Credit repair may be the light at the end of your bad credit tunnel.
When you have bad credit, it can seriously affect your ability to be approved for cards, loans and more. You’ll find lenders willing to take on those with poor credit, but terms and conditions typically come with higher rates and unfavorable terms. Adding to the problem is that even one negative listing can remain on your credit report for up to five years.
If you have less-than-stellar credit, managing and improving your finances is key to giving yourself the best chance of lender approval. If you’re looking to improve or repair your credit, a credit repair agency could be a tool to get you there more quickly.
Learn more about these tools, including the importance of a solid credit history, what the credit repair process entails and how to compare your options to find the top agency for your needs.
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Quick guide to your credit file
Your credit report is a detailed record of your borrowing history — credit cards, bank accounts, mortgages and other loans, utilities and more. Information in your report is provided by the credit card issuers, banks and other institutions you’ve borrowed from. You are entitled to a free copy of your credit report every year from the three nationwide credit reporting companies, but you can also pay a fee to receive it online within 24 hours.
Why is my credit report important?
Your credit report lists applications you’ve made for all forms of credit (whether approved or not), your repayment history, details of any defaults or bankruptcies you may have, your current debt, information on the accounts you currently hold and any court judgments against you. Lenders and other providers assess this information to avoid the risk of giving credit who may not be able to repay them.
It’s these listings that a credit repair agency may be able to remove from or fix in your file.
What is credit repair?
Credit repair is not simply paying an agency to erase negative listings from your credit report. The laws surrounding credit are complicated and can result in lenders listing defaults or missed payments without properly adhering to the law.
Credit repair agencies provide a valuable service in taking on the intricate process of cleaning up incorrect or duplicate listings on your credit history. Using credit legislation, they determine whether negative listings in your report were put there by a credit provider that didn’t follow the letter of the law. These agencies are expert in credit legislation and spotting these erroneous listings, holding credit bureaus, banks, debt collectors and lenders accountable for reporting accurate information.
The credit repair process
The process of credit repair varies by company, so ask about the specific agency’s process before you apply. Generally you’re offered a complimentary initial consultation, after which you or the agency will:
- Read your file. The agency carefully reviews your credit report for incorrect listings and methods available to improve your score.
- Apply for credit repair. You’ll complete a form detailing the listings or faults you want the agency to examine.
- Accept your claim. If the company decides it can help you, it will accept your application and start looking into your credit history.
- Contact creditors. The agency will contact your creditors to determine which defaults can be removed from your report. An agency may also help negotiate a debt repayment plan with creditors if you owe a debt.
- Pay a fee. The Credit Repair Organizations Act prohibits an agency from requiring upfront or charges before taking on your case. Instead, you may pay fees throughout the process to cover the time needed to address incorrect listings.
- Remove listings. If the credit repair agency is successful in its negotiations, the creditor will remove the erroneous listings from your file.
The CROA is a statute signed into law by President Clinton in 1996 to prevent credit repair agencies from engaging in unfair business practices that could result in consumer hardship. A major area covered by CROA is how these agencies are paid.
Under CROA, a credit repair agency cannot demand upfront or “setup” fees before accepting your case. Like for other services, you pay only after services are rendered. Credit repair organizations can either charge you a monthly fee for its services or after each negative listing or item is successfully deleted from your credit report. on the more modern pay after deletion model where clients only pay after items are deleted from the credit report.
If you suspect that a credit repair agency is operating in violation of the Credit Repair Organizations Act, file a complaint with the Federal Trade Commission.
How to compare credit repair agencies
With so many credit repair agencies in the US, consider the important factors below when weighing whether an agency is reputable.
- Transparency. How up front is each company about the fees you will have to pay? Look for a company that provides the full terms and conditions of its services before handing over your money.
- Reputation. Is the company a trusted name in the industry or have a history of satisfied customers? Look for a respected company with an impeccable service record.
- Customer reviews. Online review sites can give you an idea of the experiences other people have with these agencies — and, importantly, how each company treats its customers.
- Overall cost. Cost is obviously an important factor to consider, but you’ll want to find the ideal combination of affordable price and quality services.
Note that unlike for other agencies, states don’t require these companies to have a “credit repair license.” Empower your decision with deep research into an agency’s history, service and reputation before signing a contract.
The benefits and drawbacks of credit repair
- Improve your financial standing. Even if an agency is successful in removing only a few negative listings from your report, the result can improve your chances of accessing credit.
- Save money on future borrowing. With an improved credit score, the rates that you pay to borrow money — for example, with a personal or home loan application — could save you significant money over the life of a loan.
- Services can be expensive. Whether you pay by the month or with each removal, credit repair will cost you.
- No guarantees. After all that hard work, your credit repair agency may be unsuccessful in removing your negative listings.
What should I consider before taking on credit repair?
Improving your credit score can be a slow process, and enlisting the help of a credit repair agency could move you more quickly along to the road to a clean credit report. But because credit repair agencies can charge you a fee for every listing they remove, you might want to first attempt to resolve the issues yourself.
We recommend ordering a copy of your credit report to carefully review your credit history first. If you discover any errors, dispute them with the three credit bureaus and the provider that reported them.
Also consider your short- and long-term credit needs when deciding whether to pay for credit repair. For example, if your credit file shows three negative listings and two of them are due to be removed from your file soon, you could wait to apply for that card or loan until then.
How long a negative listings remains on your credit file depends on the listing. In general:
- Your repayment history can stay on your report for up to seven years for negative listings and up to 10 years for neutral or positive listings.
- Credit inquiries stay on your file for up to two years in most states. (The term is extended up to five years in New York and up to seven years in California.)
- Collection accounts and court judgments stay on your file for up to seven years.
Why is it important to check my credit report?
Carefully reviewing your credit history annually can help you ensure that lenders see only the most accurate picture of your financial health. Even small errors and typos in the following factors can affect how a lender scores your potential borrowing risk.
- Your contact and employment information. An incorrect name, Social Security number or employment history can adversely affect your ability to get credit.
- Existing accounts. If repaid loans or closed accounts are listed as open on your report, alert the credit bureau to the problem. You may also want to call the provider that reported it.
- Incorrect payments or defaults. Dispute any erroneous listings for late or missed payments with both the reporting bureau.
- Duplicate listings. Ensure that no debts or accounts are listed twice, especially for any accounts in collections.
Lenders examine your credit report whenever you apply for credit, using the information in it to determine your ability to repay any money you’re looking to borrow. Take charge of your financial well-being by ensuring that information is accurate and portrays your borrowing history in the best possible light.