If you have bad credit, you can have trouble getting a credit card, renting an apartment, or even getting a personal loan. Credit repair organizations frequently promise to enhance your credit in exchange for a fee in order to help you become a better applicant.
These businesses often offer to analyze your credit reports and, if necessary, contact the credit bureaus on your behalf to address any unfavorable entries.
"The majority of these things are not difficult to perform on your own," says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. "You have to consider the cost benefit of paying someone else to perform those things for you vs doing them yourself — as well as the value of your time."
Here's how credit repair agencies function and why, if you're considering using one, you should first see a credit counseling agency.
WHAT EXACTLY IS A CREDIT REPAIR BUSINESS ?
A credit repair firm is a business that offers to help you improve your credit for a charge.
According to McClary, firms frequently offer to "do all the heavy lifting" of interacting with credit reporting agencies.
Credit repair services differ from credit counseling companies, which are often a free service provided by nonprofit financial education groups that examine your finances, debt, and credit reports with the purpose of teaching you how to better manage your money.
The credit restoration industry, according to the Federal Trade Commission, is riddled with cons. It's critical to do your homework on any credit repair company before deciding to deal with them to avoid becoming a victim of a scam.
HOW CAN YOU KNOW IF A CREDIT REPAIR COMPANY IS LEGITIMATE
According to McClary, there are "a variety of techniques" to vet credit restoration companies. Here's a place to start.
- Check out the Better Business Bureau's website for customer reviews.
- Look up a complaint in the Consumer Financial Protection Bureau's database.
- Look for useful user reviews on other review sites.
Avoid companies that appear to be too wonderful to be true. If a corporation claims to be able to do any of the following, it's a red flag and most likely a scam:
- Remove any bad content from your reports that is accurate.
- Create a new credit identity for yourself legally.
- Before it can supply services, the corporation requires payment.
- Ensure a better credit score.
Again, we suggest consulting a credit counselor beforehand. Credit counseling can assist you in gaining a better understanding of your credit reports and how to improve your financial condition in the long run.
HOW DO CREDIT REPAIR BUSINESSE OPERATE
Many credit repair firms begin by requesting copies of your credit report from each of the three major consumer credit bureaus: Equifax, Experian, and TransUnion.
The company will check your credit reports for negative indications such as...
- Charge-offs
- Liens on property
- Bankruptcies
It will next devise a strategy for challenging inaccuracies and working with creditors to have those things removed.
It's possible that as part of that plan, you'll be submitting...
- Information validation requests
- Dispute letters for erroneous negative marks
- Letters of cease-and-desist to debt collectors on your behalf
The organization may also advise you to open additional accounts in order to boost your credit score. Be cautious in this area. A new account may not be the greatest option if you've had difficulties managing credit in the past. Plus, taking on more credit when you don't need it isn't a good idea.
WHAT IS THE COST OF CREDIT REPAIR?
The amount you'll pay and how it's calculated will vary each company, but they must adhere to a set of rules. Credit repair agencies are unable to seek or accept money until the stated results have been achieved.
You may pay a one-time fixed cost or pay for each unfavorable mark the company removes from each of your reports, depending on the company. This might cost as little as $35 per deletion and as much as $750 or more.
The corporation may also bill on a monthly basis, with prices ranging from $50 to $130 or more. You may also have to pay setup fees or a cost to view your credit reports.
Consider how much work your reports will require. If there are only one or two unfavorable things on your credit report, you'll probably be better off putting any fees toward debt repayment and disputing any inaccuracies yourself.
WAYS TO IMPROVE YOUR CREDIT ON YOUR OWN
Here are a few things you can do on your own to improve your credit. First, check your credit records for any mistakes. This is also an excellent opportunity to review your reports for any strange activity that could indicate identity theft. Fortunately, you can receive a free credit report from a few places, including Credit Karma.
If you uncover any, use Credit Karma's Direct DisputeTM service to dispute inaccurate information on your TransUnion® credit report.
You can also take actions to improve your credit over time. Here are some areas where you can improve.
- Make every effort to avoid late payments (and pay everything that is owed to you).
- Make sure you don't go over your credit limit.
- Avoid applying for new credit that you don't need to avoid unnecessary hard credit queries.
HOW LONG DOES IT TAKE TO REPAIR YOUR CREDIT?
After receiving your dispute, the credit bureau normally has 30 days to investigate and validate the facts. In most cases, the credit bureau will contact the company that submitted the information and request that it conduct an investigation. The credit bureau is required to send you the investigation's findings within five business days after the investigation's completion.
However, if the credit bureau thinks that the dispute is "frivolous," it might refuse to investigate if it notifies you within five days.
WHAT TO BE AWARE OF
When it comes to cooperating with a
credit restoration organization, McClary advises consumers to "exercise extreme caution." According to a 2016 notice from the Consumer Financial Protection Bureau (CFPB), more than half of the complaints concerning credit restoration involved claimed fraud or scams.
Even if you locate a firm you like, the services may not be appropriate for your needs. Plus, disputing any inaccurate information on your credit reports yourself would certainly save you money.
The Credit Repair Organizations Act (CROA) makes it illegal for credit repair organizations to mislead about their services and results, among other things. You can file a complaint with the Consumer Financial Protection Bureau if you believe you've been a victim of a credit repair scam or if you've had other problems with a credit repair organization.
The Credit Reporting Organizations Act (CROA) imposes a variety of obligations on credit reporting companies, including...
- Providing you with a formal contract that outlines your legal rights as well as the services they will give.
- Allowing you to cancel free of charge within three days
- Before charging you or receiving fees, completing the promised service.
"That's part of the'sniff test' that tells you there's something wrong there," McClary says of a credit repair company that refuses to answer your queries, wants payment in advance, or fails to put commitments in writing.
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