How Does Credit Repair Work?
A poor credit score is something no one is proud of. Still, even the best of us can end up struggling with it, but rather than wallow, we should work to repair it. After all, having a good credit score opens many doors. While you can work on the repair yourself, the process can be pretty time-consuming, so outsourcing this task could also be an excellent solution.
“What is credit repair?” and “How does credit repair work?” are just some of the questions you might ask yourself if you spot an imperfection in your credit report, so we’ll begin from there.
What Is Credit Repair?
Credit repair is the process of fixing a bad credit score by disputing the negative information on it. This could be anything from late payments, foreclosure charge-offs, and bankruptcy. Credit repair is practically mandatory if you have such credit report blemishes. In some severe situations, say, a case of identity theft, your credit score could be damaged beyond repair.
As a rule, negative credit score information can do a lot of damage if left unattended, making it even harder to repair your credit later. A bad credit score is usually the reason for being denied a credit card or loan. Essentially, you would either be straight out refused for anything you would like to buy on credit, or get horrible rates - bad credit deals are a far cry from those you could get with a better report.
Thankfully, many credit imperfections are the result of scoring mistakes, and those can be removed. However, that is a time-consuming process that doesn’t necessarily work. Waiting things out is also an option, as negative information will leave your credit report after some of the items reach their expiration date.
So, if you want to learn how to fix your credit, it would be best to familiarize yourself with the disputing process. Of course, while you do that, you’ll also need to stack up positive items on your credit report to negate the negative ones. The latter part is most commonly known as credit score building.
How Does Repairing Your Credit Work?
Removing negative information from your credit report requires you to dispute it with the credit bureaus. The companies providing this service are becoming synonymous with credit repair, saving their customers vast amounts of time.
This stands true if you have more than one item to dispute, for identity theft, a mixup in credit reports, and other serious issues that could create a massive mess out of your credit report.
How Does a Credit-Repair Company Work?
All of these companies operate in the same manner, by advocating on consumer’s behalf to credit reporting agencies. They take care of the back-and-forth communication with the credit bureau in question, so you don’t have to, as well. The goal is always the same - getting negative information removed from your credit report.
Still, you want to be careful with hiring a firm for credit repair. The fees that they occasionally charge can be a bit too high for something you can do yourself, so make sure to research various credit repair services carefully first.
After all, the Fair Credit Reporting Act (FCRA) allows everyone to dispute information on their credit score and remove it for free. According to this act, the bureaus have 30 days to respond to these disputes and remove the contested information. However, on some occasions, credit bureaus might consider the dispute to be “frivolous,” about which they are obligated to inform you within five days of your request.
However, if you have to dispute more than one item on your score, or you’re too overwhelmed by the bureaucracy you’d have to go through, a credit-repair company is your best bet. Unfortunately, scammers in credit-repair clothing still exist, too. You need to make sure the company you are going with is a solution rather than an even bigger problem. We’ll outline how to do that below.
The first stop is usually checking a particular company’s online ratings, particularly at the Better Business Bureau. Then, check if a company has any complaints with the Consumer Financial Protection Bureau; any issues count as a red flag for you to steer clear. Once you narrow down your list to a couple of legitimate credit restoration providers, it’s time to check for the following signs of a scam:
- The company asks for money upfront.
- The company claims to be able to dispute correct information.
- The company encourages falsifying your information.
- The company discourages you from taking steps to do the repairs yourself.
Each of these could be an indicator that the agency you’re looking to deal with is far from legitimate. All lawful credit-repair companies adhere to the Credit Repair Organizations Act. Let’s see what that is.
The Credit Repair Organizations Act (CROA)
CROA is the act that defines what a credit repair company is and what it can and cannot do within the confines of the law.
Some of the essential practices that companies must follow under CROA include advising customers to remove false information themselves. Companies must not instruct customers to make false statements to credit reporting agencies or change their identity to avoid being associated with their credit information by the credit reporting agencies. If a company violates CROA, the client is eligible to sue.
Another thing a CROA-abiding credit repair agency must not do is guarantee results; there is really no such thing as fast credit repair, so if your selected company claims to be able to get that done, you might be better off attempting to fix your credit yourself.
Credit Repair Costs
The fees for repairing your credit score may vary. These companies typically operate on either a subscription model or by charging you per item successfully removed from your credit score.
If you go with a subscription model, you can expect your monthly payment to be somewhere between $30 and $150. On the other hand, one-time fixes cost anywhere from $35 to $750 on some occasions. As usual, the best option is to learn the prices in advance.
How to Repair Credit Imperfections Yourself
Considering that companies working on credit repair cannot legally do anything you can’t do yourself, there is always the option of taking matters into your own hands.
In that case, your first step would be to review your credit reports. This is something you should do regularly anyway, to keep track of your credit score and the early signs of identity theft. Suppose you see anything strange: For example, hard checks for loans you didn’t apply for or expenses you did not authorize. In that case, it’s time to look into doing some credit repair. How does it work, though?
Under section 611 of the FCRA, you have the right to dispute inaccurate information with your credit reporting agency. To do that, you need to submit an online dispute form with one of the three credit reporting agencies - Experian, Equifax, and TransUnion. All three are required to investigate each dispute and decide on it within 30 days.
Rebuild Your Credit Score Instead of Repairing It
Don’t expect dispute requests to result in miracles, though. The best long-term way to good credit standing is to work on building your credit score.
Basically, building your credit is the best credit repair route and, unlike other options, will undoubtedly yield the desired results. The problem with credit rebuilding is that it takes both time and money. You should start by paying off your loans or taking up another line of credit, but only to keep your credit utilization rate under 30%. Of course, the most significant factor will be staying on track with any loan repayments and regularly checking your credit reports.
All in All
We hope we answered the question, “How does credit repair work?” The credit repair process is sometimes necessary. Whether you will undertake it yourself or hire a credit repair agency to do it for you depends on how much money you have to spare and how many mistakes there are to fix. Whatever you choose, improving your credit score is a must. A good credit score is always handy, but you need it to be as high as possible to get the best possible deal on emergency loans, for example.
In essence, the credit repair agency might send creditors requests to validate the information on your credit reports, dispute erroneous negative marks, or send cease-and-desist letters to debt collectors.
Ultimately, such agencies do not have any more power than you do to dispute credit report items. They can just dedicate as much time as needed to go back and forth with the credit bureaus until things are sorted out. You would essentially be paying them to do the legwork.
These companies can help but just to a certain extent. They can mainly save you the time you need to figure out what can be done and what cannot.
That depends on the amount of time and effort you are willing to dedicate. Based on the kind of information you have on your credit score, it will be a choice between taking care of things yourself or hiring someone else. If you have a lot of information to dispute and no time on your hands, you should consider paying someone to handle it for you.
If your first question was, “How does credit repair work?” check out our guide and see for yourself if fixing your credit is something you could handle on your own. Keep in mind, though, that no one can remove accurate damaging credit report information - you can only dispute and remove inaccurate items.
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.
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