Fact vs. Fiction: A Complete Guide to Credit Repair

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If you’re a Credit Sesame member or a regular reader of our blog, you already know how important your credit score is. This three-digit number can make or break your ability to get a car loan, a credit card or a mortgage. Your score also heavily influences the interest rates lenders charge on what you borrow.

When your credit score has dropped because of late payments, collection accounts, bankruptcy, foreclosure, high credit card utilization or some other negative event, getting it back on track is a top priority. If you’ve got bad credit, you may already be researching credit repair companies to see how they can help.

Some consumers have had great experiences with credit repair services; others feel like they were taken to the cleaners. Before you sign up, understand how they work and what you can expect. Read our guide to find out what professional credit repair providers can and can’t do for your credit score.

How credit repair companies work

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Professional credit repair is legal, and some credit repair companies are legitimate. The reason they have a bad rap is twofold. First, credit repair scams are alive and well. So-called credit repair experts take your money but the positive results they achieve vanish after a month or two. We’ll explain this more a little later. Second, credit repair companies charge a fee but can’t do anything that you can’t do yourself for free.

The nuts and bolts of credit repair is to get negative items removed from your credit report. Reputable credit repair companies take it a step further by teaching you how to avoid bad credit in the future.

Here’s how it works. The credit repair company will order (or ask you to order) copies of your credit report from each of the three major credit reporting bureaus: Equifax, Experian and TransUnion. Then, each report is reviewed for inaccuracies, errors and negative items.

If an error is found, the next step is to initiate a dispute with the credit bureau reporting the information. You may be asked to provide any supporting documentation you have that could prove the information is inaccurate.

For example, if you paid off a collection account but it’s still being reported with a balance, you’d need to give the credit repair company a bank statement, cancelled check or receipt showing that the debt was paid.

The credit bureau is responsible for verifying the information that’s being dispute with the organization that originally reported it.

Some credit repair companies flood the credit bureaus with disputes. A few accurate negative items may slip through the cracks and get removed from your credit report. Unfortunately, this strategy doesn’t work in the long run. Creditors regularly report to the credit bureaus, and if the negative item is accurate, it will be reported again and reappear on your credit report. Flooding the bureaus with disputes is called “jamming,” and it’s how you might get a temporary credit score improvement that disappears in the future.

How long does credit repair take?

The Fair Credit Reporting Act (FCRA) dictates that the credit bureau receiving the dispute has 30 days to investigate and resolve it. If you provide supporting documentation during the review process, the timeline is extended to 45 days. If the credit bureau doesn’t resolve the dispute within the required time frame, the disputed information must be removed.

What can credit repair companies dispute?

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Not everything on your credit report is eligible for dispute. The FCRA allows consumers to dispute the following:

  • Inaccuracies in your personal information. If your name, address, date of birth or Social Security number is reported in error, you can file a dispute.
  • Negative items that are past the statute of limitations for reporting. Generally, negative items can stay on your credit report for seven years. (Chapter 7 bankruptcy remains on your credit for 10 years.) If a negative item (such as a charge-off or collection account) remains on your credit report longer, you can file a dispute.
  • Account inaccuracies. Some of the most common inaccuracies occur when the creditor doesn’t report your payment history properly or an account shows as “open” when in fact it is closed.
  • Mixed credit records. Mixed credit files happen when information from someone else’s credit report appears on yours. For example, if you and another person have the same or a similar name, their credit details could mistakenly show up on your credit report. Other times, digits in a social security number are transposed. In either case, you have grounds for a dispute.
  • Duplicate reporting. Duplicate reporting occurs when the same item appears two or more times on your credit report. This can happen, for example, with a collection account that has been sold multiple times to different debt collectors who all report the account.
  • Fraud or identity theft. Fraudulent accounts may have been opened in your name.

