Anyone with poor credit knows this unfortunate fact: having bad credit makes life harder.
Poor credit leads to a variety of troublesome financial situations for consumers that impact their daily lives or their livelihoods. These can include negative items such as a failed credit card application, a rejected bank loan, or even frustrations related to simple tasks such as renting an apartment.
Finding yourself without easy access to credit can be extremely problematic and affect your life as well. It can reduce your personal or professional options, end up costing you more over time, and add unneeded financial or mental stress to you life. Unfortunately, this situation is not uncommon at all.
Millions of people are affected by bad credit, so much so that it gave birth to an entire industry. Enter credit repair companies: entities that offer to solve the problems you’re facing. A credit repair company will promise to help consumers deal with their debt, offer advice on how to manage their payments, review their credit card payment options, gain access to their credit history, and eventually improve their credit score by creating a responsible plan to pay off their debt.
The catch? Just like any business, a credit repair service won’t help you for free. They want payment just like everyone else.
What Is a Credit Repair Company?
In exchange for a fee, credit repair companies promise to help you solve your credit-related problems and repair some of the debt-related damage done to your credit. Typically, they do so by pursuing a number of different strategies, such as:
- Reviewing your credit score
- Providing you with advice on how to repair your credit over time
- Helping you dispute inaccurate information
- Acting as an intermediary with either aggressive creditors or with credit reporting agencies themselves
Beware of Scammers
According to the Federal Trade Commission (FTC), this industry is full of scammers that promise to improve your credit score, but actually take advantage of financially vulnerable people. When it comes to choosing a credit repair services company, you need to be careful who you trust. Some signs of a scam include:
- The credit repair company offers to create a new credit identity for you.
- The credit repair company advises you to use false information or an identity other than your own to apply for credit.
- The credit repair company suggests you don’t contact the credit reporting companies directly.
- The credit repair company insists you pay them in advance for their work.
- The credit repair company offers to improve your credit score by removing negative items from your credit report.
- The credit repair company offers a quick fix to solve all your problems.
While these are certainly tempting offers, the truth is that there is no quick and easy fix out there that will help consumers to magically repair their credit. Any credit repair companies that promise this is not being completely honest. To legitimately improve your credit, you have to accept the fact that it will take time, concerted and disciplined effort, as well as the strength and commitment to stick to your repayment plan.
How Do I Avoid Credit Repair Scams?
The number-one thing you can do to avoid bad credit repair companies is to do thorough research.
Start by reading reviews online. In Canada and the United States, a lot of this information can be found at the Better Business Bureau (BBB). The BBB is a non-profit organization consisting of over 100 independently incorporated BBBs, all focused on advancing marketplace trust. They should be your first stop.
You should also check with a complaint database, such as that found on the U.S.’s Consumer Financial Protection Agency or on the Financial Consumer Agency of Canada. On those sites you’ll find research, resources and tools to make the appropriate verification.
Also, watch out for the word guarantee in a credit repair company’s marketing materials. Nobody can guarantee to improve your score. If someone promises that, run for the hills!
What Actions Can Reputable Credit Repair Companies Take?
Most companies you can trust will have a few common tactics.
Firstly, they will request a credit report from the major consumer credit bureaus. In Canada, these organizations are Equifax and TransUnion. In the U.S., they are Equifax, TransUnion and Experian. What a fair and trustworthy credit repair company will look for are harmful words or phrases that can indicate you’re in bad standing. These include:
- Tax Liens
If the situation allows it, the company will first want to validate those claims, then they will want to put together a plan that aims to have these words removed. They will do so by negotiating with these consumer credit bureaus. Your credit repair company may also be able to contest certain errors, and they will write letters on your behalf to this effect. They can also write letters to your creditors trying to collect their debts. These cease-and-desist letters are a useful tool that can provide you with breathing room, not to mention some peace of mind!
The credit repair service doesn’t just reduce negative information, but may also include the addition of positive information. They can do this by helping you apply for new accounts. If paid off on time, these new accounts can begin to rebuild your credit slowly but surely.
How Much Does This Service Cost?
The price will vary and always depends on your situation, as well as the company you choose to use. As mentioned above, reputable credit repair companies will not charge you in advance, and they can only collect after delivering on their promises.
Some companies charge a flat fee, whereas others might charge for every negative remark they remove from your report. This could range anywhere from $50 to $500 or more. The company you engage might also have monthly fees attached to their services. There may also be fees associated with setting up your account or accessing your credit reports.
Can I Repair My Own Credit?
The short answer is: yes! If you only have a small amount of work to do to improve your credit, you might be better off trying to handle it on your own. For example, some of the actions you can take without anyone’s help include:
- Reviewing your own credit report and searching for errors
- Disputing those errors directly with the consumer credit bureaus
- Beginning to build your credit again
You can build your own credit by:
- Consolidating your debt from high-interest cards to lower ones
- Paying down your debt
- Making debt payments on time
- Opening fewer new credit cards over a short period of time
- Leaving old or unused credit cards open (don’t close them)
It’s a Marathon, Not a Sprint
Besides avoiding scams, the best advice you can get with respect to credit repair companies is to look at the journey of improving your credit as a marathon, not a sprint. There are no quick fixes or magic formulas that will turn things around on a dime.
To succeed, you can try your hand at improving your credit by yourself or engage a company specializing in credit repair. Many people also recommend that you consult with a credit counselor as well, as they can give you the lay of the land. After all, the more information you have, the better. Credit counselors are certified, well-trained, and are usually non-profit employees, meaning they are much less likely to steer you in the wrong direction. In many cases, the advice they give you will be free!
Ultimately, the bottom line is that you must develop good financial habits and stick with them over time. If you’re patient and well-advised, you can stop fearing your credit card debt, and start building the life (and credit) you’ve always dreamed of having.