Does Credit Repair Really Work


Credit card issuers and lenders always review credit reports of applicants for more than one objective. The primary objective is to determine the risk in the deal as a bad credit score indicates that the borrower is already struggling with the finances. Other objectives of reading a credit report include: whether to approve the loan or not, determining the amount, interest rate and terms and conditions. A lender is interested in specific information that includes your debt-to-income ratio, credit score and timely payments. The credit decision is one of the seven stages in the loan origination process. 

Having a bad credit score does not only keep you from getting a loan or credit card, but it might also leave you carless, homeless and jobless. There are definite advantages of repairing your credit score, including:

    • Easy Loan/credit card approvals 
    • Low interest rate 
    • No high security deposit payments for utilities
    • Lower insurance rates 
    • Higher credit limit
      • No debt collector harassment     
    • No reliance on co-signers 

Getting your loan approved with a low-interest rate means you can buy a new house, a car or start your own business. Sometimes, employers and landlords also check your credit report.  

For this reason, a lot of individuals with poor credit scores consider working with credit repair companies. Knowing the fact that the specific information on the credit report stays there for a specific period, does availing credit repair services really work? For example, chapter 13 bankruptcy stays on your credit record for seven years. This article answers some of the important questions related to credit repair.

What Is A Credit Repair Company? 

Someone might have already suggested you work with a credit repair company to improve your credit score. Credit repair companies take certain steps to remove errors, late payments and other negative details from your credit report. This is something even you can do. So, why hire a credit repair company? 

An individual offering credit repair services or a credit repair company does more than removing negative information from your credit report. However, before that, let’s answer the question – what is a credit repair company? 

It is an organization that offers paid services to increase your credit score. It is different from a credit counseling agency. A credit counseling agency provides you with free resources to review your debt, finances and credit report. These resources are from non-profit financial organizations. In credit counseling, you learn how to reduce and ultimately get rid of your debts by improving financial management. 

However, the industry is not free from scammers. They make false promises and try different tricks to take innocent individuals on a ride.

So, you must learn what a credit repair company can promise and what it can’t. It is also important to learn about your credit rights.

If you want to hire a credit repair company, you should read about federal and state laws.  

How To Verify A Credit Repair Company 

Before you learn to verify a credit repair company, you should learn about tricks and false promises scammers use to victimize individuals with bad credit scores. Being aware of the warning signs can save you from falling victim to a scammer. These warning signs include:

    • The company asks you to pay upfront fees before offering its services, which is illegal according to the Credit Repair Organizations Act.
    • The company promises to remove accurate and current negative information from your credit report, which is impossible.
    • The company asks you to dispute accurate information regardless of its timeliness and accuracy.
    • The company does not explain your rights. Disputing errors is your free legal right.
    • The company requests you to not to contact the credit bureaus.
      • The company promises to create a new identity.
    • The company guarantees improved credit.

According to the laws, a credit repair company cannot use deceptive practices. Don’t work with a company that does not follow the federal and state laws:

It is easy to verify a credit repair company.

    • You can visit the website of the Better Business Bureau and read reviews of the company.
      • You can search the complaint database of the Consumer Financial Protection Bureau. 
    • You can also read reviews on third-party websites.

There are two federal laws to regulate the industry and protect your credit rights.

      1. The Fair Credit Reporting Act
      2. The Credit Repair Organizations Act

Passed in 1970, the Fair Credit Reporting Act created the credit repair process by regulating credit reporting. It also provides you with the following protections:

    • Someone can review your credit report only for loan and credit applications, employment, insurance purposes, bank closures and court cases.
    • In most cases, a company reviews your report only when you authorize.
    • It limits the information getting listed in your credit report.
    • This law guarantees the right to accuracy. It directs the credit bureaus to review the disputed information and take appropriate steps within 30 days.
    • It gives you the right to get a free annual copy of your credit report from each bureau.
    • It also creates a fraud alert process.

The Fair Credit Reporting Act provides you with the following rights:

    • Credit bureaus must accept your disputes free of charge.
    • They must respond in 30 days. In the case of any follow-up, they get an additional 15 days.
    • The credit bureaus must contact the reporting lender or credit card company to verify the disputed information within 5 business days.
    • The credit bureaus have the right to terminate frivolous, irrelevant disputes. They must inform you within 5 business days if your dispute is terminated.
    • The credit bureaus must remove a disputed item if it cannot be verified.
    • Credit bureaus have to provide you with a free copy of the report to confirm the removed items.
    • The dispute is rejected if the item can be verified.
    • When this happens, you can include a 100-word statement in the credit report explaining this dispute to credit card issuers or lenders reviewing your credit report.

