Mistakes happen to everyone, and that includes credit reports. In fact, a recent study found that over a third of consumers have encountered at least one mistake in their credit reports. While these errors may not seem significant, they can negatively impact your credit score for up to seven years.
To rectify these mistakes, many people turn to credit repair companies for assistance. However, the credit repair industry has had its fair share of bad actors in the past. Therefore, it’s crucial to thoroughly research any company you’re considering to ensure its legitimacy.
How to Identify a Credit Repair Scam
Identifying a credit repair scam can be relatively simple. One of the easiest ways to spot a fraudulent credit repair company is if they violate the Credit Repair Organizations Act (CROA). This federal law establishes guidelines to protect consumers from scams.
Here are some red flags that indicate a credit repair service is in violation of CROA:
- Charging fees before performing any work on your behalf.
- Promising to remove accurate negative data from your credit report.
- Advising you to mislead credit bureaus.
- Discouraging you from contacting credit bureaus directly.
- Suggesting identity changes to modify your credit history.
- Encouraging you to provide false information on credit or loan applications.
- Failing to provide a written contract detailing services and payment terms.
If you come across a credit repair service exhibiting any of these red flags, it’s advisable to seek a more reputable company or consider repairing your credit yourself. Additionally, it’s important to note that even if you’ve already signed a contract, CROA grants you a three-day period to cancel without charge.
You can further vet a credit repair service by searching the Consumer Financial Protection Bureau’s (CFPB) database for complaints and reading company reviews on the Better Business Bureau website.
The Effectiveness of Credit Repair Companies
The best credit repair companies can often identify and correct factual inaccuracies and errors in your credit file. However, it’s unlikely that credit bureaus will remove information that your lenders accurately reported, regardless of how many disputes a company files on your behalf.
Ricki Lowitz, co-founder and co-CEO of Working Credit, a nonprofit that offers credit building education and counseling services, states, “If a company says they can get accurate information off of your report, they’re not being truthful. They may get accurate negative items removed, but only temporarily.”
It’s worth noting that even the most reputable and trustworthy credit repair services can’t do anything you couldn’t do yourself. You have the right to file disputes with the three major credit bureaus (Equifax, Experian, and TransUnion) for free.
When you file a dispute, the credit bureaus are required to investigate the accuracy of the negative items on your report. If your creditor cannot prove that the information is correct, the bureau can remove it from your credit file.
Whether you choose to repair your credit independently or hire a service, having a plan for repairing and maintaining your credit is vital.
How Soon Can You See Results?
Once you file a dispute, credit bureaus generally have 30 days (and up to 45 days in some cases) to investigate the claim. After their investigation, they must notify you of their decision. If the disputed items are found to be inaccurate, you can expect to see the results within the next month.
How to Repair Your Credit Yourself
If you have the time and dedication, repairing your credit yourself is entirely feasible. Here are a few steps to follow:
1. Obtain Current Copies of Your Credit Reports
To understand what needs fixing, you must first review your credit reports. These reports contain both positive and negative information that affects your credit score. You can obtain a free credit report annually from each of the three credit bureaus—Experian, Equifax, and TransUnion—through AnnualCreditReport.com.
2. Dispute Errors on Your Credit Report
Carefully review each credit report for any errors, including:
- Inaccurate personal data
- Incorrect dates or balance amounts
- Accounts that don’t belong to you or duplicate accounts
- On-time payments wrongly reported as missing or late
- Collection accounts that aren’t yours
File disputes directly with the three major credit bureaus to correct any errors. They typically offer an online process for filing disputes, which is often the quickest route to resolution. It’s important to note that if you find a mistake, you will need to file a dispute with each individual credit bureau because they do not exchange information with one another.
3. Make Payment Arrangements if Necessary
Begin the credit repair process by bringing your past-due balances up to date. The longer payments remain late, the more they will negatively impact your credit score.
Devise a plan that allows you to pay at least the minimum payment for all your accounts. You may need to negotiate payment arrangements with your creditors, but there are typically no penalties for doing so.
Additional Steps to Improve Your Credit
Whether you choose to pursue a DIY approach or hire a company to help, credit repair extends beyond fixing errors. To see a significant difference in your credit score, you must take good care of your credit accounts.
Improve Your Payment History
Your payment history accounts for approximately 35% of your FICO credit score. Even a single late or missed payment can cause your score to drop significantly. If you have delinquent accounts, bring them current as soon as possible and continue making payments on time each month. Consistently making payments before their due dates is one of the most effective ways to positively impact your credit scores.
Reduce Your Credit Utilization Ratio
Your credit utilization ratio measures the ratio of your outstanding credit card balances to your credit card limits. The lower this ratio, the better your credit score should be. Although credit experts generally recommend keeping your credit utilization ratio below 30%, those with high FICO scores tend to use less than 10% of their available credit limit.
Seek Credit Counseling
If you’re struggling to pay off debt, consider seeking help from a nonprofit credit counseling service. A reputable credit counselor can review your goals and help you develop a realistic plan to achieve them while restoring your financial health. The Department of Justice website offers a list of approved credit counseling agencies in your area.
The Bottom Line
While there are legitimate credit repair companies that adhere to CROA standards, none can legally do anything you couldn’t do yourself for free. Filing disputes with credit bureaus and practicing good credit habits are the most effective ways to repair your credit.
If you’re looking for third-party assistance, consider working with a nonprofit credit counseling service, as they are likely to provide more value than a credit repair company.
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