Do Credit Repair Services Actually Work?
Credit repair companies make seemingly outlandish and unbelievable claims such as “Get A 720 Credit Score in 30 Days” or “Erase Your Bad Credit in 2 Weeks – Guaranteed!” You don’t have to look very far to find a scam artist looking to rip people off with the promise of a credit score magic wand.
However, just because there are companies preying on consumers with damaged credit, does that really mean that all credit repair companies are scams? Depending on whom you ask, the answer you’re going to get will either be a resounding “yes!” or an even more resounding “not at all!”
Credit repair services can’t perform magic, and they can’t do anything that you can’t do yourself. What they can do is take steps to ensure that your credit reports are completely accurate, giving you the best possible credit score for your situation. They won’t be able to erase your debts or remove valid negative items from your reports.
Are Credit Repair Services Legal?
Despite what you may have heard, credit repair services are 100% legal as long as the credit repair company abides by the state and federal laws which regulate the industry.
The Credit Repair Organizations Act (CROA) is the federal law which regulates credit repair companies/organizations, and it sets guidelines that they must follow. Credit repair companies are required to explain:
- your legal rights regarding credit repair
- the specific services they will provide
- the total costs involved
- your right to cancel for three days at no charge
- how long the process will take
If the company fails to provide the results it promised, you’ll have some options available like taking them to court.
Is Credit Repair Right for Me?
Just because you can do something on your own does not always mean that doing so is the right choice. You might believe that doing your own credit repair is the only logical choice. Not so fast. Remember, disputing inaccurate accounts with the credit reporting agencies is inexpensive but it can be a tedious, annoying process.
Credit repair companies can help with the process of disputing and re-disputing accounts when you might become simply too frustrated to continue on your own. Just like we choose everyday to pay for services we prefer not to try alone (i.e. filing taxes, plumbing, auto repair, etc.), you may also decide that it’s worth the money to hire a credit repair professional.
If you’re not comfortable navigating through credit reports, checking with creditors and lenders, and disputing items with credit bureaus, a credit repair service might be right for you. This process can also take up quite a bit of time, so hiring a service might be your only choice if you don’t have a lot of free time to devote.
Warning Signs of a Credit Repair Scam
While credit repair can be perfectly legal, there are also dishonest companies out there that prey on uninformed people with bad credit, promising to help in ways that they simply can’t. This makes it very important that you always vet a credit repair company before hiring them to make sure that they’re legitimate.
The FTC mentions some warning signs to look out for when looking into credit repair companies. You’re dealing with a fraudulent company if they:
- Promise to get you a “new credit identity”
- Don’t explain your legal rights
- Want you to pay them before they do any work
- Tell you not to contact the credit reporting agencies
- Tell you to dispute accurate information on your credit report
- Tell you to give false information regarding your credit or loans
When vetting a credit repair company, it’s a good idea to find one who is a member of a trade organization and has been in business for some time.
Also, you should not really rely on Better Business Bureau ratings. The BBB has a history of trying to coerce money out of companies – allowing companies to buy a good rating while penalizing those companies who choose not to pay.
If you think you’ve been dealing with a fraudulent credit repair company, contact the appropriate state or federal authorities.
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Top 3 Complaints Voiced by Real Customers
Credit repair services are not inherently evil, and we won’t call out any in particular as bad. Credit Card Insider will not disparage any legitimate company in the credit industry.
As in any other industry, negative reviews are much louder and more prevalent than positive reviews. Many consumers report satisfactory or excellent experiences with paid credit repair, including credit score improvement in as little as three months.
These consumers tend to be people who (A) understand the terms of their contract, and (B) are not inclined, for whatever reason, to do the cleanup work themselves. They also usually understand, at least at a basic level, the steps they can take to improve their own score.
However, our goal is to bring knowledge to our readers, and to that end we firmly advocate for consumer education. The most common complaints from real people who feel duped fall into three categories.
Startup costs of $50 to $100 and monthly recurring costs at similar levels. Costs are particularly disturbing when immediate progress is not achieved.
Solution: Try doing it yourself for free first.
2. Hard to Cancel
Many, many customers complain about auto-pay problems. This problem is generally rooted in a lack of understanding of either the payment contract or the cancellation policy.
Solution: Read your contract carefully. Even when your cancellation is timely, you may have to pay one more bill. That’s because legitimate companies can’t charge you upfront, so they bill later on for services already rendered.
3. No Debt Settlement
Credit repair is not the same thing as debt settlement. Some consumers mistakenly believe that the credit repair service will get collections off their back or negotiate debt.
Solution: Again, read the contract and understand what the service is offering to do in exchange for the fees you pay. Some credit repair services also offer debt settlement, but it is a separate service.
What a Credit Repair Service Can Do
1. Correct Errors on your Credit Report
A surprising number of people have errors on their credit reports that are bringing their credit scores down. Credit repair services take the necessary steps to initiate the removal of credit report errors.
2. Dispute Negative Items
Every item on a consumer’s credit report must, by law, be verifiable. Some creditors who are no longer in business or who lack the infrastructure to respond in a timely manner will not verify a negative item within the 30-day time period allowed for response.
For this reason, a credit repair service might dispute all or most negative items on the report, whether accurate or not. If the creditor doesn’t respond soon enough, the negative item will have to be removed from the report.
3. Negotiate with Some Creditors for a Less Negative Report
Some creditors might be willing to negotiate, for example to remove a negative item in exchange for payoff, or to reset the account to current rather than late.
Some credit repair companies with experience know which creditors are approachable and under what conditions, and they may have negotiation strategies the consumer hasn’t considered. In some cases, credit repair services will also take legal action against creditors or collections firms whose reporting or collection practices violate the law.
Kimberly Rotter contributed to this post.