With the emergence of credit repair companies everywhere, it’s hard to determine if they are legit or just another scam infiltrating the Internet.
Nonetheless, you can’t help but to stop and wonder how someone on your timeline is claiming to have boosted their credit score by 50 points, seemingly overnight.
But, before you take the leap into credit repair, it’s important that you know that facts.
What is a credit score?
A credit score is a numerical value assigned for creditors to easily assess your creditworthiness.
It basically shows how well you’ve done at paying creditors back and how you’ve leveraged debt. The higher the score, the more likely you are to be extended additional credit.
Though there are ways to manage your finances without having credit at all, it’s important to understand how credit works so that you can make informed financial decisions.
Credit scores range from 300 – 850 on the FICO® scale. This score is impacted by seven factors. The factors that impact your credit score include:
- Payment history
- Credit utilization
- Number of accounts
- Credit history
- Credit mix
- Hard inquiries
- Negative information
Credit repair vs credit counseling
In general, a credit repair company works on your behalf to remove inaccurate or derogatory items from your credit report.
They will contact your creditors and the credit bureaus to challenge legitimate negative items that impact your score. If successful, it will result in an increase to your credit score.
It’s important to note that credit repair is not the same as credit counseling. Credit counseling is a free service offered by non-profit organizations to educate you on credit and other financial topics.
Credit counselors can work with you to create a plan to reduce or eliminate your debt.
What credit repair companies actually do
Legitimate credit repair companies will request your credit report from the three credit bureaus to review for any potential errors or mistakes.
If they identify inaccurate negative items on your credit report, they will dispute those items with your creditors and the bureaus on your behalf. They may also negotiate with your creditors to have these negative records removed.
You can expect for a credit repair company to send letters to dispute inaccurate derogatory marks.
Additionally, they will likely advise you to obtain a secured credit card to use for gas and/or groceries to begin adding positive history to your reports.
The average cost of credit repair
The cost of credit repair services vary. You can expect to pay anywhere from $50-$250 on some monthly plans.
You should know that the credit bureaus have 30 days to respond to a dispute. This means there may be no activity on your account during this time, although you are paying a monthly fee.
How to avoid scams
Though it may be enticing to pay someone to help clean up inaccurate information from your credit report, you should do your research first. Many companies make promises to repair credit, which they legally cannot do.
Here are some key indicators that a company may be a scam.
- They promise to remove accurate negative information from your report
- They promise to improve your credit
- They take payment before fulfilling services
- They charge for your credit report (you can obtain it for free)
The Credit Repair Organizations Act (CROA) protects consumers from companies claiming to drastically improve their credit or falsely promising to remove accurate negative information from reports.
Before signing up for credit repair, be sure to check the Better Business Bureau website for reviews.
If you think that you have been a victim of a credit repair scam, you may file a complaint with the Consumer Financial Protection Bureau.
How to repair your own credit
There is nothing that a credit repair company can do that you can’t do yourself for free. Here are the steps to reviewing and repairing your credit on your own.
- Seek assistance from a credit counselor or financial coach. Credit is only a small portion of your financial picture. If you don’t address all of your financial habits, you will find yourself in the same cycle. These professionals can assist you in re-establishing a positive credit history and building your credit.
- Review your credit reports. You are entitled to one free credit report by each bureau each year. Simply visit their websites (Equifax, Transunion, Experian) to request your copy.
- Dispute any incorrect information on your report through the bureaus’ sites. Each site allows you to dispute incorrect information on your report and can answer any frequently asked questions that you may have. You may also check the status of your dispute on their sites as well.
- Track your credit score. In addition to free credit monitoring sites like Credit Karma and Credit Sesame, banks are now offering free credit score monitoring. Contact your bank to find out more.
- Learn from your mistakes. It’s ok to have made mistakes with your finances; however, the key is learning from them and not making those mistakes again.
Repairing your credit means nothing if you don’t change the poor financial behaviors that may have gotten you there.
Focus on gaining financial education in addition to repairing your credit. Ultimately, having the right financial mindset and behaviors will lead to a better financial picture.
Although hiring someone to repair your credit is an option, I’d advise you to be cautious. Do your research and make an informed decision.
Cheers to better financial decisions!