More than half of the credit or consumer reporting complaints sent to the Consumer Financial Protection Bureau last year were from errors on credit reports.
October 23, 2018 – By Ben Luthi
Credit repair companies can help you dispute errors on your credit reports, but they can’t do anything for you that you can’t do on your own. What’s more, credit repair scams are common and can leave you worse off than when you started.
What is Credit Repair?
The term “credit repair” is often misunderstood to mean any service that can help you improve a bad credit score. But the scope of credit repair services is actually a lot narrower than that.
More than half of the credit or consumer reporting complaints submitted to the Consumer Financial Protection Bureau in 2017 were about errors people found on their credit reports. An erroneous negative item on even one of your credit reports can do serious damage to your credit score. As such, it’s crucial that you spot and address inaccurate information as quickly as possible.
Credit repair services can only help consumers get inaccurate or unfair negative items removed from their credit reports. This means that if you actually missed a payment, allowed an account to go into collections or made some other credit misstep, credit repair can’t help you.
Credit repair services charge fees for things they do – including contacting creditors and disputing errors with the credit bureaus – that you can do on your own for free. While they likely know their way around the process better than you do, it may not be worth the cost. Here are some pricing examples from top credit repair companies:
- CreditRepair.com: $99.95 per month, plus $14.99 to obtain your credit reports.
- Lexington Law: $89.95, $109.95 or $129.95 per month.
- Sky Blue Credit Repair: $69 per month.
- Ovation Credit Repair: $89 or $114 first work fee, plus $99 per month.
Even with these fees, there’s no way for a credit repair service to guarantee that anything will be removed from your credit report. If the information is found to be correct after the review, it will remain on the credit report and continue to be scored accordingly, says Kevin Gallegos, vice president of new client enrollment and Phoenix operations at financial services company Freedom Financial Network.
If your situation is complicated or you’ve decided that the cost of credit repair is worth it despite the drawbacks, the most important thing you need to know is how to spot credit repair scams.
How to Spot and Avoid Credit Repair Scams
Scammers know people with bad credit may feel desperate about getting it fixed. They take advantage of that desperation by offering fake services that will only end up putting you in direr straits. Here are a few signs that can help you differentiate between a legitimate credit repair service and a scam.
- They ask for payment up front. Federal law prohibits credit repair companies from charging any fees before they’ve completed the work they’ve promised to you.
- The offer sounds too good to be true. Remember, credit repair services can only help you dispute inaccurate or unfair items on your credit reports. If they promise to help you get legitimate negative items removed or provide any other service they can’t legally perform, it’s a scam.
- They promise overnight results. Credit bureaus typically take 30 to 45 days to investigate disputes, so it’s highly unlikely that you’ll see your credit score improve more quickly than that.
- They won’t let you cancel. Federal law requires that credit repair companies allow you to cancel your agreement within three days of signing it. Some legitimate credit repair services give you even longer than that if you’re not satisfied.
- They don’t tell you your legal rights. Credit repair services are required by law to give you a written statement of your legal rights before you sign an agreement with them. If you notice that the company is in a hurry to get you to sign and skips this part of the process, that should be an automatic red flag.
- They offer a new identity. Credit repair scams may advertise a clean slate with an Employer Identification Number, known as an EIN, or a Credit Privacy Number, known as a CPN. They’ll instruct you to use your EIN or CPN on future credit applications instead of your Social Security number.
If you notice any of these signs, stop all communications with the company and report your experience to the attorney general’s office for your state and file a complaint with the Federal Trade Commission.
Steps to Repair Your Credit
Disputing erroneous information on your credit reports can take some time, but it’s well worth it, especially if you want to avoid credit repair scams or paying someone else to dispute errors for you. Here are the steps you can take to repair your credit on your own.
- Check your credit score frequently. Many major credit card issuers offer free credit score access to their cardholders. If you don’t have a credit card that provides this benefit, you can sign up for Discover Credit Scorecard even if you’re not a Discover customer.As you check your score regularly, watch out for sudden, large drops. If this happens and you don’t already know the reason, it could be due to an error on your credit report.
