Headed to a credit repair company? Know what to expect
If you’re serious about cleaning up your credit and prefer to hire out the task rather than do it yourself, you may decide to use the services of a credit repair company. That can be a positive step toward polishing up your credit history, provided you know the company you are dealing with is reputable.
A credit repair company is an organization that attempts to improve your credit history and score for you. They do this by disputing negative items on your credit history. They may also counsel you about how to make smart moves to improve your score. They may tell you to pay down certain cards, or to pay them down to a certain level, for example. You can do anything yourself that a credit repair company can do for you, of course. However, many people find it helpful to have a knowledgeable person working with them during the process.
Deciding to use a credit repair company is only the first step, however. You still have to choose one that will give you your money’s worth, and you’ll need to participate in the process. Good credit repair companies can do wonders – but only if you have realistic expectations and you work with them.
Years ago, credit repair companies had a sketchy reputation. The market included too many businesses that promised fast, easy results – for an upfront fee. Some of them were not that good at delivering after they made big promises. Others didn’t even try, and the worst of them simply took the fee and did nothing or disappeared.
If anyone is promising you the world, run the other way. There is no such thing as an instant credit fix.
|— Guillermo Serafin
Credit and Finance Resource Inc.
“Over the past several years, the credit repair industry has made some real progress when it comes to weeding out the scammers,” says Marc Chase of My Credit Group. “Some credit repair companies do outshine the others.”
If you look for these signs in a good credit repair company, you should be fine:
- Realistic advertising promises. Guillermo Serafin, licensed real estate, insurance and mortgage broker and owner of Credit and Finance Resource Inc., says, “If anyone is promising you the world, run the other way. There is no such thing as an instant credit fix.”
- Physical place of business. Having a real office doesn’t guarantee a business isn’t fly by night, but it helps.
- A contract you understand and are comfortable with. The contract should describe the credit repair company’s commitment to you, plus your rights and expectations.
- A detailed game plan. Some companies basically just dispute everything on your report. Not only is this something you could have done yourself, but according to Chase, it usually works with older items with low-dollar amounts, which probably aren’t hurting your score much in the first place. Plus, many disputes over legitimate debts won’t disappear, but will land right back on your credit reports once the credit bureau determines the debt is genuine. Choose a company that also helps you settle debts if you are unable to meet your current repayment obligations.
- Willingness to contact actual creditors. “Ask the company if they contact the actual collection companies, original creditors and the credit bureaus,” says Chase. This is important because collection companies, original creditors, and the credit bureaus each follow different laws. They may get good results for one negative mark by contacting just the credit bureau, but it may take contact with the creditor or collection agency to take care of another. “Most credit repair companies never dispute with collectors because it’s more time-consuming to look up their contact information,” says Chase. “It’s much easier to just print out batches of letters to the credit bureaus.”
- No upfront fees. The Credit Repair Organizations Act, a federal law passed in 1996, prohibits all credit repair companies from accepting any payment until services are performed. It’s also important to know that under the act, you have the right to terminate your contract with a credit repair company within three days of signing.
We’ve yet to see a single review site that doesn’t get a commission or affiliate fee from the credit repair companies they’re reviewing. Not surprisingly, the top-rated sites usually also happen to pay the highest fees.
|— Marc Chase
My Credit Group
You’d think you could just go to credit repair review sites and choose the best company. For example, badcredit.org gives each credit repair company a score from 1 to 5. Unfortunately, Chase says, “We’ve yet to see a single review site that doesn’t get a commission or affiliate fee from the credit repair companies they’re reviewing. Not surprisingly, the top-rated sites usually also happen to pay the highest fees.” That leads to questionable review value, at best.
Douglas Robinson, director of public relations at NeighborWorks America, a national network of more than 240 community development organizations, says that once you’ve chosen a company, you should make sure you only work with a certified counselor, “No exceptions,” Robinson says.
