Do credit repair companies actually work?

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If your credit score is being dragged down by collections, late payments, and other negative information, you might consider hiring a credit repair service to fix it. But can they actually improve your bad credit?

 

Yes, credit repair companies can help you fix the issues with your credit history. But will it be worth the fee they charge you?

See, the key concern with credit repair companies is that all of the services they are charging you for are actions that you can complete yourself for free.

 

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How Credit Repair Works

When you hire a credit repair service they will first sit down with you and look through your credit reports. They will then discuss the issues they find and outline how they can help you improve your bad credit.

 

They will also want to discuss with you what your expectations are.

 

Then comes all the legal stuff where they explain their fee, inform you of your rights, set out a contract, and have you sign whatever forms they need you to sign (varies from company to company).

 

Then they get to work on the credit repair process.

 

The main goal of a legitimate credit repair company is to work on getting inaccurate or fraudulent information removed from your credit reports. They will go directly through the major credit bureaus to resolve this.

 

Also Read: Best Credit Repair Software

 

On your behalf, they will send a dispute letter to each credit bureau for each inaccurate entry that appears on the report. The information they can dispute includes:

  • Late payments
  • Credit inquiries (in cases of fraud)
  • Collection accounts
  • Old accounts (7+ years old)
  • Tax liens
  • Bankruptcies
  • Civil judgment

Legally speaking, they are only supposed to dispute inaccurate or fraudulent information.

 

Suppose you have legitimate derogatory information on your credit reports, i.e., a collection. In that case, they can also help guide you in reaching an agreement with the collector to pay the debt and have the account removed from your credit report.

 

Credit bureaus have an obligation to only report truthful information on your credit reports. For that reason, credit repair companies have have no legal grounds to challenge accurate, negative information on your credit report.

 

Also Read: Dovly Review

 

In practice, successful credit repair companies will dispute your negative credit report items, even if they are legitimate. If they are good at what they do, often they will have success with it.

 

Good credit repair professionals know all of the credit reporting loopholes and best disputing practices. You’d be surprised how successful a good credit repair agency can be.

 

The credit repair company may also suggest that you open new, healthy accounts to further improve your credit score.

Only after they have begun performing services can they charge you any kind of fee.

 

For help managing your debt, consider working with a fiduciary financial advisor. Find an advisor who serves your area today (Sponsored).

What Do Credit Repair Companies Do for You?

The bulk of what they do is dispute negative items on your credit report. This involves sending a series of letters, on your behalf, to the credit bureaus.

In addition to filing disputes, they also offer a variety of related services:

  • Credit monitoring– the credit repair company will pull your credit reports to see what issues you have and keep you apprised of any changes to these credit reports.
  • Credit counseling– some, but not all, credit repair companies offer their customers education on how credit and credit scores work. This can include guidance on steps you can take yourself to further improve your credit.
  • Defining your rights– as part of the contract review, the credit repair company has to outline your rights as a consumer. If they ever request you to sign away your rights, decline their service and report them to the FTC.
  • Initiating disputes– credit repair agencies will contact each of the credit bureaus on your behalf to initiate a dispute. This is often done by sending a dispute letter, but it can also be done via the credit bureau’s online portal.
  • Contact creditors/lenders– the credit repair company can also directly contact the original creditor or lender on the account to obtain further information or resolve the issue.
  • Contact collection agencies– the credit repair company can request validation of the collection account directly from the collection agency and send cease and desist letters to them on your behalf.
  • Research & documentation– the credit repair company will work with you to obtain any documentation needed to support disputes.

How Much Does Credit Repair Cost?

Credit repair services range in cost from company to company and may change based on the level of services that you need.

There are two main ways that credit repair can structure their fees: flat-rate membership fee or a per performance fee.

 

Also Read: Credit Repair Companies in El Paso, Texas

 

A company that charges per performance may charge you a small fee each time a derogatory mark is removed from your credit reports. This fee can range from $20 to over $100 and is often charged per credit bureau.

 

Credit repair companies that charge a monthly flat-rate fee are more likely to offer different levels of services. For example, they may offer a basic package that offers credit monitoring or help with goodwill requests for a discounted price.

 

Subscriptions can start out in the neighborhood of $50/month and quickly exceed $100/month.

 

The upside to companies that use a performance or subscription model is that you can cancel the service at any time and save a little money doing so.

 

Also Read: How to Get an 800 Credit Score After Bankruptcy

 

While credit repair agencies can discuss pricing with you before rendering services, they cannot charge you before performing services. This is a requirement of the Credit Repair Organizations Act.

