How credit repair companies work

This post is sponsored by Lexington Law Firm

No matter what you do, others will judge you.

Normally, that shouldn’t matter.

But when it comes to credit scores, the people doing the judging tend to have a lot of impact on our financial, professional and even personal lives.

Fair or not, your credit score and history are a sign on your forehead that tells other people if you’re financially responsible.

A not-so-great score can tank your shot at financing that perfect house you’ve been eyeing for the last few months, while a great credit score can get you an excellent rate on a loan to help you kickstart your dream business, or even land you a job that you need or want.

If you’re not keeping track of your credit score, you absolutely should be.

Why is having bad credit a big deal?

FICO is the most widely used credit score, and it ranges from 300 to 850.

Generally, a score below 550 is bad news, and anything above 750 is golden.

If you’re in the middle, you’ve got some leeway, but the higher the better.   

Crummy credit can keep you from getting the things you need to get ahead — or even just caught up — in life.

In some cases, employers run credit checks on potential hires.

If you need to buy a home, car, get a student loan, a good rate on insurance, or a line of business credit, you may find that you need a boost in your credit score to get what you need.

The higher your score, the better the chance of reaching your goal, and the lower the interest rate, which means the less you will have to pay back on the debt.

Can you imagine nailing an interview at your dream job only to lose out in the end because your credit isn’t good enough?

In extreme cases, it can affect where you lie your head at night. Many landlords run credit checks.

There are people in nearly every town in America paying hundreds of dollars a week to live in hotel rooms because their credit isn’t good enough to get even the most basic apartment.

That’s terrible, and it’s a destructive cycle because when you’re paying that much just to have a bed, it’s even harder to climb out of a hole and start repairing your financial situation.

How easy is it to screw up your credit score?

Look, few people with massive debt got there out of willing irresponsibility.

Sure, those department store credit cards are appealing when you’re young, but youthful mistakes aside, it’s all too easy to bite off more than you can chew when it comes to debt.

True, it’s a great idea to have a credit card for emergencies — and showing responsible, on-time payment and an ability to service your debt will actually establish good credit.

But let’s say, for example, your dog gets bitten by a snake and needs to go to the emergency vet, and you don’t quite have the cash to cover it. It makes sense to get Bubbles help — after all, you can make the payments on time, right?

But sometimes life doesn’t give you that chance: Your car’s transmission could blow before Bubbles is even out of bandages, followed by any number of things — fewer hours at work, an increase in rent or unexpected appliance repairs.

In short, your debt can go from manageable to scary really fast — and that’s increasingly a problem as more and more Americans are living paycheck to paycheck.

And on top of accumulating debt, you’ll typically have to pay interest — more than 20% on some cards.

And it doesn’t stop there. If you’re only able to make minimum payments, it can take years and years to pay off your debt — and you wind up paying more the longer it takes.

And if you miss or are late on a payment, not only will your credit score likely take a hit but you’ll wind up having to pay an additional fee.

However, many of us have errors on our credit reports.

This can include debts that you already paid off, erroneously reported missed payments, and duplicate debts — errors that wound up on your report due to an honest mistake of someone else, but can have grave effects on your life and future if left unaddressed.

How do credit repair companies work?

Credit repair companies comb through your credit reports, find errors and try to get them removed, potentially bump up your credit score.

Credit repair companies hunt for things like accounts and legal actions that aren’t yours, incorrect dates, debts that are too old to be on the report, debts that can’t be verified and even misspellings that could have a negative impact on your score.

These companies find these discrepancies on your behalf and then dispute with creditors so you don’t have to.

Credit repair companies usually charge monthly during the credit repair process.

Credit repair companies serve as a middleman between you and your creditors.

In general, credit repair companies work like this:

  • Credit repair services get your credit report from each of the three big credit bureaus — Equifax, Experian and TransUnion.
  • They go through your credit reports, applying a laser focus to anything that looks out of the ordinary or that could be disputed.
  • They go ahead and file disputes for you. That means writing dispute letters — and while you can do this on your own, keep in mind that the pros have more experience.
  • They’ll negotiate back and forth if needed with your creditor. That includes responding promptly — something that can be difficult for the average person whose full-time job is not dealing with credit bureaus.
  • They will also follow up with your creditors directly.
  • Importantly, a good credit repair company will do this month after month, as long as it takes to determine whether all the debts in your report can be validated.
  • Another hallmark of a good credit repair company is that, while they can’t promise to build your credit score (that’s something only you can do), they can offer you some tips. For example, Lexington Law, one of the most trusted companies in the business, offers a personalized credit score improvement analysis every month and offers access to paralegals who can provide coaching.
  • Since this is a process that takes months, good credit repair companies will also keep monitoring to keep an eye out for any other disputable items.

Why do people turn to credit repair companies?

Debt is a stress-inducing and crushing weight on your daily life, so you can imagine how relieving it can be when someone offers a helping hand. That’s where credit repair companies come in.

