We’ve all been there or heard the stories. Job loss, divorce or healthcare costs can put anyone in a tough spot. Sometimes the debt burden is too much to bear. The result: people are unable to make payments on their credit card, mortgage or other loans. Before you seek help, watch out for credit repair scams.
Missed payments, late payments, and loan defaults have a negative impact on your credit score. When this happens, it is important to take a proactive role in repairing your credit. By the way, if you don’t know your credit score, this is really the first step you need to take to regain control of your money. Get your credit score for free here.
What is credit repair?
Repairing your credit can take many forms, but it typically means disputing inaccurate or unfair information on your credit reports.
But you have to be careful. People often reach out to what they think are reputable sources for credit repair. Instead, many are scammed out of money they don’t have. In some cases, they end up with worse credit than they had when they started. People don’t realize that, in some cases, bankruptcy might make more sense than credit repair.
In this article, we’ll look at the various credit repair options available to you and how to avoid credit repair scams.
Why repair my credit at all?
Turns out that having good credit can help in a variety of ways:
- Bad credit can keep you from buying a car or home. Many lenders will not give you a mortgage or any other type of loan if you have bad credit. Think about it. If you need a loan for anything (a house, car, education, healthcare, courses, etc.) you may not be able to get it if you have bad credit.
- Good credit gets you a lower interest rate on loans. The lower the interest rate, the less you’ll pay in fees when borrowing money. That goes for any type of loan. In other words, don’t give the banks your money when you don’t have to.
- Employers and landlords often look at credit score before making a decision. A landlord wants to assess the risk of you not paying your rent, because it’s a lot harder for them to evict once the person is in the home.
- We’ve even heard of couples asking each other for their credit report before making a decision to date or move in together.
How to avoid credit repair scams
Ok, so now you’re ready to repair your credit. There are many companies that advertise credit repair services. Watch out. Many of these companies employ nefarious tactics. Some companies will flood the credit agencies with requests on your behalf, even if the claims are not valid. Other companies will tell you not to contact the credit reporting companies directly. These are all warning signs. Before you sign up with any credit counselor, read up on what the Consumer Financial Protection Bureau has to say about scams.
If the credit repair agency is offering a deal that sounds too good to be true, it probably is.
Before choosing a credit repair counselor, consider the following:
- Strongly consider doing this yourself. You can repair your credit for free simply by contacting each of the credit bureaus. We’ve linked their dispute centers here: Equifax, TransUnion and Experian. Their dispute process can be managed online or via mail. If you’re not familiar with the best strategies or don’t have time, you can hire a company to do this on your behalf.
- Watch out for deals that seem too good to be true. No credit repair service can actually fix your credit if the issues on the report are real. All they can do is help you eliminate inaccurate or unfair information on your credit report. If the credit repair agency is making you a deal that sounds too good to be true, it probably is.
- Don’t pay up front. Under the federal Credit Repair Organizations Act, credit repair companies can’t ask for or receive payment until they’ve completed the services they’ve promised. Some companies offer monthly payment plans that won’t start until they start doing the work.
- Be aware that the process can take a long time. Sometimes the delay is legitimate. Many times, the credit repair company is more than happy to drag things out because they are charging you monthly.
- Pick a reputable credit counselor. Credit counselors are different than credit repair or debt settlement companies. Consumer Financial Protection Bureau has outlined list of approved credit counselors . You need to pick your state first, before getting a list of approved vendors.
- Don’t go with anyone who can’t answer questions. If they can’t clearly explain what their service costs or answer your questions, don’t go with them. Ideally, the prices for their services should be listed on their website.
- If a credit repair company asks you to invent a new credit identity or provide false information to a lender or agency, run. Run away. Do not do business with these people.
Tip: if you just signed up with a credit repair service, you have the legal right to cancel your contract for any reason within 3 business days.
Before you sign up with any credit repair service, you need to research your best set of options (include pricing, reputation, longevity, skill set and likelihood of delivering on their service promise). Otherwise, you may fall victim to credit repair scams.
Just remember, you can also do this yourself. If you have the time and are willing to do the research, you can manage the dispute process with each of the 3 credit companies directly.
*Update: CreditKarma is another service that offers to send disputes on your behalf, for free. But they only seem to have this connected to TransUnion (not the other credit agencies).