How to Verify that a Credit Repair Company Isn’t A Scam

I’d like to tell you that all credit repair companies out there are legitimate, but the fact is that many are not.

 

Since you are giving these people access to your most sensitive financial information, it is essential to do your research first.

When looking at credit repair companies, you can always check out their reviews on the Better Business Bureau website, Google, or Facebook to get an idea of what other people thought of their services.

 

Also, be on the lookout for these red flags that indicate this credit repair agency might be a scam:

  1. They offer a guarantee or promise that they shouldn’t, e.g., “We’ll erase your bankruptcy from your credit reports”
  2. They have poor reviews or no reviews
  3. They require you to pay upfront (this may actually be illegal)
  4. They ask you to lie or make false claims to the credit bureaus or creditors
  5. They ask you to sign away your rights
  6. They in any way violate (or ask you to violate) the Credit Repair Organizations Act

A credit repair scam could make your credit score worse. It can also damage your relationship with the major credit bureaus and any lenders/creditors they have contacted.

 

When researching a credit repair company, if they have decent reviews and you encounter none of the red flags mentioned above, then they are likely not a scam.

 

Also Read: Credit Repair Companies in Las Vegas

Can I Repair My Credit on My Own?

If you are looking to fix your credit, you don’t need to resort to credit repair agencies. All of the services they offer are actions that you can complete yourself for free.

 

Credit monitoring – there are many free services for obtaining free credit scores and reports. For example, you can sign up for a free credit score from a company like Credit Karma or Experian, and you can obtain free credit reports from annualcreditreport.com.

 

Once you know what the issues on your credit history are, you can address them yourself.

 

Open disputes with the credit bureaus – you can open a dispute with each credit reporting agency, often via their website or by mail, if you prefer. The types of credit report information worth disputing include:

  • Unpaid collections – if they were paid/settled
  • Inquiries – if fraudulent
  • Old debts – that have the incorrect delinquency debt
  • Fraud/Errors – the result of identity theft or clerical errors
  • Bankruptcies – only if they were reported in error

From here, the credit bureau will launch an investigation. They will contact the lender, creditor, or debt collector requesting additional information on the debt. They may also request supporting documents from you, the consumer.

 

If the creditor, lender, or collection agency cannot provide documentation to support the debt/collection within 30 days, then the information will be removed from your reports.

 

It is important to note that this information can reappear on your credit report(s) later if supporting information is provided outside the 30-day window.

  • Contact creditors, lenders & collectors– you may also be able to resolve issues by directly contacting the bank, lender, or collection agency that holds the debt.
  • Freeze your credit– if your credit history has been damaged by fraud or identity theft, you can freeze your credit for free by contacting each of the individual credit bureaus. This ensures no new accounts can be opened or inquiries made.
  • Credit lock– this locks your credit so that others cannot see your credit without your permission. It is easier to enable/disable; just be aware that the credit bureaus often charge a fee for this.
  • Requesting goodwill adjustments– if a derogatory mark, like a late payment or collection, is valid then you can try requesting a goodwill adjustment from the original lender/creditor. If the account has since been closed, you can try sending a letter to have your account removed.

FAQs

How Long Does Credit Repair Take?

Credit repair usually takes months – anywhere from three to twelve.
Once you initiate the repair process, whether you are working with a credit repair agency or tackling it yourself, you could see improvement within 30 days.

 

Especially when opening disputes. If the creditor/lender agrees with the dispute quickly, the issue can be resolved in under 30 days.

Or, if the lender, creditor, or collection agency doesn’t respond to the credit bureau’s request for documentation supporting the debt within 30 days, the derogatory information will be removed from your credit report at the end of those 30 days.

 

If you need to open multiple disputes with multiple credit bureaus, then this process could take much longer than 30 days.

 

Other actions for repairing your credit, like goodwill adjustments and settling collections, could take several months. But at a minimum, if your repair efforts are successful, you should begin seeing improvement to your credit score within six months.

Are Credit Repair Services Legit?

Credit repair services can be legitimate, but not all of them are.

 

All credit repair industries have to adhere to the Credit Repair Organization Act.

 

This legislation stipulates that credit repair companies have to be upfront about their pricing, can’t make guarantees or misleading statements, can’t engage in fraud, can’t force you to sign away your rights, and cannot charge you until services are rendered.

