The credit score is one of most important indicators of the credit health of a person. It is used by creditors and lenders to determine the level of risk of a person before they issue loans or other forms of credit. In the absence of a good credit score, people may find it hard to purchase a home, rent a house, get a credit card, or finance an auto, etc.
People with bad credit due to owed amount in collections, late payments, etc., can opt for credit repair to improve their credit score. It is possible to carry out credit repair on your own, or you can seek the services of a credit repair company. A good and legitimate credit repair firm will act on your behalf and offer you counseling with regards to determination and workings of the credit score. They can also help improve your credit score via different means like taking to credit bureaus to take out negative markings, negotiating with lenders to lower interest rates, debt, etc, and resolve other problems that adversely impact your credit score.
It is however important for consumers to know that there are many credit repair frauds and scams. Some firms may demand money before doing any credit repair work for you, while other companies may engage in unethical practices like disputing actually true data on the credit report, while some others may ask you to provide false information. One major scam that all need to be aware of is the promise of a ‘new credit identity.
The good thing is that credit repair companies are regulated by the CROA/Credit Repair Organization Act. This law mandates the companies to engage in certain practices such as informing clients of their rights, the complete cost of offered services beforehand, and a period of 72 hours to consumers for cancellation of the contract. Other options present within the law in case the firms do not fulfill their promises, include seeking punitive damages, suing in federal court, and joining a class action lawsuit against the credit repair company.
What kind of work is done by credit repair companies?
Legally credit repair firms do not have any power to do stuff that individuals cannot do on their own. The companies however can be of great help to those who are overcome in the process of fixing their credit on their own. Some of the reasons why consumers may seek the services of a credit repair company include changing credit accounts that are incorrectly merged and belong to somebody else, removal of fraudulent accounts from the credit report, and amendment of misreported bankruptcy accounts, etc.
Credit repair companies that are legitimate help customers in numerous ways such as identify data that is harmful to the client; review the credit report of the consumer; ascertain whether any information is false or derogatory by getting documents from customers; and conducting interviews with consumers, etc.
Later, they generally prepare a letter disputing erroneous information on the credit report and send it to the credit agencies. These letters specifically identify the mistakes, provide a summary of the reasons why such reporting is misleading or false, and lay out what should instead be present on the credit report.
The letter of dispute is used by credit companies as one of means to enhance the credit score of consumers. They also carry out other activities to fix the credit of the consumers as per their credit problems and distinctive financial situations.
Listed below are some of the steps that legitimate credit repair companies may take to repair the clients’ credit score:
- Credit repair firms may carry out negotiations on your behalf with your creditors
- They may assist consumers in getting a copy of their credit report from Experian, TransUnion, and Equifax, the 3 main credit reporting bureaus. They will peruse your credit report to ascertain the kind of issues that exist and the best ways to correct them.
- They may perform an analysis of your credit report and provide specific help at set intervals for improvement of the credit score.
- They may help consumers in use of different consumer protection federal laws to safeguard their credit and their finances from unfair practices of debt collection.
- They may help fix and amend erroneous credit limits of consumers which can distort or raise the credit utilization ratio and damage the credit score.
- Credit repair companies may dispute any and all data on the credit report that consumers think to be inaccurate, with the primary target being the complete removal of all negative information.
What kind of work is not done by credit repair companies?
Some of the limitations of credit repair companies are mentioned below:
- They cannot remove correct information present in the credit report, even if consumers pay them for its removal: Credit repair firms can work towards removal of erroneous negative information from the credit report, but they can’t remove correct negative data from the report. Since, the companies are governed by the CROA, they also can’t offer any promises of having such accurate information removed from the credit reports.
- They can’t do anything that consumers cannot do themselves: Credit repair firms work with the credit bureaus and the creditors of consumers for removal of negative information, but these steps can also be taken by consumers themselves and they do not have to pay the credit repair agencies. People can also talk and negotiate with their creditors and other lenders. It is a not a legal requirement for consumers to seek the services of credit repair companies for any activities involving credit repair.
- Credit repair firms may not provide advice on money management or budgeting: The main goal of the services offered by credit repair companies is repair of consumers’ credit and getting them out of overwhelming debt. They do not provide services that are offered by credit counseling firms which offer wholesome strategy to resolution of credit and money issues of clients, with main focus on better money management, creation of a budget, and decreasing expenses.
- It may however be noted that unlike credit repair companies, such credit counseling agencies do not help correct negative information on the credit report or enhance the credit score.
One of the most important things to remember is the fact that credit repair can work towards improvement of your credit score only when you work with the credit repair company to carry out relevant changes like timely payment of bills, paying down all debt, etc. The same is the case when you carry out credit repair on your own.