Unfortunately, not all credit repair companies have your best interest in mind.

There have been reported scams and even federal legal action against some companies offering credit repair services.

Because there are so many out there, it’s easy to be overwhelmed by services claiming to offer a solution to your credit problems.

However, there are some quality services — especially ones that have a clear record, easy-to-access customer support and a background in law.

One in particular with a great track record is Lexington Law, which is owned and operated by lawyers who have a lot of credit repair knowledge.

What are some things to look out for with credit repair companies?

Credit repair isn’t instant. It can take months — and sometimes more than a year.

That’s because people — consumers or credit repair companies — have to go back and forth with credit bureaus in order to straighten things out.

So, if a credit repair company is offering to get you results within a very specific time frame, that could be a bright red flag.

It’s also illegal for credit repair companies to ask for payment up front, so that’s another huge indicator that something’s not right.

Before hiring a credit repair company, you’ll want to do some digging on the company’s site — is it easy to connect with a real live person? Is it easy to learn about the company, or is their site full of vague promises?

If you do choose to go with a company instead of disputing your credit DIY-style, always go with a company that fully explains your legal rights when they’re describing their services.

Another thing: Credit repair only works if what’s being disputed is legitimately disputable. If the company is telling you to dispute something that you know is accurate, that’s a bad sign.

Also, no legit credit repair company would tell you not to directly contact credit reporting companies or advise you to give fake info on applications for credit.

What are the laws about credit reporting and credit repair companies?

Lots of states have their own laws that regulate credit repair companies, but there are also federal regulations.

The big one is the Fair Credit Reporting Act, which allows you to access one free credit report per year from the major credit bureaus — Equifax, Experian and TransUnion.

This law also limits who exactly can run your credit report, sets a time limit on what shows up on your report and sets general rules for how credit bureaus handle consumer complaints, including responding in a timely manner — typically 30 days.

You should also know about the Fair Credit Billing Act, which forces creditors to bill correctly and completely, and the Fair Debt Collections Practices Act.

The Fair Debt Collections Practices Act sets behavioral standards for collections agencies, lets consumers request collections agencies cease and desist most communication, and outlines consumers’ rights to get more information about their debts.

There’s also the Credit Repair Organizations Act, which falls under the Consumer Credit Protection Act.

It forbids “untrue or misleading representations and requires certain affirmative disclosures in the offering or sale of ‘credit repair’ services,” according to the Federal Trade Commission, and it also prevents credit repair services from requiring payment up front, makes them provide written contracts, and gives consumers some rights to cancel contracts.

In short, there are a lot of laws that protect people like you and me from unfair and unethical credit reporting.

These laws also make it legal and accessible for everyone to repair

Should I hire a credit repair company?

Credit repair companies can be a great option for some people, but you can also tackle credit repair on your own — especially if you’re prepared to spend a lot of time and energy learning how and executing the necessary steps.

If you have the money to spend (which you may not if you’re in debt), using a service like Lexington Law could save you lots of time and hassle.

On the other hand, if you’ve got access to the internet and some time to study, you can be your own advocate rather effectively.

Another option here — and one the FTC actually advises — is seeking out a reputable nonprofit credit counseling organization.

Those can still cost you money, but it’s a good idea to find one that’s set up through universities, credit unions and other reputable institutions. In general, they can help you work out a plan to fix your finances.

Whatever you do, it’s best to weigh your options carefully and do what’s right for your own financial health.

Related posts:

How single moms can pay off debt for good in 10 easy steps

Credit tips of your divorced or thinking about separating

3 times you should pay for credit repair

How to protect your credit score in divorce and separation

 


Some of the links in this and other posts generate a commission. I never recommend products that I don’t truly believe in. Seriously – I get asked to write about stuff all the time and turn down hard cash if I’m not feeling it.

 

Emma Johnson

Emma Johnson is a veteran money journalist, noted blogger, bestselling author and an host of the award-winning podcast, Like a Mother with Emma Johnson. A former Associated Press Financial Wire reporter and MSN Money columnist, Emma has written for the New York Times, Wall Street Journal, Forbes, Glamour, Oprah.com, U.S. News, Parenting, USA Today and others. Her #1 bestseller, The Kickass Single Mom (Penguin), was named to the New York Post’s ‘Must Read” list.

Emma regularly comments on issues of modern families, gender equality, divorce, sex and motherhood for outlets like CNN, Headline News, New York Times, Wall Street Journal, Fox & Friends, CNBC, NPR, TIME, MONEY, O, The Oprah Magazine and The Doctors. She was named Parents magazine’s “Best of the Web,” “Top 15 Personal Finance Podcasts” by U.S. News, and a “Most Eligible New Yorker” by New York Observer.

A popular speaker, Emma presented at the United Nations Summit for Gender Equality. Read more about Emma here.

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