How Do Credit Repair Companies Work?
The processing and approval of loan or credit card applications depend on credit scores. This could be a problem for many consumers who lack the time or expertise to report their disputes. A credit repair company can assist consumers in managing and improving their bad credit score.
However, you should confirm the legitimacy of a credit repair business before entrusting them with your personal information. The Federal Trade Commission warns that many credit repair businesses operate illegally and seek to defraud their clients.
Getting hold of your credit reports and checking them for accuracy is the first step in rebuilding your credit.
What is credit repair?
Credit repair aims to restore a credit situation that has become challenging because of various factors, including identity theft. Monetary concerns like budgeting and lender fears need to be addressed as well.
You can repair your credit by disputing inaccurate information with the credit bureaus. Credit repair can rebuild your credit health so you can qualify for loans. People often need credit repair services to assist them in raising their credit scores and repairing the harm done to their credit health as a result of poor financial decisions in the past.
The three major national credit bureaus, Equifax, Experian, and TransUnion, are required by law to provide you with one free credit report every 12 months.
What is the Credit Repair Organizations Act?
The Credit Repair Organizations Act (CROA) is a consumer protection law that regulates credit repair companies. It ensures that prospective customers of credit repair companies are given accurate information before deciding. The federal law prevents credit repair services from running false and misleading advertisements about their services. CROA prohibits credit repair companies from doing the following:
Making false or exaggerated claims
A credit repair organization cannot guarantee the elimination of accurately reported negative items, increase your score by a specified percentage, or promise to do it in a specific amount of time. Credit repair depends on a person’s credit history and is situation-specific. There can be no guarantee of results.
Lying to credit bureaus or other services on a consumer’s behalf
A credit repair business cannot advise you to lie to creditors, lenders, or credit bureaus about past situations to improve your credit history.
Changing the consumer’s identity
It’s against the law for a credit repair business to guarantee that giving you a new identity can erase your credit history.
Charging the consumer in advance
Credit repair companies must only bill you for their assistance after the service is completed.
Abusing the consumer’s rights
It’s illegal for a credit repair business to demand that you give up any of your rights, including those mentioned in the CROA, to employ their services.
What do credit repair companies do?
Many companies that repair credit begin by obtaining copies of your credit reports from Equifax, Experian, and TransUnion.
The credit repair company examines your reports to look for negative marks, such as:
Next, it establishes a strategy for challenging inaccuracies and negotiating with creditors to have those things removed. That can entail emailing the following:
The credit repair company might advise requesting additional accounts so you can enhance your reports with good information.
A new account might not be the best choice if you’ve previously struggled with managing your credit. Moreover, you should avoid getting into more debt if you do not require it.
How much do the services of a credit repair company typically cost?
There are two options:
Does credit repair work?
Although some credit repair businesses claim to have removed lots of bad credit records, there are no reliable statistics on the efficacy of these services. There are also no statistics on how credit repair affects customers’ average credit scores. There’s no way of knowing how many of these disputes they file result in deletions or how much a credit repair client spends on average.
As such, it is advisable to review your credit reports on your own and confirm their authenticity. Remember, there is nothing a credit repair company can do that you couldn’t do yourself. The approach has always been free. It’s also important to remember that accurate negative information will automatically be erased from your credit report after seven to 10 years.