If a low credit score or mistakes with credit in the past are keeping you from obtaining new credit, you may be considering credit repair. Offered by for-profit companies, credit repair is a process that claims to “clean up” a consumer’s credit report by removing any incorrect negative items. Once these negative items are removed, most consumers may see their credit score improve. But is it really that simple? Let’s take a look at what happens during the credit repair process.
Consumers typically contact credit repair companies when they want to quickly raise their credit score to be able to obtain new credit. For many people, this happens when they want to secure new credit such as a home mortgage, vehicle loan or personal loan.
Once a consumer enters into an agreement with a credit repair company, the first thing the company will do is obtain a current copy of the consumer’s credit report from the three major credit reporting agencies: Experian, Equifax and TransUnion. The company then looks for negative entries on the reports and begins the dispute and negotiation process.
The credit repair company looks for bankruptcies, charge-offs, tax liens and other derogatory notations on the consumer’s credit reports. When they identify these items, they will create a plan to dispute errors and negotiate with the credit bureaus to remove the negative entries.
After receiving the disputes, the credit bureaus have 30 days to do their own investigation to verify whether or not the negative entry is accurate. Here’s where things can get tricky. During the 30-day investigation period, the bureaus may remove some or all of the negative entries from consumers’ credit reports, which can cause the credit score to improve. However, this improvement could be temporary.If their investigations prove the negative entries are accurate, those entries will go back on the reports.
Additionally, the credit bureaus have the option to determine a dispute is “frivolous” and may choose not to investigate at all.
Going through the credit repair process does not guarantee that the consumer’s credit will improve. And if it does improve, it may not be permanent. Any number of factors, including late payments, can cause it to drop again quickly.
What to Look For
Before choosing a credit repair company, be sure to check their reputation with the Better Business Bureau and read reviews at third-party review sites, such as Trustpilot.com. While reputable credit repair companies do exist, there are also countless credit repair scams to watch out for.
Can Consumers Repair Credit on Their Own?
Credit repair companies don’t offer any services consumers can’t do for themselves if they are willing to spend the time and effort doing it. For example, take a look at how to address errors on your credit report. These do’s and don’ts for managing a credit score can also be helpful when trying to improve credit.
If a consumer is ready to change their spending habits and make a plan to pay off debt, a great place to start is with a nonprofit credit counseling agency, such as Take Charge America. During credit counseling, a certified counselor works directly with a consumer to review income, expenses and debt. Next, they create a manageable budget and determine a path forward to pay off credit card debt, which may include a debt management plan. A full credit counseling session is also available online, any time at cc.takechargeamerica.org