One of the first major milestones in anyone’s finances is the moment when they first obtain a credit card. This begins the process of building a credit score that will empower you to purchase major items like a car, a house, and plenty more. Of course, in some cases, credit can quickly go downhill. Whether it’s a lack of knowledge about how everything works or a life crisis, bad credit can quickly become an issue.
In situations like these, it’s easy to assume that you’re finished and there’s nothing you can do. That’s not the case. In fact, credit repair agencies exist to help you through tough times like these. While you can try to repair your credit yourself, it’s not recommended that you DIY your credit repair. Let’s take a look at how credit repair works, and which companies are right for you.
Do Credit Repair Agencies Really Work?
The source of bad credit, and ultimately a low score, comes from negative items on your credit report. This report comes from one of three credit bureaus: Equifax, TransUnion, and Experian. These organizations use data furnishers to gather information about how you handle credit and repay your debts.
They take this information and use it to compile a report that they can sell to credit card companies, banks, and so on. Since the means of gathering information differs between each bureau, you’ll get slightly different reports from each organization.
As a result, there’s an increased chance of incorrect items on these reports. This wouldn’t be too much of an issue, but these errors can easily cause your credit score to drop. What’s worse, is that these negative items will stick around for at least seven years! All the while, they’re causing you problems. Even if you could get that loan or card you need, the interest rates will be higher as a result of your score.
As you know, a low credit score prevents you from getting new loans, credit cards, or even jobs in some cases. For people who are affected by bad credit or errors on their reports, credit repair is the answer. What’s fortunate, is that credit repair companies are completely legal and utilize current laws that protect you from errors on your report.
These laws are done at both a state and federal level. Businesses that grant credit cards must follow these laws, and if there are any items on your report that violate them, the company must ensure they are removed. Let’s take a look at the laws these services use to protect you from unfair credit scores and false items on your report:
1. The Truth in Lending Act
This first law is meant to ensure that customers understand what they are agreeing to when they undergo a credit transaction. Among other things, it requires companies to make their exact credit terms available and it also requires them to follow certain regulations in their advertising.
As part of this law, companies are required to include monthly finance charges, annual interest rates, due dates for payments, sale prices, and how late charges are processed and what they entail.
2. The Fair Credit Billing Act
This law was created to regulate the billing errors that may appear on credit accounts. The customer is required to notify the credit provider within 60 days of incorrect charges. The company must then respond within 30 days. During this time, they are required to perform an investigation into the issue. Once they have results, they must correct the error or explain why it’s accurate within 90 days.
If the creditor does not follow these requirements, a $50 credit towards the bill will be applied, regardless of whether it was accurate or not. They cannot report the disputed amount to credit bureaus until the situation is resolved.
3. The Equal Credit Opportunity Act
Under this law, credit companies are not allowed to discriminate among their applicants based on race, color, origin, age, sex, or marital status. The only basis they have for denying credit are findings based on earnings, savings, and their credit record. While there is an aspect of this law that prohibits age discrimination, credit companies can refuse credit to someone who is underage.
4. The Fair Credit Reporting Act
This law is directed primarily at credit reporting agencies. It helps consumers protect themselves es from incomplete or misleading information on credit reports. As part of the law, consumers have the right to receive a copy of their credit reports and challenge or dispute any inaccurate information on it.
This is one of the primary laws that credit repair agencies use to help people improve their credit.
5. The Fair Debt Collection Practices Act
This law prohibits methods by third-party debt collectors that are considered abusive. Some of these practices include speaking to someone besides the debtor about the situation, repeatedly calling them, collecting amounts that aren’t due, and intentionally reporting inaccurate amounts to credit bureaus.
Because these laws exist, credit repair service actually work. They are composed of people who know these laws extremely well and can leverage them to help you get inaccurate, unfair, or unsubstantiated items removed from your credit report. By targeting the proper items and providing the right supporting documents, you can actually get items removed.
Doing this does improve your credit score, but it’s important to note that there’s no way to say how quickly or how effectively credit repair will impact your score. It will, at some point, but the specifics are impossible to predict.
In short, if your credit is poor, you can absolutely benefit from credit repair. That being said, not every company is credit equal. Let’s take a look at some of the warning signs of a bad company, and how to avoid choosing one for your credit repair.
How to Avoid Fake Credit Repair Services
You’ve probably heard or seen credit repair commercials that promise to significantly improve your score or “fix” your credit in miraculous ways. These are often promises that cannot be made legally, which is why it’s important to understand the warning signs of an illegitimate company.
Sadly, some credit repair companies will prey on people who are desperate for a fix to their situation. Since a credit score provides a quick look at the financial responsibility of a person, this number is incredibly important to people everywhere.
A low credit score means higher interest rates, deposits on apartments and utilities, and more difficulty when making any kind of payments. The companies you should avoid, are the ones that promise to miraculously change your score, or promise a specific increase within a specific amount of time.
