Having a good credit score and report is increasingly becoming an important part of life. Not only do banks and financial institutions use that information to extend credit to you, but employers, landlords, and even cell phone providers look at your credit report. Having a poor credit report can make it difficult to get credit, rent a home, or even get a cell phone. For individuals who have poor credit or who suspect items on their report are wrong, or who have been victims of identity theft, there are a number of credit repair companies promising to be able to repair your credit.
According to Randy Padawer of Credit.com, “credit repair leverages your right to three standards: credit reports must be 100% accurate, entirely fair, and fully substantiated.”
Removing negative or inaccurate information is one of the quickest ways to improve your credit score.
What is a Credit Repair Company?
A credit repair company is hired to help increase an individual’s credit score by taking a number of steps. A credit repair agency will try to address the items that are incorrect on your credit report to try to increase your credit score. Credit repair may include addressing instances of delinquency such as collections, charge-offs, and late payments.
Credit repair can also include disputing mistakes on the credit report, disputing accounts that the borrower did not open, or disputing instances of identity theft. Many credit repair companies will even help individuals focus on budgeting and other financial issues to help get them on sound financial footing.
What Do Credit Repair Companies Do?
Repairing one’s credit takes time and effort and if you’re looking to hire an
expert help it will cost money. Credit repair usually involves the below steps:
1. Pull your reports – When you hire a credit repair company they will pull your credit from all three major credit bureaus: Equifax, TransUnion, and Experian. It is important to have them review all three because some creditors and collection agencies do not report to every bureau. Therefore there could be one bureau that shows major issues on their report while the other two may be okay.
2. Analyze – The credit repair company will then analyze your reports and give you an outline of what items they believe they can help with to improve your credit.
3. Dispute – Once you have a game plan, the credit repair agency will start to dispute items on your credit reports. The great thing about having the credit agency do this is that they are already familiar with the processes and procedures required to remove items from your reports.
4. Settle – The credit repair company will also attempt to settle any collections or charge-offs that you need to address on your credit report. Many agencies will also write cease and desist letters on your behalf to your debt collectors.
5. Repeat and plan – The credit repair agency will then repeat the process with all the items that are in dispute with each of the bureaus. Some credit repair companies will help you plan to improve your financial footing and improve your credit score generally, even if it has nothing to do with errors on your report.
What is the Cost? How Long Does Credit Repair Take?
It takes time and money when using a credit repair specialist. The cost for many of these services vary. Some companies charge a monthly fee in which it usually takes anywhere from 4 to 12 months to increase your credit score. Those monthly fees may range from $60 to over $100 a month. It normally takes between $500 and $1,000 to go through the whole process. In rare cases, it can cost more. Other credit repair specialists charge per item that you would like to be changed on your credit report.
Disputes also take time. Once the agency disputes a charge, it can take up to 30 days for a response from the bureau.
By law, credit bureaus must render a decision on a disputed account or charge on your report within 30 days.
It takes some time for the credit agency to craft a dispute and process it themselves before they send it to the credit reporting agency, so it can take more than 30 days in some cases for items to be removed. It can be worth the wait – removing inaccurate information is one of the quickest ways to improve your credit score.
Can You Do it On Your Own?
Many of the major credit bureaus offer information about how to dispute items on your credit report. You can use this to educate yourself on how credit bureaus collect and process information. There is a plethora of information on how you can remove items from your credit report. Even Experian offers information on how you can improve your credit. It is possible to do the work that credit repair agencies do on your own, but it would require a great deal of time and effort on your part. It is similar to the idea of deciding to do your own plumbing or electrical work, or representing yourself in a legal issue. You can do it yourself, but it requires time and effort with a major learning curve.
The great thing about using credit repair agencies is that they have experience dealing with the three large credit bureaus.
They truly understand what it takes to improve your credit score. Many of them even have lawyers to work on your behalf if there are issues that require legal expertise.
If you have poor to okay credit, you may want to consider using a credit repair agency, especially if you’re looking to make a big purchase in the near future. For example, if you plan to purchase a house, it might be worth it.
For example, let’s say you spend $600 over 6 months to improve your credit score. If your improved score knocks off one percentage point from your home mortgage, it is definitely worth the cost. A $200,000 mortgage over 30 years at 5% has an approximate payment of $1,070 a month and a lifetime cost of approximately $385,000.
However, if you improved your credit score and it knocked you down a tier to 4%, that mortgage will cost you approximately $950 a month and a lifetime cost of approximately $340,000. In this example, you start saving money in the seventh month by just improving your credit score enough to get you into a better interest rate on your home.
How to Compare Credit Repair Agencies
There are many companies that offer credit repair services. You should also be aware of various scams. Be careful about which company you decide to hire. The Federal Trade Commission (FTC) has guidelines on how to spot a scam. By law, a credit repair agency needs to give you a detailed contract on what services they’re providing and they should not request money upfront before services are rendered. You should also be able to cancel their services within three days without any penalty. Credit repair agencies generally review your rights with you and a big red flag is if a credit repair agency asks you to submit fraudulent information or claims to any of the credit bureaus.
Be wary of promises such as a guarantee to increase your credit score by 100 points. This is a promise that credit repair agencies cannot keep.
“It’s important to know there’s no magic pill that credit repair companies can give you to fix your credit,” says Carolyn Warren, author of “Repair Your Credit Like the Pros.” (Link). That being said, they can be worth it if you need their service. We suggest that you first pull your credit reports yourself.
You can access those at Annualcreditreport.com. Take a look at the report yourself to see if there are items you know are wrong, open accounts that you didn’t open, or derogatory tradelines that you believe are incorrect. If there are only one or two items, you should definitely do the leg work and repair the credit yourself. If there are many more issues that need to be addressed, a credit repair company can be a great value and help you get your finances on track.