Credit repair companies can be very enticing to some of us that are looking to purchase a home or fix our current financial situation. In order to qualify for a mortgage loan, some people are told they need to improve their credit score by getting rid of the negative items on their report.
Unfortunately, this is when people will often turn to the credit repair companies for help.
What You Should Know About Credit Repair Companies
Mortgage and credit report experts warn that credit repair companies’ services can be far more harmful than helpful to most people. In most cases, people are being charged hundreds of dollars by these companies to go in and dispute everything on the credit report—good or bad—and often the information is not removed from the credit report as promised.
In worst case scenarios, the good credit might even be deleted making matters even worse!
Before you, your friends or your family members agree to work with a credit repair company, there’s a lot you should know.
First off, this is never a free service—a fee is charged monthly. The fee is usually around $100 or more, and the credit repair company begins disputing anything and everything on the credit report. If a creditor they are disputing with fails to respond during a 30-day period, the information is automatically removed from the credit report.
Most creditors have a system in place to avoid accurate information from being deleted, so often this method does not help the consumer and they are being charged a fee with very little results.
How Credit Disputes Work
It’s important to know what’s on your credit report. You can pull a free credit report online at annualcreditreport.com from all three bureaus: Equifax, Trans Union and Experian in order to verify what’s being reported on your credit report. The only time you should dispute information is when it’s truly inaccurate information.
Once a dispute is filed from the credit repair company, the credit reporting agency receiving the dispute will contact the creditor in order to verify the information. If it’s truly inaccurate, it will be removed at that time. If the information is accurate, it remains for the appointed timeline.
Negative information such as collections, charge offs, judgements and accounts that were reported late during the term of the loan remain on the credit report seven years from the date of last activity or the date of first delinquency. Once the seven years is up, they will automatically be removed from the credit report.
Alternatives to Credit Repair Companies
Members often ask me if credit repair companies really work and, in some cases, inform me that they are currently enrolled in this type of service. My answer to them is this:
“When something sounds too good to be true, it usually is.”
I explain to them that if these companies could truly clean up your credit, then everyone would have perfect credit, right?
There is nothing a credit repair company can do for you that you can’t do for yourself. It’s upsetting to know that these companies take advantage of people by charging a fee for a service that is free. These companies often promise to repair a person’s credit but deliver very little results.
I explain to my members that the money they are paying the credit repair companies each month could be going directly to the creditors in effort to paying their bills off. Once they’re paid, then they can request that those be removed as a one-time courtesy.
I encourage anyone before signing up for this type of service to first speak to a financial professional, such as a credit counselor or someone in the mortgage industry. They will advise you on the best way to improve your credit score.
Do you have any questions about credit? Let us know in the comments below, and we’ll answer them in an upcoming video or blog post!
April is certified through the National Association of Certified Credit Counselors and also through the Credit Union National Association as a Certified Financial Counselor. She’s helped countless Pelican members improve their credit and their budgets!