Your credit score is essential to your financial health, affecting everything from your ability to get the best credit cards to the interest rates you pay on loans.
It’s no surprise that people with poor credit scores often turn to credit repair companies for help. Many of these companies promise quick fixes and improvements to your credit score, but does that really happen?
Let’s look at the dark side of credit repair companies and why you may want to think twice before using their services. Here are 14 things credit repair companies don’t want you to know:
How they operate
Credit repair companies identify negative items on your credit reports and dispute them with credit bureaus and the furnishers of the information (like your landlord or bank).
Bureaus and furnishers have a limited time to respond; otherwise, the information must be removed — even if it's accurate.
Credit repair companies submit disputes hoping the organizations won’t respond in time and the negative items will be removed, improving your credit score.
You can do it yourself
Anything a legally operating credit repair company does, you can do for yourself with little effort and barely any cost. It’s your right to dispute any errors on your credit reports, so you don’t need them to do it on your behalf.
Credit repair companies often charge exorbitant amounts of money, so it’s important to weigh if hiring them versus doing it yourself is worth it.
How to dispute
The process to dispute is simple. You can start by reviewing your credit report for any errors.
Next, write a letter to the credit reporting agency explaining the error and include supporting documentation. You can also submit a dispute to the furnisher.
Bureaus and furnishers have 30 calendar days to investigate your dispute (45 days in some cases) and five business days to notify you of the results.
You can get free credit reports
Sometimes, people turn to credit repair companies because they don’t know how to access their credit reports.
Everyone is entitled to one copy of their credit report annually from each credit reporting agency (Equifax, Experian, and Transunion), so you can get at least three free credit reports per year. Due to the pandemic, all three agencies will provide your credit report for free on a weekly basis throughout 2023.
You can request your reports via phone, mail, or online at AnnualCreditReport.com. This free resource allows you to view your report and look for errors without the help of a credit repair company.
They charge high fees
Credit repair can take months, even years, to see results. Fees add up when some companies charge upwards of $100 monthly for their services.
They may also try to sell other services to you, like credit monitoring and identity theft protection, which can be pricey and unnecessary.
These high fees can add more strain on people who are already struggling financially.
There are no guarantees
At the end of the day, the credit reporting bureaus have the final say on what’s included on your credit report. Although credit repair companies can dispute information on your behalf, there are no guarantees that negative items will get removed from your report.
There are also limitations to what can get removed — bankruptcies and late payments could stay on your report for years.
It’s not a long-term solution
Even if the credit repair company gets a negative item removed from your report, it may reappear again later if the credit bureaus deem it accurate.
These services also don’t address underlying financial issues or provide education on how credit and credit reports work. Without this understanding, improving and maintaining your credit can be difficult.
They aren’t always transparent
Many credit repair companies thrive on their lack of transparency.
Some may use unclear pricing structures and vague language when describing their services. They may even bury essential details in their terms and conditions, making it difficult for customers to determine cancellation policies, limitations on results, and possible risks.
Companies often make fantastical promises about their performances without providing verifiable information about their success rates.
There’s a risk of getting scammed
Although there are legitimate credit repair companies, many out there are scams. These operations target people with credit problems and falsely promise to remove negative information (even if it’s accurate) from their credit reports and improve their credit scores.
Many scammers use high-pressure sales tactics and demand payment upfront while providing little or no help to the consumers.
There’s a risk of identity theft
When using a credit repair company, you typically must provide personal information such as your Social Security number, date of birth, and financial account information. Unfortunately, this is prime information for identity thieves.
Even if a credit repair company isn’t an outright scam designed to steal your identity, there’s still a chance that they may not have adequate security measures in place to protect your sensitive information.
They may use illegal tactics
Some credit repair companies may resort to illegal methods to improve your credit score.
This could involve you applying for an Employer Identification Number (EIN) or using a stolen Social Security number. They will frame it as creating a new credit identity, but it’s actually against the law.
If you do this, it could jeopardize your financial standing and lead to fines or even prison.
Red flags to look for in a credit repair company
If you still want to use a credit repair company, there are signs to look for to tell whether it’s legitimate. Demanding payment upfront, not answering your questions, and providing incorrect information indicates that a company may be a scam or exploitative.
Because there are never guarantees with credit repair companies' strategies, also be wary of companies that promise to improve your credit or take off negative information on your report.
You have rights
There are laws like the Credit Repair Organization Act (CROA) that offer some protection against credit repair companies.
With CROA, a company has to provide the services promised before it can request or receive payment. It also requires the company to use written contracts and give customers some contract cancellation rights.
While this offers some protection to consumers, you should still stay vigilant when dealing with these companies.
There are better alternatives
As discussed earlier, disputing your credit reports’ errors yourself is a clear alternative to credit repair companies. However, there are other ways to improve your credit score.
Although it takes time and commitment, things like keeping credit card balances low and paying bills on time will help improve your score.
Another option is opening a secured card or becoming an authorized user on someone else’s account to build a positive credit history.
Credit repair companies are often touted as a solution for your credit problems, but in reality, it’s far more complicated. Many companies lack transparency and engage in deceptive practices. Despite what they may promise, there are no guarantees they will improve your credit score.
Educating yourself about your rights and the risks when using a credit repair company can help you decide the best route for you.
The credit repair industry may promise a quick fix, but the true path to financial fitness is a long process that requires time and commitment to your finances.
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