Your credit history and credit score both play a role in your ability to qualify for a credit card with an affordable interest rate or to buy a new car or home. If your credit score isn’t high, then you might wonder what you can do to fix your poor credit.
At Addition Financial, our members often ask us what they can do to improve their credit scores. One question we hear a lot is this:
“Should I use credit repair services?”
We love being able to help our members repair their credit. We reached out to some experts for their advice about credit repair services and added some guidance of our own. Here’s what you need to know.
What Do Credit Repair Companies Do?
A credit repair company works with consumers to improve bad credit scores and repair their credit history to whatever extent is possible. Their primary role is to serve as an intermediary between you as a client and either the three main credit bureaus or individual creditors, including lenders and retail stores.
You should know that credit repair services are governed by a federal law called the Credit Repairs Organization Act, or CROA for short. This law explains what credit repair services may and may not do. If you do decide to work with a credit repair business, you should make sure that they are legitimate and in compliance with CROA.
How Do Credit Repair Companies Remove Negative Items?
Credit repair services can remove certain negative items from your credit report. It might surprise you to learn that they mostly conduct their operations via snail mail. The reason is that there are laws governing how much time the credit bureaus can take to respond to written inquiries. The maximum is 30 days.
Some credit repair companies send out multiple inquiries about the same line item. This technique is called “jamming,” and they do it in the hope that the credit bureau will fail to respond to one of the letters in time, thus requiring them to remove the item in question.
Are There Any Items That Cannot Be Removed by a Credit Repair Service?
Before you sign up with a credit repair service, you should understand what they can do – and what they can’t. Imani Francies, a Finance Expert at USInsuranceAgents.com, told us:
“Credit repair services identify and correct problems that may be negatively impacting your credit ratings. Credit repair eliminates information from your credit reports that shouldn't be there, allowing your credit scores to improve. However, it will not be able to erase bad marks if the information is true, timely and verifiable.”
One big red flag to look for if you do decide to work with a credit repair business is if they pressure you to dispute items on your credit report that you know to be legitimate. By doing so, they are violating the terms of CROA, which says that credit repair services must not advise consumers to make false statements to a credit reporting bureau.
How Long Does It Take a Credit Repair Company to Repair Your Credit?
It’s natural to want a quick fix if you have a poor credit score, particularly if you’re planning to buy a new car or become a homeowner. While there’s no way to predict exactly how long it will take a credit repair company to get you to a good credit score, you should know that it won’t happen overnight.
As we mentioned above, the credit bureaus have 30 days to investigate written disputes under the Fair Credit Reporting Act. They must forward any evidence you submit to the creditor in question to allow them a chance to respond. Then, they must notify you in writing of their conclusions.
The only exception is if a credit bureau determines a credit dispute to be frivolous – which is something that might happen if you work with a credit repair service that sends multiple dispute letters regarding the same item on your credit report. When that occurs, they have the right to stop their investigation.
Whatever they conclude, they must notify you in writing. If they determine that your dispute is valid, then they are required to notify anybody who has checked your credit in the past six months as well.
It’s reasonable to expect the credit repair process to take several months to a year or more to see a difference in your credit report, especially if there are a lot of things to dispute.
Can Credit Repair Help with Identity Theft?
If you have been a victim of identity theft, you may have several inaccurate and detrimental items on your credit report. For that reason, you might wonder if using a credit repair service can help you to clean it up quickly.
We asked David Clark, a lawyer and partner at The Clark Law Office, about the issue of identity theft and credit repair. This is what he told us.
“You can opt for a credit repair service if you need help in disputing inaccuracies in your credit report that keep your credit rating low. If the problem is related to identity theft then you need to get legal advice.”
Identity theft can impact more than your credit report. If your identity has been stolen, you should seek legal advice to make sure you are addressing every potential issue. If you don’t, then you might end up dealing with the ramifications of identity theft for years.
Tips for Choosing a Credit Repair Company
Credit repair companies aren’t difficult to find, but you should know what to look for – and what to avoid – before you choose one to help you repair your credit.
Here are some things that you should look for in a credit repair company:
- They offer a free consultation. The consultation is an opportunity to explain your situation and hear how a company intends to help your credit problems.
- They have a good track record. Don’t take their word for it. Instead, consult Google. Check to see if the company has any FTC violations in the past five years. You should also read reviews and see if the credit repair agency has successfully resolved issues similar to yours.
- They are licensed, bonded and insured. Local and state governments usually require credit repair services to register and purchase liability insurance.
You should also be aware of some red flags that indicate a company may be preparing to scam you. These include the following:
- They demand up-front payment, which is prohibited by the CROA.
- They promise to raise your credit score by a specified amount. No company can guarantee this and it is a violation of the CROA to do so. They are also prohibited from promising to remove any specific item from your report. They do not control that, so it isn’t a legitimate guarantee.
- Ask you to lie. As we mentioned above, no legitimate credit repair agency will ask you to dispute correct information on your credit report.
- They promise quick results. The process to remove an item from your credit report can take months or longer, particularly if the bureau requests information from your creditor. Each request starts a new, 30-day clock.
- They don’t provide a written contract. Credit repair companies are required by law to provide you with a contract that specifies how you can cancel the service.
- They don’t advise you of your legal rights, which include the option to contact the credit bureaus directly and file a dispute without paying for credit repair.
- They have outstanding consumer complaints or regulatory violations.
The best thing you can do is to research any credit repair company before contracting with them. Take advantage of the free consultation and ask as many questions as you can to get a feeling for how they do business.
The final thing to consider here is the fee structure. In general, there are two options. The first is “pay per delete,” where you pay only when an item has been removed from your credit report. The second is a subscription, but it’s important to note that the CROA allows credit repair companies to bill only when services have been rendered. They can bill you monthly, but only for what they have done. The pay-per-delete option is the most straightforward and what we would recommend.
Should You Use a Credit Repair Service?
Now that you’re armed with the information you need about credit repair services and how they work, let’s address the big question: should you use a credit repair service?
Imani Francies sums up the response like this:
“You should use credit repair services when you can afford your monthly expenses but your credit score prevents you from qualifying for a credit product, such as a mortgage or a car loan, or when you are paying exorbitant interest rates.”
If you don’t want to spend the time completing forms and mailing letters to the credit bureaus to get negative information removed from your credit report, then it may make sense to pay a credit repair service to handle the legwork for you.
Using a credit repair service may be worth it if you know you have inaccurate information on your credit report and it’s affecting your credit score. You should not use credit repair services if you have been the victim of identity theft, since the legal ramifications of the theft may extend beyond your credit report.
Are you looking for an easy way to boost your credit score? Click here to learn about Addition Financial’s Opportunity Credit Building Loans and start the application process.
