How Does Credit Repair Work? [And Other Useful Tips]

Our credit scores influence many of our financial endeavors. Whether you want to be approved for a home loan, apply for a credit card, or receive competitive interest rates – the first thing financial institutions look at is your 3-digit credit score.

Having a poor credit score may negatively affect not only loans from financial institutions but even job applications. That’s why people with poor credit scores often look to credit repair companies to help them increase their credit scores.

But how does credit repair work? And is it even worth trying?

In this guide, we’ll take a closer look at credit repair.

What is Credit Repair?

Credit repair is a simple process that involves the review of your credit report, especially for those who have a poor credit score. Credit reports are compiled by the three major credit bureaus that include Experian, Equifax, and TransUnion. Unfortunately, it’s possible for the credit report to be outdated or contain inaccurate information, and this is not just a myth.

Repairing credit happens when you find evidence of mistakes on the report and then dispute them. After a dispute has been submitted, one has to follow up to see whether the inaccurate information has been removed.

Even though individuals can try to repair credit on their own, it’s best to consult a professional credit repair company for assistance.

Credit Repair Companies’ Overview and Operation

So, how does credit repair work? Individuals with a poor credit score are more likely to be denied loans and credit cards. To avoid denial, these individuals can consult a credit services organization or a credit repair company. It’s a third-party company that can assist in the removal of negative or inaccurate information on credit reports – usually in exchange for a fee.

Their services include:

  • Communication on behalf of the customer with major credit bureaus
  • Communication and negotiating on behalf of the customer with companies (usually financial services or debt collectors) that reported inaccurate information in the first place
  • Negotiation with credit bureaus to delete false information from the customer’s credit report
  • Mailing documents, disputes, and professionally written letters to major credit bureaus on behalf of the customer

In many cases, credit repair companies use a method known as ‘jamming’ to get the attention of the credit bureaus. This includes sending numerous letters of dispute to increase the chances of a negative credit annotation being deleted from a credit report.

The Legality of Credit Repair Companies

Although these companies are for-profit organizations, some truly are aimed towards helping individuals build their credit scores back up. This is done by removing unverifiable and inaccurate information from credit reports.

Legit credit repair companies can also guide you on the best way to fix your credit. Building up your credit with the help of a credible credit repair company isn’t an overnight process.

So, is credit repair legal? Yes, at the federal level, credit repair is legal in most states. But it is seen as a misdemeanor in the state of Georgia. Some accurate but negative information can be removed by illegitimate credit repair companies. This action goes against the CROA (Credit Repair Organization Act). To avoid any run-ins with the law, individuals should be very careful when choosing a credit repair company.

The Credit Repair Organization Act

Since there are illegitimate companies who take the wrong measures in removing information from credit reports, the CROA (Credit Repair Organization Act) has rules and regulations on how credit repair should work. This act was instituted in 1996 and stipulates clear dos and don’ts when it comes to credit repair.

Under this act, credit repair companies are monitored to remain compliant with federal law. To be considered as legitimate credit repair companies, they should avoid the following:

  • Advising clients to make incorrect and false statements
  • Providing a guarantee that negative information can be removed from the client’s credit report
  • Advising clients to lie about their identity to avoid association with negative credit information
  • Charging a fee for services not offered

Under the CROA Act, a legitimate credit repair service should inform clients that:

  • They can dispute incorrect information on their report for free
  • The credit bureaus can make mistakes even though they take all measures to provide accurate information
  • When a credit repair company violates the CROA, the client is eligible to sue them

Credit repair companies should be completely transparent about their standing with the CROA.

How Much Does Credit Repair Cost?

The cost depends on the credit repair company’s plans, services, and packages. Pricing structures usually vary between $19 and $149 per month. Some credit repair companies have additional fees charged for cancellations, enrollment, or registration. A few of these companies even provide a money-back guarantee.

Here is a shortlist of some credit repair companies and their costs:

Credit Repair Company Monthly Fee Additional Fees
Ovation by Lending Tree $79 – $109 Upfront fee of $89
Credit Saint $79.99 – $119.99 First work fee of $99.99 or $195
The Credit Pros $19 – $149
The Credit People $79 p/month

$419 for 6 months

Setup fee of $19

 

It is worth mentioning, that you can go through the credit repair process by yourself without paying a fee. But to save time and to speed up the process, many people consider using expert and experienced credit repair companies.

Factors that Influence Your Credit Score

Credit scores range between 300 (poor) to 850 (excellent). There are many external factors that play a role in your overall credit score. There are many different calculation models, of which the FICO scoring model is the most widely used. Learn more about the different scoring models in this guide.

Within the FICO scoring model, the following factors are taken into account:

Payment History

This factor accounts for 35% of your overall credit score. It evaluates your payment history including timely payments, repayments, and missed payments. When you’ve regularly missed payments, credit providers will report this to the major credit bureaus and it will reflect negatively on your account.

Debt

This factor accounts for 30% of your FICO score. It takes into account the amount of debt you already have as well as the revolving credit you utilize every month. That’s why paying off existing debt is a vital part of the credit repair process.

Credit History

This factor accounts for 15% of your FICO score. It is based on the age of all your credit accounts. Having a longer running credit history is considered better by credit providers.

Credit Mix 

This factor makes up 10% of your credit score. It determines the different types of credit accounts you have in your portfolio, including mortgage loans, credit cards, student loans, or other lines of credit.