The state you reside in may have its own laws regarding how a credit repair company can operate. For example, some states require credit repair agencies to employ a dedicated attorney, while other states may regulate fees.

 

Suppose the credit repair company you work with does not do everything above board. In that case, it could further damage your bad credit as well as hurt your relationship with the major credit bureaus and existing lenders.

Why You Should Never Hire a Credit Repair Company?

I wouldn’t say that you should “never” hire a credit repair company. However, like mowing your lawn, it is something that you can do for yourself.

 

There is nothing that a credit repair company offers that is not something you can achieve on your own.

 

If you work with a reputable company, they provide convenience, expertise, and usually good results. (Though there are no guarantees here!)

In a worst case scenario, a dishonest company could further damage your credit by engaging in fraud or encouraging you to open new accounts that further lower your credit score.

 

Is it worth the risk?

 

If you struggle to understand credit reporting and how to fix your credit score yourself, you can always look into credit counseling services. These companies are not-for-profits that can offer you guidance in fixing problems and achieving good credit on your own.

 

This article originally appeared on Digitalhoney.money and was syndicated by MediaFeed.org.

More debt tips

If you, like many Americans, are struggling financially, you can proactive steps now to pay off your debt quickly, such as increasing your cash flow or paying more than your monthly minimums on bills.

Additionally, a financial advisor can help you navigate your debt. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. (Sponsored)

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If your credit score needs a lift and debt is dragging you down, know that creating and committing to a debt payoff strategy can have a positive impact on your score.

There are several ways to get a quick credit score boost when paying down debt, which we outline below. The first step of knowing where you stand may be the hardest, but once you map out which strategies that work best for your situation, you can set the path toward rebuilding your credit and financial future.

 

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There’s no way to raise your credit score overnight, and any credit repair company that offers fast solutions is likely trying to pull the wool over your eyes. In fact, the Federal Trade Commission (FTC) even has a webpage dedicated to warning people against credit repair scams.

There are legitimate steps you can do yourself — without having to pay a credit repair company — to repair your credit, such as reviewing your credit reports for errors, paying down debt and getting a credit card that reports on-time payment activity to the credit bureaus. In other words, taking steps to fix your credit on your own is likely to be safer and cheaper.

 

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For those situations where managing your debt and fixing your credit seem impossible on your own, a nonprofit credit counseling agency may be a better choice than a for-profit credit repair company.

These agencies can help you assess your financial situation and create a budget that works for you, and may even put you on a debt management plan. For a reasonable monthly fee, you’ll make one payment monthly to the credit counselor, who will then disburse that payment to your creditors. Plus, the counselor may be able to negotiate lower rates and waived fees.

 

AntonioGuillem / istockphoto

 

When choosing a nonprofit credit counseling agency, check that they’re affiliated with either the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA) as a way to ensure they’re legitimate.

If you decide to go with a credit repair company rather than fixing your credit yourself or working with a nonprofit credit counseling agency, it’s important to know your protections under the Credit Repair Organization Act (CROA). The law requires companies to explain the following:

  • Your legal rights in a written contract and the services the company will provide.
  • That you have three days to cancel without any charge.
  • How long it will take for the company to get results for you.
  • The total amount you will pay the company for credit repair services.
  • Any guarantees the company makes to you.

And if a credit repair company doesn’t fulfill its obligations, you have options in the courts:

  • Suing the company in federal court for your actual losses or for what you paid them.
  • Seeking punitive damages against the company for violating the law.
  • Joining other people in a class action lawsuit against the company.

Here are five credit repair tips to help you boost your credit and get out of debt:

 

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When trying to improve your credit standing while reducing your debt load, know that there are few quick fixes unless you get a windfall and that it will take time and patience.

Negative marks stay on your credit reports for years — to be specific, late payments and foreclosures stay on your reports for seven years. Bankruptcies stay on your reports for seven years in the case of a Chapter 13 bankruptcy and for 10 years in the case of a Chapter 7 bankruptcy.

However, by making a budget you can stick to, assessing where your credit is right now, and taking the right steps to feed positive information to your credit reports, you can make progress.

Here are a few key steps that can help you along your credit-building journey.

 

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Reviewing your credit reports, along with checking your credit score, will allow you to understand your starting point as you work to pay down debt and repair your credit. Your credit report will show any outstanding balances on loans and lines of credit.

You should go through your report from each credit bureau and identify any negative marks dragging your credit score down. If anything on your reports is inaccurate, such as accounts that aren’t yours or a file mix-up with someone with a similar name, you can file a dispute to have it removed.

