Credit repair companies claim to help improve consumers’ credit scores by disputing errors on their credit reports. The Fair Credit Reporting Act allows people to submit a dispute whenever they disagree with information in their credit report. If the credit bureaus cannot verify the accuracy of the information within 30 days (occasionally 45), they must remove it. Consumers can also do this on their own without paying a credit repair company.
However, it is important to be aware of the scams that exist in this industry. Some companies are not legitimate, and consumers should be wary of companies that charge upfront fees or have excessively high monthly fees. If you are unsure about a credit repair website, it is best to research the Better Business Bureau to find out if the company has a reputation for good service.
Despite the bad reputation that credit repair has received from fraudulent companies, it is still an important service for many consumers. It is estimated that 20% of credit reports contain inaccurate data that needlessly lowers credit scores, making it more difficult to get a mortgage or secure low-cost loans and credit cards. Inaccurate negative information can also interfere with lifestyles, costing consumers extra money for utilities, cars and insurance premiums.
In addition to helping to clean up credit reports, credit repair can also prevent identity theft by identifying and removing fraudulent activity. Credit repair companies usually begin the process by obtaining copies of the three national credit bureaus’ reports, then examining them for discrepancies. Then they will send letters to the credit bureaus and their data furnishers, asking them to remove the wrong information from the report. They may also contact creditors directly to have incorrect collections removed from a report. Most companies communicate via email or phone, but some still use U.S. mail to send disputes.
It is important to remember that credit repair does not guarantee a higher credit score, and there are other ways to improve your credit. Changing your spending habits, paying your debts on time and limiting how much you borrow can all raise credit scores over time. Many people also choose to work with a nonprofit credit counselor or debt settlement firm to learn more about responsible financial management.
There are alternatives to credit repair services, but they generally involve more work and can take longer than using a professional credit repair agency. Consumers can download their free credit reports from each of the three national credit bureaus at least once per year and look for mistakes that they can then dispute on their own. They can also seek assistance from a professional credit repair agency that can help them with the more complicated disputes or those that require verification of information. These companies can often provide quicker results than individuals who try to do it on their own. It is recommended to only hire a professional when it’s necessary.