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How Do Credit Repair Companies Work
By Bianca Rodriguez Rojas MONEY RESEARCH COLLECTIVE
Credit repair companies help individuals remove incorrect or inaccurate information from their credit reports.
When you have a low credit score, it can affect your ability to get personal loans, credit cards or even a new job. Having inaccurate information in your credit history is a factor that can bring down your credit score.
If this is your situation, you have the right to dispute these errors in order to have them corrected or removed. While this is something you can do yourself, people often hire a credit repair company to handle this dispute process.
Read on to get a clear understanding of how credit repair companies work and learn if hiring one is the right step for you.
What Is Credit Repair?
Credit repair is the act of fixing and improving your credit score and history. This can be done by paying your bills on time. It may also involve requesting your credit report, verifying the information and disputing errors or inaccuracies in your report.
Anyone can repair their credit report for themselves. However, credit repair companies can help you by contacting the credit bureaus (Experian, Equifax and TransUnion) and disputing errors on your behalf for a fee.
Note that you can have errors or inaccuracies removed, but neither you nor a credit repair service can have accurate information removed from your credit report. The only way of improving your credit score when you have legitimate debt in your report is to pay your bills on time, not take on new debt and keep your credit utilization ratio low.
How does credit repair work?
Credit repair, whether you hire a company or do it yourself, will often involve:
- Requesting a copy of your credit report from the three major credit bureaus (which you can do by visiting AnnualCreditReport.com)
- Verifying that all the information in all three reports are accurate
- Disputing incorrect information with the credit bureau that reported the error
You have a right to dispute any error or inaccurate information found in your credit reports as established in the Fair Credit Reporting Act (FCRA). The FCRA also requires credit bureaus to investigate any dispute and remove errors from your report within 30 days of the dispute date.
As we established above, you can only dispute inaccurate information from your credit report. To repair your credit when all the debt listed in your report is accurate, you’ll have to make consistent on-time payments and reduce your overall debt.
How do credit repair companies work?
Credit repair companies offer the service of verifying your credit reports to weed out any errors, incorrect items, outdated information or accounts that don’t belong to you. These services also check for any outdated information such as collections older than seven years or bankruptcies that were filed more than 10 years prior.
If the company discovers such errors or inaccuracies, the next step is to have you sign a contract giving the company’s representative a limited power of attorney. This contract will allow the representative to act on your behalf and contact the bureaus to dispute the errors.
While the dispute process is underway, some companies will track the progress and update you any time there’s a change in the status of a disputed item.
Once the investigation is complete, the bureaus must send you a report on their findings and how they resolved the issues you disputed.
How long does credit repair take?
The time it takes to repair your credit will depend on your situation and what steps you take to improve your credit.
If your credit score is low due to accounts in your report that don’t belong to you, then you must dispute these items in order to have them removed from your report. After the items are removed, it can take one to three months for bureaus to update your credit report.
In contrast, if all the items in your credit history belong to you and some are negative (such as a Chapter 13 bankruptcy or late loan payments) these will remain on your file for seven years. (Chapter 7 bankruptcies stay on your credit report for 10 years.)
How much does credit repair cost?
Credit repair companies typically charge a subscription fee between $50 and $150. Some companies offer discounts for signing up as a couple, but ultimately, how much you pay will depend on the plan you choose. Additionally, some companies charge a set-up fee — also known as an initial or first work fee – that ranges from $0 to $150.
How Do Credit Repair Companies Work FAQs
Can you fix your credit yourself for free?
Yes. By law, you can request a weekly free credit report from the major credit reporting agencies (Experian, Equifax and TransUnion) by visiting AnnualCreditReport.com. If you notice that your reports have incorrect items and dispute them, bureaus must investigate your claim and remove incorrect items at no charge to you. While it can be time consuming, fixing your credit is a simple process you can complete yourself.
What are signs of a credit repair scam?
A sure sign of a credit repair scam is a service that promises it can remove negative information from your report. While you can dispute errors, accurate information, regardless of how negative it is, cannot be removed. Before you subscribe to a credit repair service, keep an eye out for companies that ask you to waive your rights under the Credit Repair Organizations Act (CROA).