You should only entrust your finances to certified staff. “The best source for identifying certified credit counselors is the National Foundation for Credit Counseling,” he says. “The other good way to know if the provider of counseling services has a certification of value is to see if the organization is an adopter of the housing counseling standards set by the National Industry Standards for Homeownership Education and Counseling.” A counselor with such a certification has passed an exam established by a reputable organization.
Be prepared to pay
Credit repair companies cannot charge you ahead of time for the entire job. A reasonable fee may range from $75 to $100, after some kind of work has been done. You may then be required to pay about $65 to $80 monthly after that. “Anything outside this range is questionable,” Chase says.
Your total cost for simple credit repair may be between $500 and $1,000. The cost could go up to a few thousand dollars if the credit repair company ends up having to negotiate with creditors, however.
Understand how long the credit repair process
Don’t expect immediate results. If your credit history is in such bad shape that you need a credit repair company, you probably won’t be in the market for a low-interest home or car loan for several months.
While legitimate errors, such as incorrect or outdated items, can be removed relatively quickly, it takes 30 days or longer if you have to dispute an item. A credit bureaus has 30 days to respond to a dispute, but it may not resolve the issue and further work may need to be done.
You may end up in a credit repair program for six to 12 months. Serafin says, “This allows for disputes to be sent and results to be reported, and any resubmits to take place.” Sometimes credit repair can happen more quickly, but that’s unusual.
He cautions against credit repair companies who promise quick results using rapid rescore. Serafin says, “This is hit and miss, is costly, and does not always generate the desired results.” A rapid rescore is a tactic generally used during the mortgage loan approval process in which your lender pays an extra fee to have your credit score manually updated after legitimate errors are removed from your credit reports or loan or credit balances are paid down to improve your credit rating. Rapid rescore may raise your score in days, rather than in weeks or months.
Do your share of the work
You may feel a sense of relief that the job is out of your hands. However, the company can only do so much. “To get the most out of working with a CR company: Be patient; follow what the counselor suggests,” Robinson says.
You can help by always responding promptly with documentation. Have anything you think you may need ready to send at a moment’s notice. This includes reports, lists of creditors, and times and dates.
Pay attention to your email and answer your phone promptly. Failing to do so can greatly slow down the process.
Avoid doing more damage to your credit history during the
In your enthusiasm about helping, make sure you don’t do more harm than good. For example, you could inadvertently reactivate an old account, causing it to carry more weight in your credit score. Ask your counselor before you make payments on any old, defaulted accounts.
The best thing you can do is keep making all payments on time on current accounts – or early, if possible. Make more than the minimum payments if you can. “It doesn’t matter how good a company is at disputing issues on your credit and resolving old accounts. If you are still making late payments, you will not see the benefit of their work,” Serafin says.
Don’t make any other changes to your credit without the advice of the credit repair company. Don’t open new accounts or close old ones. Don’t keep checking your credit score, don’t increase any balances, and don’t apply for any new loans, such as for a new car.
What if you’ve done your part, and you’re
still not happy?
What if you choose a good company, do your part, wait patiently for results, and you’re still not happy?
First, look back at your contract and detailed game plan to see if the company did what it said it would do. Pointing out the provisions of your contract may help you get the job done that you paid for. The contract may also say what your recourse is if you’re still not satisfied. “You can also ask for copies of all letters sent and records of the work they’ve done to make sure they’re actually doing something,” says Chase.
If you’ve talked to the company representatives and given them a chance to make things right and they refuse, you can file a complaint with the Consumer Finance Protection Bureau or with the Better Business Bureau.
Published: November 2, 2016
- Average credit score climbs in Experian study – The U.S. consumer's average credit score rose 4 points in the past year, nearing pre-recession levels, according to the credit bureau Experian ...
- Fraud alerts: Your credit's first (and free) layer of security – A fraud alert notifies lenders that they should take special precautions to verify your identity before extending credit. But it comes with limitations -- and hassles ...
- Video: What is your credit utilization ratio? – Your credit utilization is how much credit is available to you versus how much of it you actually use ...