Some Credit Repair Companies Can Damage Your Credit!
You may be able to do all that credit repair companies promise at no extra cost. Sound like a better option? Read on.
Getting Scammed by Credit Repair Companies
“Allison, I desperately need your help. I’ve paid a credit repair company thousands of dollars, and my score is even worse than it was before.”
These were the exact words from one of the attendees of one of my recent credit repair workshops during a quick conversation before the event. We’ll call her Melissa. She had attended a few of my other classes, so she felt comfortable enough to confide in me.
But my heart broke for Melissa. Not because she was in debt and had subpar credit, but because she had tried to do the right thing and had clearly been swindled.
Long story short, Melissa had a ton of small collection accounts totaling less than $1,000. But the credit repair company had charged her more than $2,000 for an “administrative fee” to cover the costs associated with making payment arrangements.
Too bad they didn’t attempt to negotiate pay to delete agreements, which would’ve actually helped her out once she paid the outstanding balances in full.
What’s even worse, is that they were now demanding even more money, to commence repayment of debts that would now linger around on her credit report for seven more years, thanks to the statute of limitations on resets.
Maybe you’re no different from Melissa. Your credit is in shambles. So you do what any seemingly wise consumer would do: you solicit the assistance of a professional credit repair company to help you get back on your feet and on your way to earning that 850 credit score.
It sounds like the right thing to do. But a shady credit repair company can actually make things worse and burn a hole in your wallet.
Credit Repair Scams
According to the Federal Trade Commission (FTC), “No one can legally remove accurate and timely negative information from a credit report.” But scores of aggressive and borderline shady credit repair companies have done a tremendous job of convincing innocent, often desperate consumers otherwise.
Just think about all the ridiculous ads on television or billboards. They say things like, “We can erase your bad credit – 100% guaranteed.” Or “Credit problems? No problem!” If it were that easy, wouldn’t everyone have perfect credit?
Do You Know Your Rights?
Most of the attendees in the class with Melissa had no idea they had rights when it came to credit repair. The Credit Repair Organizations Act makes it illegal for credit repair companies to lie about what they can do for you.
Under this act, credit repair companies are also prohibited from charging you before services are rendered.
If you discover that your rights have been violated, you can file a formal complaint with your State Attorney General’s office. You can do so online via the FTC website or by calling 1-877-FTC-HELP.
DIY Credit Repair: A Better Option?
Contrary to popular belief, there isn’t anything credit repair companies can legally do that you can’t do on your own. To cut costs and begin the credit repair process on your own, take the following actions:
- Retrieve a free copy of your credit report from annualcreditreport.com. Analyze the contents of each section and highlight any inaccuracies.
- Draft up a letter to one of the three credit bureaus.
- Notify the creditor of your dispute.
- Await a response. If the credit bureaus rule in your favor, you will receive a free copy of your updated report and a written notice of correction. Upon request, written notices of request can also be sent to recipients of your credit report in the past six months.
For additional information on dispute letters, view this template.
How to Boost Your Score the Right Way
In order to boost your credit score, you need to understand what goes into the formula. Your FICO score, which is the figure used by over 90 percent of lenders, is derived of five distinct components. Here are some tips to help you start rebuilding your score:
- Payment history (35 percent): Eliminate delinquencies and make timely arrangements.
- Amounts owed (30 percent): Keep balances low and accelerate debt-repayment efforts.
- Length of credit history (15 percent): Don’t close idle accounts (unless a hefty dormancy fee applies).
- Account mix (10 percent): Apply for an installment loan and consider a secured credit card if rebuilding.
- New credit (10 percent): Only apply for credit as needed.
A Final Thought
Not all credit repair companies are out to get you. In fact, there are several legit nonprofit credit repair organizations that have helped scores of consumers turn their credit and finances around.
However, you should always do your research before moving forward. Make sure you confirm that the company is legit and will deliver on their promise — not give you a run for your money.
Opinions expressed here are author’s alone, not those of any partner bank, credit card issuer, hotel, airline, or other partner. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included within the post.