Credit repair companies tout their ability to clean up consumers’ credit reports and remove negative marks like bankruptcy, foreclosures, charge-offs, and tax liens. They charge a fee in exchange for reviewing credit reports and disputing errors on behalf of their clients. But can they do what they claim? And should you pay them to do it?
Credit scores have long been the go-to benchmark when it comes to judging a person’s creditworthiness. Mortgage, auto, and personal lenders all use credit scores to make financial judgments about who will qualify for plans or loans and at what interest rates. And many employers now review credit reports of job applicants to assess their level of responsibility and commitment to paying debts.
It’s no wonder, then, that so many people turn to credit repair companies for help with boosting their score. However, the Consumer Finance Protection Bureau says this service isn’t necessarily necessary. Any U.S. citizen has the right to dispute inaccurate information that appears on their credit report through a process established by the Fair Credit Reporting Act. In fact, it’s possible to do much of this work on your own for free if you are willing to put in the time.
Typically, when you work with a credit repair company, the first step is to get current copies of your credit reports from the three major credit bureaus (Experian, Equifax, and TransUnion). From there, your credit repair firm will identify items to dispute on your behalf. Then they’ll communicate with the credit bureaus and the information furnishers, or creditors, to try to get those errors removed. Generally, this can take up to 30 days and isn’t guaranteed to be successful.
Some credit repair companies will also offer extra services like credit monitoring, a credit score tracking system, and a breakdown of how certain factors are impacting your scores. These are great options if you don’t have the time or energy to dispute errors on your own, but be careful to avoid any company that demands upfront payment or promises something that sounds too good to be true.
Remember, if you’re still in the middle of managing debt or trying to recover from a financial hardship working on your credit won’t do much to improve your situation. In that case, it’s best to wait until you’re on more stable financial footing to start working on your credit.
And if you do decide to hire a credit repair company, make sure you’re dealing with a reputable firm. Check out the CFPB’s list of red flags to watch out for, such as a demand for payments upfront and results that sound too good to be true. Also, be wary of any company that can’t answer basic questions about their business model.