New Credit

This factor takes care of another 10% of your FICO score and it considers the number of recent accounts you’ve opened. Applying for too many credit cards within a short period of time can label you as a risk.

If you have a very low FICO score, it may be wise to consider how to fix your credit score.

Other factors that can affect your credit score are:

Hard Inquiries

Every time you apply for a credit card or loan from a financial institution, they will do a hard pull on your credit score. If you’ve been denied an application and continue to apply without success, it will affect your credit score negatively.

2-Step Guide on Repairing Your Credit Score

So, what can you do to fix your credit score? And how long does it take for credit repair to work? Here are a few steps you can take:

Review Your Credit Report

Looking at the five main factors that influence your credit score, you should review your credit report. You can access a free report from any one of the major credit bureaus. In many cases, you might have inaccurate information regarding payments and open accounts in your report.

Some credit providers, such as retail stores, mobile contract providers, or credit card companies might have submitted the wrong information about your payment history to the credit bureaus. In many cases, customers have low credit scores because these credit providers have failed to update that you’ve either closed an account or finished your payments.

Dispute Inaccurate Information

Submitting a dispute is a great solution for fixing your credit score. All American citizens have the legal right to dispute any information on their credit reports. Credit bureaus will run an investigation and accuracy check. If the information is found to be incorrect, they will delete the item from your report.

In certain situations, this will boost your credit score. This is by no means a quick process. Disputes can take weeks and even months to be resolved.

Disputes usually entail sending a 609 letter via certified mail (not email). Make sure to include supporting documents, any proofs, and other essential documents that will help your case in your dispute letter.

It’s always a good idea to consider credit counseling or advice from a credit repair company, instead of taking matters into your own hands.

So, what do credit repair services do differently than an individual?

Well, for starters, credit repair companies understand the dispute process. Instead of just sending one dispute letter, they will bombard the appropriate credit bureau with heaps of letters to ensure that the matter gets attended to. Additionally, they know exactly what documents are needed – avoiding unnecessary back-and-forths.

How to Improve Credit Score on Your Own

Can I repair my own credit? Yes, you can repair your own credit without the assistance of a credit repair company. You can either try the above-mentioned two steps or take other measures towards increasing your credit score:

Avoid Late Payments

To build a credible credit history, you have to make payments on time. This includes not missing any monthly payments or neglecting to pay outstanding debts. Creditors will report you to the three major credit bureaus if you haven’t paid an account within 30-90 days. Even if you do eventually pay the outstanding amount, having a ‘late payment’ tick on your credit report isn’t good.

Don’t Apply For New Loans

Every time you apply for a new loan or credit card, the financial institution does a hard inquiry on your report. This will ultimately affect your credit score. Avoid applying for new loans if you’ve recently been denied or if you still have outstanding balances on other credit accounts.

Credit Utilization Ratio

This ratio refers to the amount of credit you have available compared to the amount you have already used. When you utilize all your credit without paying it back, it creates a bad credit score.

You will only see an increase in your credit score within a few months of diligently paying your accounts.

How to Recognize Legitimate Credit Repair Companies

Unfortunately, you will find some companies making empty promises. They usually claim to be able to help you grow your credit within a short period of time if you use their product. In most cases, you’ll end up paying steep rates without benefiting from the service at all. It’s therefore extremely important that you know the tell-tale signs of illegitimate companies. Some of them include:

Payments in Advance

Under the federal Credit Repair Organizations Act (CROA) it is illegal for credit repair companies to demand upfront fees for their services. Although most legit credit repair companies have a subscription or setup fee, they aren’t allowed to demand upfront payment.

Empty Promises

According to the CROA, credit repair companies aren’t allowed to promise any guaranteed item removals from credit reports. This is why many people have misconceived ideas about credit repair companies not living up to their set standards. The question “is credit repair a scam?” is thrown around loosely. It should be duly noted that accurate information on a credit report can’t be removed. Credit repair companies can only dispute inaccurate or outdated negative items on an individual’s credit report.

Misguidance and Avoiding Questions

Illegitimate credit repair companies will usually avoid certain questions. They may advise you not to contact credit bureaus, even if it’s an essential step in the dispute process.

Wrap Up

Credit repair is a process that can take weeks and even months. Under the federal Credit Repair Organizations Act (CROA), all citizens have the legal right to dispute any inaccurate or negative information on their credit report.

When you use the services of a credible credit repair company, you pay them a fee to assist you in submitting disputes and speeding up the process. Even though no credit repair company can guarantee a positive outcome, it’s worth the small setup fee to let professionals handle your dispute.

FAQ

Is It Worth Paying Someone to Fix Your Credit?

Yes. Because you can only submit disputes via mail, getting a credit repair service to help you fix your credit will save you a lot of time and frustration.

How Do Credit Repair Companies Get Items Removed?

Credit repair companies can only get inaccurate, outdated, or false items removed from your credit report. This is done by reviewing your credit report, identifying inaccurate items, and filing numerous disputes to have them removed.

What is the Best Credit Repair Company to Use?

There are many different credit repair companies in the US. Some of the best credit repair companies we can recommend are Ovation Credit Services, The Credit Pros, AMB Credit Consultants, and Credit Saint. Make sure that the company you choose operates within your state and is compliant with the CROA.

How Does Credit Repair Work?

Credit repair is a process that helps remove inaccurate, false, or outdated financial information from your credit report. The ultimate aim is to increase your credit score to get you in good standing with financial institutions.

Leave a Reply

Your email address will not be published. Required fields are marked *