- Get a copy of your credit reports. Whether or not you see a dip in your credit score, it’s a good idea to review at least one of your credit reports every few months. You can get a free copy of each report at AnnualCreditReport.com once a year.As you review your credit report, keep your eyes open for anything that looks off, such as an account you don’t recognize or a late payment on an account you’ve always paid on time. Before you move on to the next step, though, make sure you aren’t the one who’s mistaken. A store credit card, for example, may show a third-party creditor instead of the retailer you know.
- Contact the creditor. If you’ve determined that there actually is an error, reach out to the creditor first to see if you can handle it without getting the credit bureaus involved.”Sometimes it’s a simple thing that maybe you’re showing late on a payment or something and you weren’t,” says Katie Ross, manager of education and development and housing at American Consumer Credit Counseling. “You can call the lender and ask them if they could reach out to the credit bureau and ask them to remove that.”
- File a dispute with the credit bureaus. If you have no luck with the creditor or you’ve had bad experiences with it in the past and don’t want a repeat, you can file a dispute with each of the credit bureaus. Credit bureaus usually take between 30 and 45 days to look into your request and send a response.Be as detailed as possible in your dispute to improve your chances of having the error removed. If you have information to prove that you didn’t make a late payment, for instance, provide documentation to that effect.
Other Ways to Improve Bad Credit
Whether or not you have incorrect information on your credit reports, credit repair may not be able to solve all your credit report problems.
“Disputing real errors that may be found on a credit report is only one part of truly improving a credit score,” says Gallegos. If you feel like you’re drowning in debt and it’s affecting your credit history, there are other ways to get your credit and life back on track. Keep in mind, though, that it can take time to get to where you want to be. Here are a few options.
- Debt consolidation.
If you have high-interest debt and can qualify for a loan or credit card with a lower rate either on your own or with a co-signer, consolidating your debt with a new loan or balance transfer credit card can help alleviate some of your problems.
If your credit isn’t good enough to qualify for a low rate and you can’t find a co-signer, some consolidation loans require you to put up an asset such as a home or car as collateral.
- Debt settlement.
Debt settlement companies can help you get out of debt by negotiating with your creditors to settle for less than what you owe. This process, however, can make your credit much worse before it helps it get better, and there’s no guarantee it will get better.
Debt settlement companies typically require you to pay into an account with them each month until you have enough money to settle your debts. If you’re not also making regular payments on your debts during that time, your accounts could end up delinquent or even in collections or litigation. Missing payments, even if it’s temporary until you can settle, can drop your credit score significantly. Settled accounts will typically remain on your credit report as settled for less than the full amount, and it will take up to seven years for the negative marks to go away. You’ll also pay fees for debt settlement.
- Debt management.
Credit counselors can help you set up a debt management plan to pay down your debt. Instead of paying your creditors directly, you’ll make one large payment to the credit counseling agency, which distributes payments to your creditors.
Costs may include a setup fee of about $40 and a monthly fee around $25. But even with fees, a debt management plan can help you save money by lowering your interest rates, says Ross. “Most agencies have a set interest rate with lenders that are lower than what you’re paying,” she adds, “so you’re making just one payment with a reduced interest rate.”The biggest drawback of using a debt management plan is that creditors can report to the credit bureaus that you are no longer paying as originally agreed. If you apply for a loan or credit card in the future, creditors may deny you based on that designation.
“However, if you’re making on-time payments as long as you’re in the program,” says Ross, “that also goes into consideration if a lender is considering giving you credit.”
Make Your Credit a Priority
Bad credit can make your life difficult in several ways. Not only can it make it hard to get approved for a loan or credit card, let alone one with a favorable interest rate, it can also increase your auto and homeowners insurance premiums.
Many employers and landlords also check your credit and may choose to pass on you as an employee or tenant if they don’t like what they see.
If you notice something is amiss with your credit score or reports, address it right away to prevent things from getting worse. But remember that there’s no quick fix. Gallegos compares the process to losing weight.
“It takes time to lose weight, and you must make a commitment to changing your diet and getting regular exercise to do so,” he says. “Likewise, on the credit front, improving your credit takes time and a commitment to responsible credit and spending behavior.”
That time, however, will be well spent.