Every time I open my internet browser, I get bombarded with ads for credit repair.  But the vast majority of people don’t need these services.  What is credit repair and why do we pay for it?  How do you spot a credit repair scam?

What is credit repair?

“Credit repair” refers to the process of disputing errors on your credit report to increase your credit score.  Credit scores are the basis for interest rates on loans and mortgages.  A low credit score costs you thousands in extra interest.  For this reason, we laser focus on raising our scores.  Many people try to fix their bad credit by any means necessary and often fall prey to a credit repair scam.

Who regulates the industry?

The Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) regulate the business of credit reporting.  These federal agencies work jointly to regulate the collection of consumer credit records.  The Fair Credit Reporting Act of 1970 and the Fair Credit Billing Act of 1974 grant us most of the rights that we have as consumers.

Credit repair is based on your legal right to three standards: Credit reports must be 100% accurate, entirely fair and kept confidential.  If you have items on your credit report that aren’t 100% accurate and entirely fair, you have the right to remove them yourself (DIY) or to hire a professional.

Do it Yourself (DIY)

You can address any inaccurate information on your credit report.  Initiating the dispute process is free. This involves:

1.  Pulling your Credit Reports

Review your credit report from each of the three credit bureaus (Experian, Equifax and TransUnion) for accuracy.  Get your free credit reports at annualcreditreport.com

2.  identifying bad information

If you identify any inaccurate or outdated information, make a note of it.  This is where the “100% accurate” part comes into play.

3.  writing letters

Write a letter to the credit bureau and the business that reported the erroneous information to alert them to the error.  The FTC provides sample letters that you can download from its website, ftc.gov.

4.  Attach Documentation

Attach copies of your supporting documentation as proof that the information is incorrect.  Cancelled checks or a letter from the original creditor showing that the debt was cancelled are great examples.

5.  wait for a determination

The credit bureau has 30 days to conduct an investigation and make a determination.  Then they must contact the business directly and share the information pertaining to your dispute.

if you lose

If the business does not find that an error was made, it will notify the credit bureau and the disputed information will remain. You may request that your disagreement be kept on file with the credit bureau and attached to future credit reports.

do it for me

Many people don’t have the time or the desire to repair their own credit.  Others don’t understand how to make their case.  So, they prefer to hire a credit repair company to dispute errors for them. While all credit repair companies charge a fee for their legwork, most are scams.

what does a credit repair company do?

A reputable credit repair company gets to know you to discover what you need.  Then they provide a detailed explanation of their services and fees in writing.  Additionally, be wary of a credit repair company that tries to charge you upfront fees.  They shouldn’t charge you before the work is completed.

how much should credit repair cost?

The price of credit repair services varies widely depending on the company, the state you live in and the type of services you need. There are an unlimited number of credit repair companies to choose from. Your best bet is to find a non-profit, credit counseling service to work on your behalf.

how do i spot a credit repair scam?

Some ads for companies guarantee that your credit score will see “a 100 point jump immediately!” Does this sound fishy to you? It is!  In fact, it’s illegal for a credit repair company to promise results like that. Any company that does so is one to avoid!  Beware of a credit repair company that:

key points to remember

• The information about you in your credit report must be accurate.  If you have made late payments, have missing payments or accounts in collections, your lender must report this.  No legitimate credit repair company fixes this.

• Credit reporting agencies report your negative payment history for seven years.  Bankruptcy related information will stay on your credit report for ten years. No legitimate credit repair company fixes this.

• Get free copies of your credit report and check for errors at annualcreditreport.com.  During the COVID-19 pandemic, these free credit reports are available weekly. Your credit report shows where you stand in the five key areas that make up your score. Which are: payment history, credit utilization, account mix, credit age and inquiries. It also gives you tips on how to improve your standing in each area if needed. Checking your own credit report doesn’t hurt your credit score in any way.

• Improving your credit report doesn’t happen overnight.  It requires a long term, disciplined approach to managing your money.  Try to be more careful about your spending and save where you can.  No credit repair company fixes this, but you can. If someone claims they can wave a wand and fix your credit, this could be a credit repair scam.