Credit repair solutions help you take care of your debt and improve your credit score so you can qualify for future loans or lines of credit. Credit repair services include credit counseling, creating a plan to improve your score and even negotiating with credit companies. For instance, a credit counselor may look for errors in your credit report and dispute those items for you, or discuss the prospect of settlement.
If you believe you need professional help with your debt, you may consider enrolling in these services. However, it is important to understand that there is no quick fix for bad credit. Even with the help of reputable credit repair companies, you must work to pay down your debt and utilize your credit wisely to maintain a strong score. Learn more about repair companies, credit counseling and more below.
How can a credit repair company help you?
Credit repair companies usually begin by checking your credit report. This means that they contact the three major credit reporting agencies: Equifax, Experian and TransUnion. When reviewing your reports, credit counselors may look for factors such as:
- Charge-offs. A charge-off is a derogatory mark on your credit report. It occurs when a creditor gives up on trying to collect your payments, and blocks you from making any further charges on your account. The lender then reports your failed payments as a loss, though you are still required to pay back the debt. A charge-off may remain on your report for a maximum of seven years.
- Tax Liens. An existing tax lien is a very serious derogatory mark on your record. A federal tax lien represents the U.S. government’s claim against your property when you fail to pay off existing tax debt. If you receive a federal tax lien, the IRS files a public document that notifies your creditors.
- Bankruptcies. Declaring bankruptcy is a legal process that allows you to apply for debt relief if you cannot repay your debt. Relief is usually provided as a restructuring of debt or a discharge, which is a court order that prohibits lenders from collecting debt against you.
The best credit repair companies use this information from your credit report create a plan of action. These plans usually involve disputing credit report errors and negotiating with creditors to remove derogatory marks. If there are several errors on your report, the company may contact different creditors and ask them to verify certain information.
A credit dispute letter is a formal request to one or all three of the major credit reporting agencies that challenges errors on your report. In the letter, the credit repair company explains why the mark is incorrect, and provides documents that support your case, if available. If the reporting company resolves the dispute, it removes the negative mark and updates your report accordingly.
Credit repair services may also involve sending a cease-and-desist letters to debt collectors as well. A cease-and-desist letter is a formal request to your creditors asking that they stop trying to collect your debt. Once creditors receive the letter, they are allowed to contact you only once more, to inform you that they will cease communication.
When fixing your credit, a repair company may also recommend that you open a new line of credit and pay it off quickly, as this can positively impact your score. However, you may not want to open another line of credit if you previously had issues paying your debts.
How much do credit repair services cost?
Credit repair reviews for different companies are useful, because they can help you determine whether the service was worthwhile, and how much it costs. A company may charge you a one-time fee, or you may need to pay separately for each derogatory mark you need removed. Others charge on a month-to-month basis.
Additionally, some credit repair companies charge a fee for obtaining your credit report, which you may obtain for free on your own. You may need to pay for set-up fees as well. According to the Credit Repair Organizations Act, a credit repair company may not charge you before it has performed its services.
Are credit repair companies worth it?
The best credit repair service will dispute your claims and handle negotiations efficiently, so that improvements to your score may begin right away. However, it is important to check the legitimacy of a company before you agree to its services.
Some critics of credit repair services even suggest that you may have the ability to improve your credit on your own. Ultimately, critics state that even the money spent on a reputable repair service ought to be used toward your debt repayments instead.
Even though a legitimate repair company cannot promise a fast credit repair, it can promise to ease some of the burden and help you achieve your goals. A repair service may have the resources, experience and knowledge to do the bulk of the work and put you on the right track.
How to Tell If a Credit Repair Company is Legitimate
It may be harder to spot legitimate credit repair companies from scams than you think. According to the Federal Trade Commission (FTC), the credit repair market is full of scams. The following tips may help you detect fraudulent credit repair schemes:
- Visit the Better Business Bureau website and read credit repair reviews for the company you are considering.
- Visit the Consumer Financial Protection Bureau complaint database.
- Make sure the company explains your legal rights in a written contract, including your right to cancel a charge at least three days in advance, an explanation of the length of time for the service, all fees and any guarantees. These explanations are required by law.
- Report credit repair scams to the State Attorneys General or the FTC.