You do not have the right to dispute negative information that is accurate. For instance, if you and your ex-spouse owned a joint credit card account and that person was ordered by the divorce court to repay the debt but fails to do so, you’re out of luck where your credit is concerned. If your name is on a debt, you are legally responsible for it. A divorce decree does not supersede your contract with the financial institution, although it probably gives you the ammunition you would need to pursue your ex in court. To avoid credit wreckage, you need to ensure that every account that bears your name is paid on time.

Can a credit reporting agency refuse to investigate a dispute?

The credit bureau (and the creditor in question) can refuse to investigate a dispute for several reasons:

  • You don’t provide enough information to support the dispute
  • The dispute is part of a blanket dispute of everything or almost everything in your credit report
  • The dispute is filed using a credit repair company form
  • You repeatedly dispute the same item

Be careful. If you are flagged as a consumer who files frivolous disputes, you’ll have a hard time getting the reporting agencies to pay attention to you in the event of a legitimate dispute.

The cost of credit repair

Credit repair companies are in business to help consumers but they don’t offer their services for free. Depending on how the company operates, you may be charged a lump-sum fee or monthly. The lump-sum fee is typically between $300 and $600, while monthly fees can range from $60 to $120.

Do-it-yourself credit repair is free, requiring only education, time and effort.

Do credit repair companies really work?

If you’re considering credit repair, whether they work may be the most pressing question on your mind. The answer isn’t exactly black and white.

Whether credit repair is going to work for you depends on what items are disputed, whether the disputed information is in fact inaccurate, and how thorough the credit repair company is when it comes to gathering supporting evidence and working with the credit bureau to resolve your dispute.

If you work with a legitimate company that’s diligent about pursuing dispute claims and you have a valid reason for initiating a dispute then yes, credit repair can work.

A more important question is, “what kind of results can you expect to see?”

The answer goes back to the issues dragging your score down in the first place. Late payments, collection accounts and serious delinquencies can have the strongest impact on your score but this impact fades with time. Typically, after the first two years, those black marks carry less weight against your score. Eventually, they will be removed and won’t hurt you at all.

If you dispute older accounts, removal from your credit report may not make a significant difference in your score.

Are credit repair companies a scam?

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Not all credit repair companies are focused on helping people. Some are just out to take your money. These companies make false claims to lure you in and collect a fee, without doing anything tangible to improve your credit rating. In some instances, these companies could make things even worse.

For example, in one scam recognized by the Federal Trade Commission, a credit repair company offers to set you up with a brand new credit profile using something called a credit privacy number. This is a nine-digit number that can supposedly be used as an alternative to your Social Security number to get approved for credit.

The idea is that if you apply for a loan, the creditor would look at your credit privacy number and see a clean credit history versus your actual credit profile associated with your Social Security number. The problem is that misrepresenting your Social Security number on a credit application is a federal crime.

Besides that, some of these credit repair companies can get you into very hot water by recycling stolen Social Security numbers and selling them as credit privacy numbers. In that case, you’ve just paid a fee to a company that’s setting you up to look like an identity thief.

On the flip side, several reputable credit repair organizations do exist. They offer help to consumers who are too busy or too overwhelmed to tackle credit repair on their own, and many past customers are very happy with their results.

Avoiding credit repair scams

Understand the guidelines credit that repair companies are legally required to follow. The Credit Repair Organizations Act (CROA) sets the following rules for credit repair companies:

  • They may not charge a fee until they fully complete the services they promise to provide
  • They can’t offer services without providing you with a written contract outlining what they plan to do and the terms and conditions of payment
  • A credit repair company can’t advise you to mislead a credit reporting bureau or alter your identity in any way for the sole purpose of changing your credit history
  • The credit repair company can’t knowingly make false claims about the services they’re able to provide
  • Credit repair companies can’t ask you to sign anything that requires you to give up your rights under the Credit Repair Organizations Act. If you do sign something saying you waive your rights, the waiver is unenforceable.

