how does credit repair work

How Does Credit Repair Work

This page may contain affiliate links that could result in earning us a commission at no cost to you. See our affiliate disclosure for more information.

In today’s world, you need credit to do more than just the usual financial things such as getting a loan for a house or car and applying for a credit card. If you want to rent an apartment, get hired for a certain job, or even get the latest iPhone, you need to have good credit.

If you don’t have good credit, all these things could be out of your reach for you. You can try to get your credit in order on your own, or another option is getting help from a credit repair company. You might be wondering, how does credit repair work? Well we’re about to break it down for you step-by-step.

What is Credit Repair?

Credit repair is often associated with two things. The first is looking at the activities involved with fixing a poor credit score. The reasons for the poor credit standing could be due to a variety of reasons including identity theft, missed payments, inaccurate information on credit reports, and heavy usage of existing credit.

The second thing associated with credit repair is often credit repair companies. It is important to note that repairing your credit can be done on your own. However, depending on the causes of your poor credit standing, it could take a lot of time and effort and it might be easier to have an expert take care of it for you.

What is a Credit Repair Company?

A credit repair company is an organization that works on your behalf to restore your credit. These types of organizations charge a fee to repair your credit.

There is no special access secret that credit repair companies have that can repair your credit faster. Credit repair companies will use the same methods available to you.

For example, let’s say that you have information on your credit report that is inaccurate. There are three credit reporting agencies in which you can request your credit report for free each year: TransUnion, Experian, and Equifax.

You can contact any of these agencies by phone, mail, or online to dispute inaccurate information. Each credit bureau agency has 30 days from when they receive your dispute to investigate the matter and verify the information. A credit repair company would use the same method to dispute information for you.

If you have a more complicated credit situation, a credit repair company could help you analyze your credit report and help resolve these matters. It’s important to note that credit repair companies are not the same as credit counseling agencies. Generally, credit counseling agencies are nonprofit organizations that provide advice about debt/finance and may offer other services as well.

How Much Does Credit Repair Cost?

The cost to pay for credit repair will vary from company to company and also depend on the level of service you select. Some companies may charge you a one-time fee while others may have a fee for each piece of inaccurate information they find or each derogatory mark they remove from your credit report. Generally, a deletion of a derogatory mark starts at around $35.

Other companies may charge you a monthly rate which generally starts at $50. Additionally, there could be fees associated with accessing your credit reports or setup.

Before hiring a credit repair company, try to determine how much effort it will take to restore your credit. A few negative remarks that you could simply pay down outstanding debt or contact the credit reporting agency to correct will likely not be worth the cost.

The Credit Repair Organizations Act or CROA is mandated by the federal government which all credit repair companies must abide with. Before you agree to use the services of a credit repair company, understand what your rights are. Some of these requirements for credit repair companies include the following:

  • The services to be provided must be specified and provided in a written agreement
  •  Allow at least three days to withdraw from the agreement
  • No promise can be made that the credit repair company will remove accurate information on your report
  • Advice that the company provides cannot potentially make you guilty of credit fraud
  • Payment can be collected only when all the terms of the agreement have been met

Does Credit Repair Work?

Credit repair works if, and this is a big “if”, you have items on your credit report that qualify for disputes.

These items on your credit report must be inaccurate in nature to dispute them appropriately. Items that are legitimate can’t be removed from your credit report regardless of if they are positive or negative.

Submitting a dispute on an item that you’ve earned a derogatory remark will be rejected. Additionally, credit bureaus are not held responsible for investigating these types of illegitimate disputes.

What Items Can I Dispute on My Credit Report?

You should have reasonable expectations before you hire a credit repair company or decide to repair your credit on your own. Otherwise, you risk the chance of being disappointed in the results.

This means that you should understand what items on your credit report would be successful to dispute. Generally speaking, the items that can be removed from your credit report are those that are inaccurate. These inaccuracies fall into the following categories:

1. Outdated

The length of time that a negative item can stay on your credit report is bound to a certain period. For example, if you applied for a credit card which results in a hard credit inquiry, that item can stay on your report for up to two years. Review each negative item, when they occurred, and how long the item can stay on your report so that you can determine which are outdated and can be disputed.

