, which creates a payment agreement between you and your creditors.
If you’re considering a nonprofit credit counselor, look for ones that are certified and check to see if they have any complaints against them with your attorney general or local consumer protection agency, according to the FTC.
Whether you hire help or take care of credit repair yourself, taking steps to fix problems with your credit report can put you on the path to a stronger financial future.