Whether you’re looking to buy a home, get a loan, or do anything else that requires a credit check, you may already know the importance of having a good credit score. And if your credit is less than stellar, you may be searching for a way to improve your score before applying.
Many companies claim they can repair your credit. But what exactly do these credit repair companies do? And how do you navigate the choice of whether or not to use one, or which one to use? Here are some tips for exploring your credit repair options.
What Does a Credit Repair Company Do?
Credit repair involves either working with a company to fix or address negative hits on your credit score or doing it on your own. If you choose to work with a company, it will access your credit report, review it for derogatory marks, analyze the causes of those marks, and set a plan for remedying them. This could include:
- Disputing errors or inaccuracies with your creditors, like outdated information, accounts that don’t belong to you, and incorrect personal information
- Negotiating with creditors to remove derogatory marks like missed payments, charge-offs, bankruptcy, or tax liens
- Sending cease-and-desist letters to creditors who have not updated your credit report accurately
Disputing credit report errors and removing incorrect and derogatory information on your credit report could improve your credit score, but it comes at a price. In return for disputing errors on your behalf, the credit repair company typically charges fees. Depending on the services offered, these fees could range from $50 – $150 per month.
The time it takes to repair your credit varies widely depending upon a number of factors. Reviewing and analyzing your credit reports could only take a matter of hours, but drafting dispute letters and submitting them to credit bureaus could take multiple days or weeks. Once a credit bureau receives the dispute, they typically have 30 days to investigate and verify the information. The credit bureau will then contact the company supplying the information and request that they inspect it for inaccuracies. The bureau is required to send you the results of this investigation within five days of its completion. If the credit bureau deems your dispute “frivolous,” though, it can choose not to look into it and must inform you of that decision within five business days.
Pros and Cons of Hiring a Credit Repair Service
There are benefits and drawbacks to getting help from a credit repair company. Here are a few:
Is Using a Credit Repair Service Right for You?
It might make sense for you to use a credit repair service if you:
- Have a poor score because of errors or false information on your credit report
- Don’t have the time or energy to investigate and dispute errors yourself
- Did your research to found the right company
- Can afford the fees
- Have a major purchase coming up that would benefit from you having an improved credit score
Hiring a credit repair company would NOT be a wise decision, though, if you:
- Have the time and energy to call your creditors and dispute inaccuracies on your own
- Are carrying a lot of debt, since the improvement may not be substantial enough to make the cost worth it
- Do not plan on using your credit score any time soon
- Have poor credit due to poor credit habits, like missing payments on your accounts
Credit repair companies offer services that could be beneficial for some people, but as with any important financial decision, it’s vital that you do your research and understand what you’re getting into before you hire one.
Plus, it may be smarter to work to rebuild your score over time through best practices day-to-day. Understanding the way credit works is an important part of financial literacy, and doing the work of repairing your credit on your own could go a long way towards ensuring a healthy financial life for years to come.
How to Choose a Credit Repair Service
If a credit repair company is the right choice for your situation, it is important to do your research. There are a number of ways to look into credit repair companies to see if they’re of value to you and not a scam. Here are a few tips to help you find a legitimate credit repair company:
Compare Your Options
You should research what different companies charge for their services, as well as the terms and conditions of their contracts.Some companies charge monthly, anywhere from $50 to $150, whereas others charge per deletion, or a one-time flat fee. Different pay structures will make sense for different people, and it’s up to you to decide which is right for you.
Check Online Reviews
Before you sign up for credit repair, make sure to read reviews of the companies on sites like ConsumerAffairs or TrustPilot. You can also ask friends and family if they have experience with a credit repair service they can recommend to you.
Companies are required to give you a contract in writing, and since terms and conditions vary so much between companies, be sure to read everything before signing anything. Are the terms of the contract clear and consistent? If a company is not upfront about the cost, it should raise red flag for you.
Read the Fine Print
Watch Out for False Promises
Does a company make promises that sound too good to be true? If they guarantee they can improve your credit, it could be a sign they are a scam. And some negative things on your credit report, like derogatory marks that are accurate, can only be removed over time. You should avoid any company claiming it can eliminate them for you.
Once you have found a company you feel comfortable with, you could be one step closer to improving your credit!