2. Erroneous

These types of items are basic in nature, generally stemming from spelling mistakes or incorrect amounts that have been misreported. An example of this would be if you have a loan balance that had the decimal point in the wrong place, making it seem like your debt is much higher than it should be. These types of items tend to be the easiest to dispute and normally take only a short time for the credit bureau to fix.

3. Unsubstantiated

These items would be accounts that are on your report and the information providers (financial institution) can’t verify the account. The credit bureau is required to remove any items that they can’t prove belongs to you.

4. Fraudulent

Items that appear as legitimate accounts initially and upon investigation, indicate they are fraudulent in nature can be removed from your report. This could be the case if you have been a victim of identity theft. If you believe that your information has been stolen, resulting in fraudulent accounts, you should report them as soon as possible in addition to filing disputes to have them removed.

6 Things You Should Know About Credit Repair

It’s not uncommon to feel vulnerable when you have had a troubled credit history. Navigating through today’s world is difficult when you have bad credit. But to choose the best option, you should know certain things about credit repair before you hire a credit repair company.

1. Credit Repair Can Be Done On Your Own

A credit repair company doesn’t have any advantages over you in helping to repair your credit. Their knowledge isn’t some secret that is only known to those in the trade. You will simply need to have an understanding of how credit works and what can be done to repair your credit.

Information that is available through libraries or the internet offers good sources to educate yourself on the subject. Repairing your credit on your own will save you money which can be used to pay down your debt or start an emergency savings fund. Even more importantly, the knowledge that you gain can help you take control of your credit history and utilize those methods in the future.

2. Start With Your Credit Report

It’s easy to turn your focus to your credit score when you’re working on repairing your credit. However, credit repair is about your credit report and improving the information that’s found in it. As you start improving items on your credit report, you will, as a result, improve your credit score.

Your credit report holds the information that you need to determine what’s causing your credit issues.. You are eligible to get a free copy of your report every year from each three credit reporting agencies.

3. Don’t Focus on Closing Accounts

Closing accounts won’t remove them from your credit report and will continue to show up in your credit history. Therefore it won’t help to close an account that has caused you problems. In fact, closing them could actually end up hurting you more.

Another reason why it’s not a good strategy to close accounts is because one of the main factors that affects your credit score is calculated on is the length of time you’ve had an account.

For example, a credit card that you’ve had opened the longest in your credit history should be kept open. Whether you’ve kept that account in good standing or can get it out of a delinquent status, that account can potentially help you with credit repair because it is your oldest.

4. Don’t Expect Fast Results

Rebuilding a poor credit history will take time. It also helps to remember that your most recent credit history is weighed more heavily on your credit score. Focus on the trend of your credit score versus the fluctuations from day-to-day.

The time that it takes you to repair your credit will be different from another person’s since you have different information on your credit report. There might be items that cause a faster boost in your credit score than others. In the end, you will be rewarded for your patience.

5. Be Wary of Shady Credit Repair Companies

Make sure that you review your rights if you choose to hire a credit repair company. There are many credit repair companies that have shady practices such as asking that you pay upfront for their services or promising that they will get you a certain credit score.

The Federal Trade Commission has cracked down on these untrustworthy credit repair companies over the last several years. But you should stay diligent and if you pick up on signs that you’re dealing with a bad company, report them to the FTC immediately.

There are reputable credit repair companies out there too. You might have friends or family that have had a good experience with a credit repair company that they can recommend. Additionally, you can check the Better Business Bureau’s website to see what others have said and if they have had any history of complaints.

6. Change Your Habits

Whether you decide to hire a credit repair company or repair your own credit, it’s not going to last if you continue the same habits that got you there. You need to create good financial habits so that you don’t fall into this situation over and over again.

For example, if you forget to pay your bills on time, then you should set up automatic payments for all your accounts. Identify those behaviors that cause your poor credit in the first place, then determine what you need to do so you don’t slip back into them.

Final Word

Having bad credit only has to be a temporary situation. You can repair your own credit but it will take time and the willingness to learn about how credit works. There are also credit repair companies that you can work with to repair your credit although you will need to find a reputable one to work with.

The key to credit repair is found in your credit report. By identifying items that are inaccurate you can proceed with activities such as disputing them to repair your credit. You have to be patient in this process as it doesn’t happen overnight.

Once you have repaired your credit, it’s important to adjust your habits accordingly so it doesn’t happen again. Then you can continue to navigate through today’s world without the weight of bad credit weighing you down.

Similar Posts