Do Credit Repair Companies Actually Work?

Discover the mechanism of credit repair services. Get tips on identifying if a company's claims are too good to be true.

Credit repair can be a lengthy and taxing process. Doing it on your own can take its toll on you.

If you are aware of this, you might've considered a credit repair company. However, it's hard to distinguish between genuine companies and scammers.

In this guide, learn how to choose the best company and whether a company is worth it at all. Also, become familiar with the process, and all you need to do it on your own.

What are Credit Repair Companies?

Credit repair companies help consumers and businesses remove inaccurate or fraudulent information from their credit reports. They can be an organization, application, or software.

These companies file dispute letters with the three major credit bureaus (Equifax, Experian, and TransUnion) on your behalf.

They can help you improve your credit score by eliminating derogatory marks from your report. Marks such as items in collection, late payments, or bankruptcies.

Do Credit Repair Companies Work?

The short answer is yes. Credit repair companies can help you improve your credit score. However, they have a mixed reputation, and the industry is rife with scams.

Here's how to separate fact from fiction and find a credit repair company you can trust.

How Credit Repair Works

Let's look at a quick overview of the credit repair process.

Whether you choose to hire a company or do it yourself, the process will be exactly the same.

Step 1: Information Gathering
The first step is to acquire your credit reports. You may have to do this yourself even if you hire a company. Alternatively, the company may do it for you.

You can access your credit reports for free, by law, once per year by visiting Annual Credit Report.

Step 2: Reviewing Information
The next step is to go through your credit report to find and mark information you believe to be inaccurate or fraudulent. This includes your personal information, past addresses, payment history, borrowing history, hard inquiries, and items in collections.

Common Errors in Credit Reports

Step 3: Filing Dispute Letters
Finally, you or the credit repair company will submit written dispute letters to the appropriate credit bureaus. These letters request that inaccurate information be removed from your report and state the reason(s) why.^[1]

According to the Fair Credit Reporting Act, credit bureaus have 30 days from the date your letter is received to respond. If they do not reply within 30 days, the information you disputed will automatically be removed.^[2]

How Fast Do Credit Repair Companies Work?

The credit repair process can take anywhere from one month to a year. This stays the same whether you hire a credit repair company or choose to DIY. The entire process is dependent on how long the credit bureaus take to respond.

Understanding Your Rights

When it comes to credit repair, there are two applicable pieces of legislation you should be aware of. That way, you can fully understand your rights as a consumer.

1. Fair Credit Reporting Act (FCRA): Requires (among other things) credit bureaus to investigate consumer disputes regarding their credit reports. The FCRA mandates that credit bureaus correct, delete, or verify any information disputed by consumers within 30 days of receiving a claim.
   
2. Credit Repair Organizations Act (CROA): Forbids credit repair companies from demanding upfront payment and making "untrue or misleading" statements about their services. It also requires all credit repair contracts to be in writing and cancelable at any time at the request of the consumer.

How to Identify Credit Repair Scams: 5 Signs

Many credit repair companies advertised today can be accurately described as a scam. As a result, it's important that you know some of the red flags.

• They don't provide you with a Consumer Credit File Rights Under State and Federal Law document.
  
• The company has a bad reputation with the Better Business Bureau and Consumer Finance Protection Bureau.
  
• A significant number of Google reviews are negative and suggest the company is a scam.
  
• They overpromise, such as offering to raise your credit score by an exact number (this is illegal under the CROA).
  
• They offer to create a new identity for you (this is also illegal).

Beware of Credit Repair 'Jamming'

Some credit repair companies may participate in the technically legal (but deceptive) practice of "jamming" credit bureaus.

This is when a credit repair company will send an unmanageable number of dispute letters to the credit bureaus. They know that the bureaus will be unable to respond in time to every request.

In the short run, this will cause negative items to be removed from your report and increase your score. However, any accurate information will reappear in a month—leaving you with the same credit score as before. Ultimately, costing you however many hundreds of dollars you paid to the company.

How to Tell if a Credit Repair Company is Legit

While there are scams out there, many other businesses in the credit repair industry are legitimate. They are genuine and can help you improve your credit score and gain financial knowledge.

Here are some positive signs to look for in a credit repair company:

• They don't charge until six months after service completion.
  
• They provide pricing and process transparency.
  
• They give additional bonus services like free consultations, legal advice, and credit monitoring apps.
  
• They have good reviews on Google, Trustpilot, and the Better Business Bureau (BBB).

What the Experts Say

CreditDonkey asked a panel of industry experts to answer readers' most pressing questions. Here's what they said:

The Bottom Line: Is It Worth Paying Someone to Fix Your Credit?

Remember that credit repair companies do everything that you can do on your own. Then again, there is nothing technically stopping you from changing your car oil or making a pizza at home.

Choosing to use a credit repair company is the same. If you have the extra cash and prefer the convenience of outsourcing credit repair to professionals(and make sure you deal with a reputable company), then it is worth paying.

Before choosing a credit repair company, do your homework.

References