Know that while you can try to dispute legitimate negative items on your credit reports, such as late payments, the credit bureaus will likely reject your request to remove them once they conduct their review of your dispute with the lender.

Note that you’ll have to file a separate dispute with each bureau that shows the information, but if one credit bureau makes a correction based on the dispute, it is required to notify the other two bureaus.

Under federal law, consumers are entitled to one free credit report from each credit bureau per year, accessible through annualcreditreport.com. And through April 2021, all three credit bureaus are offering free weekly credit report access due to the COVID-19 pandemic.

 

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Paying down revolving debt accounts is one of the fastest ways to boost your credit score, as credit utilization (how much you borrow compared to your credit limits) accounts for 30% of your FICO Score.

When you have a line of credit that you borrow from as needed and pay back as you go, that’s called revolving credit. Credit cards and home equity lines of credit are two common types of revolving credit. Installment loans, like auto loans or mortgages, do not factor into credit utilization.

High credit utilization indicates to lenders that your finances are strained and that you might have trouble paying back what you borrow, and personal finance experts recommend you keep your revolving credit balances well below 30% of your credit limits for maximum credit score results.

There are three main ways to approach paying down your revolving debt:

  • The debt snowball method. With this approach, you tackle your smallest debts first by allotting bigger payments while only paying the minimum due on the larger debts, hitting achievable milestones early and working your way up to the bigger debts last.
  • The debt avalanche method. This approach focuses on paying off the debts with the highest interest rates first, which is the best option for saving money on interest charges.
  • The debt snowflake method. If you can’t dedicate a set amount of extra cash to your debts each month, the debt snowflake method allows you to chip away at what you owe. With this method, you make the required monthly payments, while searching for opportunities to save in small ways and put that money toward your debts. For example, you might bring in extra money with a side hustle or save by canceling subscription services.

 

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Consolidating multiple debts into one can also help your credit score and debt repayment strategy in three ways:

  • You can pay off higher interest revolving debt accounts, thereby reducing your utilization ratio
  • You can also possibly save substantially on high interest charges with a lower rate loan
  • You’ll have one set payment amount with a clear end date

Consolidating your debt allows you to turn multiple payments into one. And, depending on your credit history and the lender, you may get a better APR than what you’re currently paying.

Debt consolidation can be done with a personal loan or a balance transfer credit card.

You can find personal loans from banks, credit unions and online lenders — and by signing up for a free LendingTree account, you can comparison-shop loans from a variety of lenders.

Once approved, your new lender may send funds to your creditors or to you directly to apply toward your debts.

With a balance transfer credit card, you’ll apply for a new credit card offering an introductory 0% APR period on balance transfers, then request a transfer of debt from your old account or accounts to the new card. Note that you can’t transfer debt between cards from the same issuer, and also be aware you’ll likely be charged a fee of 3% to 5% of the amount transferred.

Balance transfer 0% intro deals can run from six to 21 months, and any remaining balance will be subject to the ongoing APR. Personal loan terms, on the other hand, give you anywhere from two to five years in which to repay.

 

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More than 8 in 10 cardholders who asked their credit card issuer for a lower interest rate got a  reduction, according to research from CompareCards. Despite that high rate of success, just 1 in 5 cardholders have tried asking.

If you’ve been with the issuer for a while, and you’re not behind on your payments, you’ll have a higher likelihood of success when requesting a rate reduction. When you call the issuer, be ready to ask for a specific APR rather than just a lower rate. It can also help if you have competing credit card offers, such as prequalification offers received online or in the mail. If your request is approved, make sure to ask whether the rate reduction is temporary or permanent.

While a lower interest rate won’t immediately boost your credit score, it will help you save money when carrying a balance and potentially allow you to pay down debt more quickly. And as explained above, lower utilization on your revolving accounts will improve your credit score.

 

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To prevent taking on more debt, having an emergency fund allows you to draw from savings to deal with unexpected expenses. A good rule of thumb is to stockpile savings equivalent to three to nine months of your income in a savings account, allowing it to earn interest and keeping it separate from the funds you use for day-to-day spending.

The exact amount you need in your emergency fund will depend on factors such as your housing payment, the number of people in your household and the nature of your work. For example, a freelancer without a steady stream of income to count on may need a larger emergency fund than someone with a regular full-time job. If possible, automate the transfer of money to your emergency fund so it will happen each month without you manually having to make the transfer.

This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.

 

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Featured Image Credit: DepositPhotos.com.

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