In some situations, these illegitimate companies will also steal a person’s identity, which only makes things worse for the person trying to fix their credit. The reason why people fall for things like this is simple: credit scores are incredibly complicated.
Hundreds of factors are used to decide which data is given to Credit Reporting Agencies. There’s also different scores based on what you’re applying for. The score can even differ between various lenders for the same amounts.
For example, one agency can give you a score of 790, but another can just as easily assign you a score of 750 or less. When you boil it all down, there are two primary scoring systems. These are divided into hundreds of smaller variations.
The most well-known system is FICO which was developed by Fair Isaac Corp. This was the first scoring setup that was developed especially for banks and came into the mainstream in 1989. The other system is VantageScore 3.0. This was developed by the three credit bureaus as a way to compete with the FICO score.
Your score can change constantly, but it’s used by the bureaus to generate reports when lenders request your information. When you’re searching for a credit repair company, remember that these are the things a service cannot legally do:
- They cannot ask for money before performing their services
- They are not allowed to make false statements about your credit history or ask you to do so
- Make any changes to your identity such as your social security number, your employer identification number, and other means of establishing new credit history
- They cannot misrepresent the services they provide
- They must give you a disclosure statement called “consumer credit file rights under state and federal law”
- You must be informed that you can get a free credit report from all three bureaus each year at this web site
- They must also inform you that you have the right to dispute any inaccurate information without their help
- You have the right to file a lawsuit against a credit repair organization if they violate any elements of the CROA law, and you will be entitled to damages and attorney’s fees for violations
- You cannot be charged for canceling a contract within the first three days
- Before any services are performed, you must be given a written contract to sign
- The contract must include the amount of payment required, a description of services, an estimate of time to perform said services, a form to provide notice of cancellation, and there should be no waiver to waive your rights under the CROA law
Now that we know exactly what a credit repair service is required to do, let’s turn the tables and look at some warning signs:
- They will claim to increase your credit scores, but there are no specifics
- You won’t get a copy of the contract prior to signing it
- They do not tell you that you can DIY your credit repair and obtain the reports yourself
- They promise you a fresh start and a new identity
- They promise to remove negative, but accurate information, from your report
- They demand money upfront before work begins
- There’s no notification that you can cancel within three days
- No date is provided by which services will be performed
- You’re not told how much you will be charged
How Do Credit Repair Agencies Raise Credit Scores?
Credit repair works because it targets the items on your credit report that shouldn’t be there. These can appear in the form of late payments, bankruptcies, debt collection, and more. While some of these things may be accurate, some of them could be mistakes.
While credit repair cannot legally remove items that are accurate, it can remove the ones that are not. Let’s say for example that you had a credit card account that was bought and sold to several different debt collectors. Your credit report may show it more than one time as a result of this, but that’s not correct.
Those duplicate items will continue to drag down your credit score until they are removed. Now, you can wait seven years for them to disappear on their own, or you can dispute them and repair those aspects of your credit. That’s where these services come in.
Credit repair begins by looking at your report and seeking out any mistakes in the items that are displayed on it. This first step is crucial, and attention to detail is key. If you don’t have a strong basis of knowledge for how credit reports work and what the credit laws incorporate, then you may easily miss opportunities to improve your score.
Credit restoration services are composed of experienced professionals and attorneys who can look at a credit report and take apart, piece-by-piece. This will reveal any incorrect entries and afford you the opportunity to dispute them.
Once the false entries have been identified, your representatives will help you draft a dispute that showcases why the entry should be removed. This will incorporate supporting documents like statements and payment information. When and how to use these pieces of evidence is extremely important.
Your credit repair representatives will advise which documents are needed for the best possible outcome. The credit bureaus or creditors have 30-days to respond to your inquiry, which is why it’s extremely important that the disputes are well-organized so you don’t waste time.
As items are removed from your report, your credit score is going to be affected. While there’s no specific timeline, credit scores are extremely dynamic in the sense that removing these negative items will have a ripple effect.
For most people, roughly six months of credit repair will be enough to see changes in their credit score. Of course, all of this is dependent on how successful the disputes are, and how many items are potentially removed.
The biggest takeaway here is that credit repair is different for everyone. Credit repair agencies work hard to make every person’s experience the best it can be, but patience is key in situations like this. Being able to remove negative items from your report that are unfair or inaccurate is a right given to you by credit laws, so why not take advantage of it?
Many credit repair companies offer risk-free consultations and never charge you for canceling the service. If you’re suffering from poor credit and you score is being dragged down, don’t let it stay that way. Use the tools and the rights given to you, to remove the unfair and unsubstantiated items from your credit report.
With these items gone, you will absolutely see an increase in your score. If you’re trying to decide which credit repair service is right for you, check out our numerous credit repair company reviews for more recommendations and insight into how these companies work.
Thanks for reading, and best of luck to you in your journey to better credit, better finances, and a better quality of life overall.