You should also be proactive with your own due diligence. Take the time to research different companies. Look for consumer complaints with the Federal Trade Commission, Better Business Bureau or the attorney general’s office in your state. Note that most complaints revolve around two issues: a misunderstanding of how fees are charged, or poor service.

Closely examine the contract so you understand what the credit repair company is offering, how much they plan to charge and how they expect to be paid. Steer clear of any company that makes claims that sound too good to be true, demands payment upfront before they provide services, tells you not to contact the credit bureaus directly, doesn’t explain your rights or tells you to give false information when applying for new credit.

How to fix my credit for free

If you’re willing to put in the time, you can repair your credit for free and save money while learning how to maintain great credit for the rest of your life.

DIY credit repair tips

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First things first, you’ll need copies of your credit report. Get them from AnnualCreditReport.com. That is the only website authorized by the Federal government to issue you one free copy of your report from each reporting agency every 12 months. Download or print them, because once you leave the website you may not have access for another 12 months. Also sign up on Credit Sesame for your free credit score (your free credit reports don’t come with a free score) and free credit report card. Our credit report card will show you the factors affecting your score and tips for improvement.

Once you’ve got your reports from all three credit bureaus, review them for errors or inaccuracies. Specifically, check to make sure that:

  • Your personal information is being reported accurately
  • Your creditors are reporting your account balances and payments correctly
  • You don’t see inquiries for new credit or new accounts you don’t recognize
  • There are no unexpected collection accounts or judgments reported
  • Older accounts on your report are still within the statute of limitations for reporting

If you see something that you believe is an error, you have two options for initiating a dispute. You can click a dispute button online while viewing your report, or write a letter to the credit bureau that’s reporting the dispute. You may need to provide additional details, so be prepared to upload or mail supporting documents.

Allow the credit bureau 30 days to consider your claim. If your dispute is valid and the information is inaccurate, the credit bureau will remove or update the item in question. You can also ask the reporting agency to send a notice of correction to anyone who received a copy of your credit report in the past six months.

If the same error appears on more than one of your credit reports, you need to dispute it with each bureau separately. If the credit bureau decides that the information is accurate, it will remain on your credit report. If you like, you can add a statement of explanation to your credit report, and anyone who receives a copy of the report will see it.

Maintaining your score after credit repair

If you successfully repair your credit, either on your own or with the aid of a credit repair company, you don’t want to lose the ground you’ve gained. Practice good financial habits going forward to keep your score moving in the right direction.

  • Pay your bills on time. The lion’s share of your FICO credit score (35%) is based on payment history so make it a point to get your payments in by the due date each month.
  • Keep credit card balances low. Thirty percent of your FICO score is based on your credit utilization ratio (how much you owe in relation to the amount of credit available to you). Pay down balances to get this number as low as possible, and don’t use more than 30% of your available credit at any given time.
  • Keep older accounts open. The length of your credit history accounts for 15% of your FICO score so don’t shut down older credit accounts without considering the effect on the average age of all your accounts. (Do close them if there is a financial reason to do so, such as a high annual fee that you no longer wish to pay.)
  • Resist applying for new credit. Ten percent of your score is based on the number of recent inquiries and new accounts in your file. Each inquiry can trim a few points off your score.
  • Mix it up. The last 10% of your FICO score depends on having a healthy mix of credit products in your file, such as an auto loan, a credit card and a mortgage. Don’t get a credit card if you are at risk of falling into debt that you can’t afford to pay back, or rush out to finance a car just to score points here. What makes the best financial sense for you is always the right mix of credit products to have.

No magic wand will repair your credit. But with knowledge and good credit behavior, you can improve your credit score. Some actions will result in an immediate improvement, while others will show benefit in as little as a few months. Slow and steady wins the race. Whether you do it on your own or you hire a credit repair company to help you, you’ll benefit most by knowing how to handle credit responsibly over the long term.

You can trust that we maintain strict editorial integrity in our writing and assessments; however, we receive compensation when you click on links to products from our partners and get approved.
Published December 31, 2016 Updated: December 30, 2016
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