Are Credit Repair Companies Legitimate?
Are Credit Repair Companies Real?
Many credit repair companies claim that can delete all the negative information in your credit report and increase your credit score in a short period. But, to the point, are these claims true? Are credit repair firms a scam or are they genuine in helping in fixing credit history? Here is what you need to know about the legitimacy of credit repair companies.
The Credit Repair Industry
The credit repair industry emerged in the early 1990s as individuals sought to correct credit report inaccuracies and erase adverse information due to the effects of economic downfall. The majority of credit repair firms claim that they will analyze your credit reports, find errors or violations, and dispute the negative items. Some also state that they assist in creating good credit if you have none at all or even if you have a poor credit history.
As of 2021, the credit repair market has grown up to more than 2 billion dollars. This industry is growing as consumers keep on attempting to enhance their credit rating. However, just as with any business, many consumer rights activists have noted that some are deceitful and their credit repair solutions promise to make the change as soon as you make the payment, only to charge very steep fees.
Federal Regulation
The credit repair industry has been under the spotlight concerning FTC and state regulators for issues to do with false advertising and receiving fees before they complete services offered. The Credit Repair Organizations Act CROA which was signed in 1996 bars credit repair firms from misrepresentation and calls for written agreements that should include information on how the client may cancel the services within three business days.
The CROA also bars credit repair companies from imposing upfront fees for their services. They need to offer their services first and then allow consumers to opt out if they are not satisfied before they are paid. However, some companies still disobey these regulations, and they are subjected to shutdown by state regulatory authorities and the FTC besides facing fines or being forced to compensate customers.
Common Tactics Used
Many credit repair companies state that they can add positive items to the credit report like new accounts or credit builder accounts. But this contravenes the credit reporting legislation. No genuine agencies shall include fake accounts or change the file dispute process. Some companies even offer fake or quick fixes to credit scores by boosting them by hundreds of points. However, a high variation of the score depending on some factors that are unrelated to credit history is not possible.
Unfortunately, most credit repair firms address credit bureaus with generic dispute letters disputing each negative entry. However, bureaus must investigate disputes, so, re-asking questions that have already been addressed is not very efficient. Some firms accept payments for practicing letter writing for several months without any real progress toward better reports. Consumers could also write their dispute letters for free as well, suggested the author.
Results to Expect
If you have real errors or non-compliance in your reports then there is a credit repair company that should be able to recognize those mistakes and ensure that the credit bureaus rectify them. This can slowly help in boosting the scores over several months. But credit repair can only fabricate a positive history that the subject never had. Any company that claims to be creating tradelines or boosting your score by hundreds of points is most probably a fake one.
The FTC recommends that one should check with the Better Business Bureau for any complaints or conduct a search online for reviews of the company before entering into any contract. Also understand that consumers have the right to provide a dispute directly to the credit reporting bureaus for free, without paying any company. Setting the proper expectations for credit repair results and paying attention to CROA violations will assist prevent credit repair scams from happening.
Several factors determine when credit repair is logical:
If one’s credit reports contain recent late payments, collected accounts, or other adverse data due to job loss or other hardship, it may take years of timely payment to have credit scores go up naturally. If a consumer pays a credit repair firm to send disputes, it proves to be of no more benefit than if the consumer had sent the disputes on his or her own. The right way is to keep on paying our credit balances wisely in the future.
Nevertheless, if you find wrong information, items that are related to someone else, or reporting mistakes that are outside the legal time frame of credit repair, then a professional credit repair service can work to have those removed. There are reliable companies that have had practice in identifying these problems and disputing them to make the bureaus correct fairly quickly. Eliminating invalid negatives can somewhat improve your score based on your credit profile.
Questions to Ask
If considering credit repair, asking some key questions helps evaluate the company's legitimacy.
- What percentage of the time are you able to delete the wrong or unlawful data?
- Are there any of your customers who are willing to speak to me about their use of your services?
- May I know the specific steps that you would take to challenge the negative items on the reports?
- How soon can I get results that are significant in terms of credit scores?
- Are there any initial costs before you offer full services agreed upon during the signing of the contract?
Do not go for companies that promise to add tradelines or increase your score by a huge amount within a few hours or days without any requirement from your side. Realize that repair requires consistency, discounting rather than fabricating a fictional past that was not there. Review contract terms and conditions to ensure that there is a provision for terminating the contract and getting your money back if the company has not delivered as per the agreed terms.
Although credit repair does have some merit in fixing reporting mistakes, the overemphasizing of the potential outcomes enables dubious companies to charge high costs yet do little to enhance your credit rating. To avoid falling victim to such fraudsters, the consumer should always conduct his or her research on the various companies and the services they offer, refrain from any company that promises to increase FICO score beyond the legal limit, keep an eye on CROA violations, exercise caution when it comes to expectations and results that the consumer may be able to achieve, and only pay once the services being offered have been delivered satisfactorily.
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