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How Do Credit Repair Companies Work?

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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:

  • Charge-offs
  • Fiscal liens
  • Bankruptcies

Next, it establishes a strategy for challenging inaccuracies and negotiating with creditors to have those things removed. That can entail emailing the following:

  • Requests for information validation
  • Letters to contest inaccurate negative marks
  • Stop-and-desist letters sent on your behalf to debt collectors

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:

  • Monthly fees 

    Credit repair monthly fees usually range from $19 to $149.

  • Pay per delete
    Customers are not charged until the results are delivered as per CROA guidelines.

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.

Key Takeaways 

  • The process of improving a bad credit score is called credit repair.
  • A business that provides credit repair services in return for payment is known as a credit repair company.
  • The credit repair company will approach the credit bureau and flag anything erroneous or false on your report before requesting that it be erased.
  • Avoid scam credit repair companies that make empty claims and frequently require an upfront payment.

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