4 ways to mitigate risks with credit repair companies

While some credit repair companies are reputable, others can leave consumers with a bad taste in their mouths. This article reviews the risks of credit repair companies and how you can go about protecting yourself when working with them. 

What are credit repair companies? 

A credit repair company is a firm that helps consumers repair their credit, working to increase their credit rating with the credit reporting agencies. They evaluate your credit score and the negative reports on the credit report. Then, they work on your behalf to dispute these dings in an attempt to get them removed from the report. 

There isn’t anything that a credit repair company does that you can’t do for yourself, according to Rod Griffin, Senior Director of Consumer Education and Advocacy at Experian. “You can get a credit report for free once a week without affecting your score. Follow the information on the report to dispute.” With that said, you may still opt to work with one to gain the confidence of better results because they deal with creditors every day.

“Credit repair companies need to follow the guidelines of the Credit Repair Organizations Act,” according to Griffin. Understanding this will help you avoid a potential bad experience with a credit repair agency.

3 risks with credit repair companies

Consumers need to be mindful of who they work with when it comes to credit repair. According to Joe Camberato, CEO of National Business Capital, “There are a lot of fly-by-night companies.” He suggests using Google Reviews and TrustPilot to get a good sense of whether a company has a good reputation or not. He warns people to “always use a reputable company with a history of results.”

1. No guarantee of results 

Credit repair companies will dispute any negative mark on your credit report, whether it is right or wrong. What they do is send a dispute letter on your behalf to the creditor, claiming that the information is incorrect. If you have proof that it is wrong, they will include this in the dispute to improve your case. If not, they are relying on the creditor to not respond to the dispute. The negative item will be dropped off the report if the dispute is not responded to within 30 days. This means that the credit repair company will send letter after letter, hoping the creditor doesn’t respond. While this was once a good tactic, creditors now can file to have the negative item put back on the report. In the end, you’re still stuck with bad credit.

2. Separates you from your hard-earned money 

Credit repair companies cost money. In some cases, this can be thousands of dollars. “Your money might be better spent paying down actual debts to improve your credit,” says Griffin. You have to evaluate whether the credit repair company can really deliver results and whether it is worth the money that you will spend with them. In some cases, you may be paying your hard-earned money to get no significant results that positively affect your credit report. Evaluate this before you make the decision to work with a credit reporting agency. If you don’t have the available time in your busy life to go after creditors yourself, hiring a credit repair company to handle the day-to-day grind may be worth the added cost. 

3. Takes a lot of time 

Credit repair agencies do not offer overnight results. Each dispute must go through the 30-day waiting period. If the dispute is addressed by the creditor, the credit repair agency may file another dispute in hopes that the company fails to respond within the designated time. If you need to repair your credit quickly, such as when buying a home, you might not have the time to wait for the disputes to cycle through. It can take months to get results. In many cases, “the only real solution is paying down debt,” according to Griffin. This will have an immediate impact on your credit report and get you the results you need faster. 

4 ways to protect yourself from credit repair risks

1. Don’t pay upfront 

According to the Credit Repair Organizations Act, credit repair companies are not allowed to take payment upfront. They must wait until they have done the job. So, if a credit repair company asks for payment before they begin working, know that this is not a reputable company following the law. You’ll want to stay away from these companies and continue your search for a reputable company that follows what the Credit Repair Organizations Act directs. 

2. Get a contract 

Credit repair agencies are required to provide you with a contract for their services. This contract should outline the duties that the agency will perform and for what fees. It should also discuss the timeframe within which you can withdraw the contract and render it null and void. Note that the contract “cannot promise to withdraw accurate information,” according to Griffin. It can only promise to attempt to remove derogatory items on the report. It cannot guarantee results. 

3. Don’t agree to falsify information 

A bad credit repair company may ask you to falsify your identity or other personal information in its attempt to get derogatory items off of the report. This is illegal. If the information in your report is accurate, there is little that a credit repair agency can do to remove the item from the report other than dispute it multiple times in an effort to have the creditor miss a deadline. This rarely gets the results that the consumer is seeking from the credit repair agency. 

4. Make sure you have three days to withdraw 

The credit repair agency must give you three days to withdraw the contract. During this period, you should do a deep dive into the reputation and assess what the credit repair agency wants you to do to resolve derogatory items. If something doesn’t seem right, cancel the contract so that you are not liable for any fees. The three-day withdrawal period is granted per the terms of the Credit Repair Organizations Act. A company can give you more time to change your mind but not less. 

The takeaway 

Credit repair agencies may be a good option for you if there is genuinely inaccurate information on your credit report and you have the time to wait for disputes to process. Ensure that any credit repair agency you work with follows the rules set for by the Credit Repair Organizations Act to protect your rights and hard-earned money. Keep in mind that anything that the credit repair agency is going to do is something that you can do for yourself and do for free. Get a free copy of your credit report before starting any process so that you know exactly what you’re dealing with when it comes to repairing your credit.