The Fair Credit Reporting Act regulates the credit reporting process. The Credit Repair Organizations Act regulates the industry. It gives you the right to authorize third parties (credit repair companies) to review your credit report and file disputes for you. According to this law, a credit repair company is an entity selling services to maintain accuracy in your credit report. According to the Credit Repair Organization Act:

      1. A credit repair company cannot make false statements about improvements in your credit score.
      2. A credit repair company cannot alter or ask you to alter your identity to hide negative information on your credit report. The company can not make any misleading or untrue claims about its services. It cannot engage in practices that would constitute fraud under this law and other federal laws. The company cannot charge advance fees without performing services.
      3. The company must disclose its services and costs before signing a contract.
      4. The company cannot make you sign away your rights.
      5. You can sue the credit repair company for up to 5 years after the services.

Reputed credit repair companies always explain your rights under these laws. If a company does not explain your rights, it’s a scam.

How Do The Credit Repair Companies Work? 

Here comes the most important question – how do the credit repair companies work? You can also take the steps credit repair companies take to improve your credit score. If you want to be at the helm, your question might be – how does credit fix work

    • A credit repair company gets a copy of your credit report from each credit bureau (Equifax, Experian, and TransUnion).   
    •  It reviews the report to identify negative items. This is followed by steps to increase your creditworthiness.
    • The company tries various strategies to remove negative information from your credit report. It disputes inaccurate information with each credit bureau. In addition to disputing negative information with the credit bureaus, the company also negotiates with creditors to remove negative information. 

The credit bureaus have to respond within 30 days. There can be an additional 15 days in the case of any follow-up. The bureaus need this time to review the proof submitted by the creditor and then make a decision.

A credit repair company:

    • Gets and reviews your credit report and challenge inaccuracies
    • Negotiates with creditors
    • Checks hard inquiries for accuracy and gets them removed, if inaccurate.
    • Uses cease & desist letters to make debt collectors follow the law. 

A legitimate credit repair company also explains the steps you can take to increase your credit score. These steps include: 

      1. Making frequent small payments (also known as micropayments) throughout the month to keep your credit card balance down.  
      2. Maintaining a good credit utilization ratio (less 30%).
      3. Asking the credit card issuer for a higher credit limit.
      4. Disputing errors on your own.
      5. Becoming an authorized user 
      6. Keeping credit cards open
      7. Getting the type of credit you don’t have to mix it up
      8. Making your payments on time 
      9. Paying bills on time   

How Much Does Credit Repair Cost?

You don’t have to pay anything if you are repairing your credit on your own. However, you may not be able to invest the time and effort it takes to fix your credit score. You may not have the skills required to negotiate with creditors. You may also don’t know how to use the cease and desist letters to deal with debt collectors. So, if you want to repair your credit score fast, you should work with a credit repair company. Before that, you should also approach a credit counseling agency. 

The Credit repair cost depends on the services you request or require. A comprehensive credit repair program may include the following services:

    • Credit monitoring
    • Score tracking and alerts
    • Fraud protection and alerts
    • Score simulators
    • Identity theft insurance
    • Counseling
    • Financial education and coaching

Credit repair cost for this package may range between $30 to $90. A setup fee may range between $15 to $90. However, the company has to follow the Credit Repair Organizations Act. A credit repair company can request payment after delivering the promised results. Some companies also charge a one-time, flat fee. Some companies charge for each derogatory mark removed from each of your credit reports from three credit bureaus. The amount for deletion may range between $35 to $75. 

You can also use credit repair software to manage credit repair on your own. Credit repair software allows you to:

      • Access your credit reports online from three credit bureaus
      • Create, track and manage dispute letters.

Both free and paid credit repair software applications are available. The cost depends on the available features. Most of the credit repair software applications are cloud-based. So, you have to subscribe to a plan. 

How Long Does Credit Repair Take?

The question “how long to fix credit” is a little tricky to answer. The time required to repair your credit depends on factors such as the number of errors to be fixed and your goals of credit repair such as buying a house. There are different timespans involved in this process. It takes time to download and review credit reports for errors. Logging in, downloading copies of the credit report from all bureaus, and taking notes of errors can take 1 to 2 hours, especially if this is your first time. 

Drafting dispute letters and gathering required documents might take a few hours to a few days. This depends on the nature of the dispute and how organized you are when it comes to keeping financial records.

Once you have submitted your disputes, credit bureaus take 30 days to contact the creditors, verify the disputed item and respond. Use registered mail to send your letters. Keep in mind that you have to dispute mistakes with each bureau.

In general, it takes about 3 to 6 months to repair credit. Few mistakes can be corrected just in one month. A large volume of disputed items takes longer. Your credit repair company will give you a better idea. 

Keep in mind that the process is 3 to 6 months long but time to achieve the expected results depends on how long you start. So, achieving a good credit score may take up to a year or more.

Conclusion

First of all, take the necessary steps to keep your credit score from dropping. If you have a low credit score, make sure that you are verifying a credit repair company before hiring. You must be aware of your credit rights under the Credit Repair Organizations Act and Fair Credit Reporting Act.