Your credit score is one of the most important statistics in our financial lives. This is principally because most lenders will use your credit score as a critical factor in their decision to approve or deny providing you with a loan. In addition to this, your credit score also has an impact on the terms of the loan: the higher the score, the lower the interest rates. As a result, people that find themselves in situations where their credit scores have gotten negatively impacted often seek ways to fix things and frequently turn to credit repair firms. Many of these firms claim to be able to achieve dramatic changes in your credit score in short periods and the industry has been known for deceptive practices. In the following sections we’ll provide an overview of credit repair and some insights into how to detect fraudulent credit repair services.
Credit Repair 101
Credit scores are affected by various factors, such as the length of time a person has had active credit accounts and the timing of loan payments. Missed payments can lead to lower credit scores if the lender reports the delinquency to the Credit Bureaus. This then makes it harder for consumers to get approved for new loans. That said, the information within a credit report isn’t always accurate as lenders sometimes make mistakes and situations where your identity has been compromised can also lead to inaccuracies. These are the types of situations that credit repair is designed to remedy. Credit Repair is a process in which a consumer or the company acting on their behalf attempt to resolve issues with information presented on a consumer’s credit report. Much of the process involves gathering credit reports and checking the information for accuracy by referencing data from multiple the various credit bureaus. From there, you can contest the information by providing supporting documents and sending a letter to the lenders. Lenders are obligated to look at your findings and then report back to the credit bureau. Most credit bureaus should investigate claims within 30 days of receiving them. If you’re able to demonstrate inaccuracies and lenders correct their errors, then these inaccuracies will get removed from your credit report resulting in an improvement in (or repairing of) your credit.
What Credit Repair Companies Do
If you don’t have the time or the necessary information, or you want an expert opinion, you can turn to a credit repair company for assistance. Such a business can guide you through the actions you need to take to repair your credit. They can even provide credit monitoring services and other services that can help now and in the future. But hiring these companies is neither free nor cheap. In addition, there are a lot of deceptive companies trying to take advantage of people with bad scores.
Warning Signs of Credit Repair Scams
It is important to remember one of the fundamental truths about credit repair. You can only contest and remove inaccurate information. Accurate information on late payments, defaulted loans, and other things that affect your score will remain in your report pretty much no matter what. Therefore, one of the first warning signs is a company that offers to remove all negative information from your credit report – regardless of their validity. This is simply not possible.
Another common practice of scammers is to lengthen the process by disputing everything. This is another warning sign because while it will overwhelm lenders and bureaus with paperwork it does not have much of an impact on the ultimate outcome.
In addition, may credit repair firms aren’t forthcoming about the steps they are taking to repair your credit. They prefer to handle everything themselves. Consumers should be wary about companies that are opaque about the steps they are taking to repair your credit. Often this is the case because the credit repair companies aren’t doing anything unique or because they are taking steps that could be considered unethical.
The Bottom Line
To be sure, not all credit repair companies are untrustworthy. In addition to researching your situation and coming up with a plan to improve your credit score, legitimate credit repair companies can also be a helpful educational resource. But there are limited actions you can take to repair your credit and the simple fact is that many of these actions are steps you can take by yourself. There are also several nonprofit organizations that offer credit counseling free of charge. Therefore, your first step should almost never be seeking out credit repair companies as there are cheaper and equally effective options available to you.