Is It Safe to Use Credit Repair Companies?

The TRUTH about Credit Repair Companies

( – Whether someone is applying for a credit card, looking to finance a new smartphone, or even trying to buy a home, their credit score is an important piece of financial information.That score can make or break their ability to purchase items and services on credit. When a person’s credit score is too low to be approved for loans, they may turn to a credit repair company in order to improve that score. Unfortunately, the credit repair industry is well-acquainted with scams. Here is a look at how credit repair companies work and whether it’s safe to use them.

Why People Turn to Credit Repair Companies

A person’s credit score is based on their financial activities, including whether they’ve made payments on time, how much debt they currently have when compared to their income, how long the individual’s loan accounts have been open, whether they’ve had a debt get sent to collections, or have had a foreclosure or bankruptcy, and how many recent applications from credit they’ve made. This information is primarily reported to the credit bureaus, though the information that supports the credit score can also be received through public records.

Payment history is the most important part of the credit score, accounting for about 35 percent of the score as calculated by the credit bureaus. Another major factor that a credit bureau uses when determining an individual’s credit score is their debt to income ratio, which accounts for about 30 percent of the score. When an individual makes their payments on time and does not take on more debt than their income can support, this is reflected through a higher credit score. Those with higher credit scores are more likely to get loans and better interest rates, while those with lower credit scores can have difficulty obtaining loans or services that involve regular payments, such as renting an apartment or making a large purchase.

How Credit Repair Companies Work

Credit repair companies aim to improve an individual’s credit score by getting negative information removed from their credit report for a fee. Most credit repair companies start this process by receiving a credit report from each of the three credit bureaus: Equifax, Experian, and TransUnion. They will analyze the report to look for negative information such as bankruptcies, collections, and late payments. They will then determine, based on this negative information, how to best remove the negative entries.

Commonly, negative entries are removed by disputing the debt, requesting that debtors validate the debt, Credit repair companies generally use one of two payment models:

  • A subscription-based model in which the consumer pays around $50 to $100 a month for credit repair services.
  • A pay-per-delete model in which the consumer pays the company for each negative piece of information deleted from their credit report as a result of the company’s efforts.

It should be noted that a legitimate company offering credit repair services will never tell a consumer not to contact any of the three credit reporting agencies on their own, insist on being paid before services have been rendered, or tell you to dispute accurate information on the report or to falsify information on credit applications. They must explain to you what the consumer’s legal rights are, and should provide a written contract that explains the services they are going to perform for the fee they’re charging.

Is a Credit Repair Company a Safe Choice?

There are no reliable statistics to show whether credit repair companies actually improve the credit scores of consumers and — if so — how much. It is important to understand that the services offered by credit repair companies are services that consumers can do themselves for free, including requesting a copy of each credit bureau’s report and communicating inaccurate information to the creditor. Credit repair companies cannot help you to remove negative entries on your credit report that are accurate and verifiable.

While legitimate credit repair companies can help consumers remove erroneous items from their credit report, such as accounts that don’t belong to them or negative information that is too old to be included, if a company is offering any sort of guarantee that it can remove negative information, wants to dispute accurate information, or pressures you to pay for the services upfront, it is likely a scam and should be avoided.

Copyright 2022,