How do credit repair companies work?

The main purpose of credit repair companies is to get rid of the negative information from your credit report. This is done at an agreed-upon fee. But there are also some steps that you can take to repair your credit at no extra cost.

Due to one reason or another, a large number of consumers today tend to have a poor credit score. If you are among this group, then you might have struggled to get approved for short term loans, personal loans for bad credit or even rent an apartment.

To make you more attractive to lenders, landlords, and other concerned parties, credit repair companies can offer advice on how you can improve your credit in exchange for an amount which is usually paid as the service fee. The companies will review the information in your no credit check loans report and if there is any negative item, they will address it with the bad credit home loan reporting agencies on your behalf.

Handling these issues on your own is easy. At least that is what most short term loans counselors believe. You don’t have to incur any costs by letting someone else sort out the issue on your behalf. In this article, we are going to provide detailed information on how credit repair companies work and the reason why you should go for credit counseling before deciding to work with the companies.

What is a credit repair company?

Generally, credit repair companies are organizations that assist consumers to improve their credit scores at a fee.  A credit repair company can claim to ‘handle all the heavy lifting’ of sorting the negative issues in your credit report with the credit reporting agencies. 

There is a difference between credit repair companies and credit counseling agencies. The latter is basically a free resource that reviews a consumer’s finances, debts, and credit with the main of providing education on how to manage your finances and improve your financial situation.

The credit repair industry is prone to scam.  To avoid being a victim to these scammers, the Federal Trade Commission advises that you do prior research on the credit repair company that you intend to work with before getting into the deal.

Tips to verify a credit repair company

There are different strategies you can use to confirm whether a car loan for bad credit is legit. These include the following;

  •       Reading the company’s reviews on the Better Business Bureau website
  •       Searching whether there are any complaints raised against the company on the Consumer Financial Protection Bureau website
  •       Searching for past client reviews in additional review sites

Beware of companies that seem to be too good to be true. For instance, pay close attention to credit repair companies that claim to;

  •       Remove the negative entries in your credit report
  •       Requests for upfront fees before offering their services
  •       Guarantee an improved credit score
  •       Create a new credit entity for you

Again, it is highly recommended that you first consult a credit counselor before getting services from personal loans for bad credit repair companies. Through credit counseling, you can have an idea of all the information in your credit report and get tips on how to improve your credit score as well as your financial situation in the long term.

How credit repair companies work

When you seek the services of a credit repair company, you will be requested to provide copies of your credit reports from the major credit bureaus Equifax, Experian and Transunion. The company then reviews the credit reports to look for derogatory information like;

  •       Tax liens
  •       Bankruptcies
  •       Charge-offs

After this, the company sets a plan for disputing any form of errors in the credit reports and can even go the extent of negotiating with your creditors to remove the negative information that is pulling your score down. 

Since applying for new credit accounts can also add positive information on your credit reports, the company may advise you to do so. But you should also be cautious when doing this. If you have faced challenges managing your debts before, a new credit account can also be tricky to manage. Besides, taking up more debts is not always the best option especially if you do not need the funds at the moment.

How much do credit repair services cost?

The total amount that you have to pay the credit repair company varies depending on the company you seek the services from. However, there are some rules that these companies have to follow when it comes to fee charges.

For instance, the company should not request for any payments before delivering on their promise.  Some of these companies charge a one-time flat fee. Others may require you to pay for every derogatory mark that is removed from your credit reports.

This amount can range from $35 to $750 per deletion. You may also be charged by the month, amounts ranging from $50 to $130. Another cost that you may have to part with is the setup fees or charges for gaining access to your credit reports.

So do you really need to seek the services of credit repair companies?

If your credit reports only have one to two negative entries, it is better to dispute any error on the reports by yourself or pay down the debt relief that is bringing your score down. Doing this on your own will be more economical, and you can even use the money that would otherwise be paid the credit repair company to reduce those debts.

How long does credit repair take?

Once they receive your dispute, the three major credit bureaus have 30 days to investigate the claims and respond accordingly.  Typically, the bureaus will first communicate with the company that issued this information and ask them to investigate.

Once the investigation is complete, the bureaus will send you the results within five days.  There are instances where this dispute is determined as ‘frivolous’. In this case, the dispute may not be investigated, but the bureaus will still communicate to you within five days.

Repairing credit on your own

There are different ways that you can use to improve your credit score even without inviting the services of credit repair companies.  These include the following

  •       Always review your credit reports to confirm if there are errors
  •       If you notice any incorrect information, file a dispute with the no credit check instant loans reporting agency that published the information
  •       Take the necessary steps to ensure that your credit improves in the long run.

Important things to watch out for

Financial experts advise consumers to take extreme caution when hiring a credit repair company. In 2016, the CFPB issued a notice claiming that half of the complaints they received about credit repair were connected to scams and fraud.

Even if you find a reputable company to work with, it doesn’t mean that the services they offer will work for your situation.  And besides, you can even save more money if you decide to dispute inaccurate information on your credit reports by yourself.

According to the Credit Repair Organization Act, it is against the law for these companies to give false information about the kind of services they offer. 

If you feel that you might be scammed, or if you have any issue concerning a specific credit repair company, send these complaints to the Consumer Financial Protection Bureau. There are a number of requirements under CROA that credit repair companies have to meet. These include;

  •       The companies should provide a written contract which explains your legal rights and the types of services that they offer
  •       They should allow you to cancel this contract within 3 days with no charges
  •       They should fulfill their promise before you are charged any fees

If the credit repair company you intend to work with does not respond to your questions, asks for upfront payments or fail to include their services in the contract, it is a clear indication that they are up to some mischief.

The bottom line

Before hiring a credit repair company, ensure that you first consider the warning signs to avoid any potential case of fraud. If possible, go for credit counselling first. Eventually, you will be able to rebuild your credit and put your financial status back in order-all by yourself.