People hire credit repair companies for their expertise as well as for the convenience. But what do credit repair companies really do? How does it work? Is it worth it?
A credit repair company should help identify and dispute accounts that should not be on your credit report. This may include obvious issues, but many reporting violations are subtle and difficult to spot; a credit repair company may find critical items you may miss on your own.
It is worth noting that not all derogatory items can be disputed safely, and the company you hire should check your state statutes of limitation for debt accounts to avoid disputing items that may trigger new collection activity.
A credit repair company should suggest steps you can take to raise your scores. Removing derogatory items alone may not be enough to improve your scores; you must have open, positive, and properly managed credit.
What Do Credit Repair Companies Do?
- Help identify erroneous items on your credit report
- Flag “high-risk” disputes that may trigger collection activity
- Manage the dispute process
- Suggest a credit management plan to raise your scores
Credit repair companies, like most consumer financial services, are regulated. The federal law that governs the credit repair industry is called the Credit Repair Organizations Act (CROA). CROA prohibits certain practices as well as specifying how credit repair companies can get paid. Here are some highlights.
What Are Credit Repair Companies Not Allowed to Do?
- Accept pre-payment for services; for example, it would be illegal to offer a lump-sum six month membership
- Make promises about results; for example, it would be illegal to make the statement, “we can delete anything”
- Make deceptive representations; for example, it would be illegal to offer a money-back guarantee, but hide the list of conditions
How about you? Is credit repair the answer?