If you’re struggling with debt or bad credit, you’ve probably come across an ad from a company offering to repair your credit.
While it may seem like an easy fix and a quick way out of the problem, experts say there are many reasons to avoid this path.
First, like many services provided to desperate people facing financial hardship, fraud is rife. Also, almost everything these services provide is free and you can do it yourself.
At the same time, for those who feel overwhelmed by their financial situation or are scared of climbing out of the water, credit repair services may help solve some of their problems.
The key is to understand who you are dealing with and whether they are truly qualified to resolve your situation.
“If you have inaccurate information on your credit report and are struggling to figure out how to fix it yourself, a credit repair agency may be able to help,” says Bruce McCrary of the National Credit Counseling Foundation. ” he said. “But people need to remain vigilant when shopping.”
How can you repair your credit?
First, you need to understand what credit repair agencies can and cannot do.
Credit repair services are only helpful if there are actual errors on your credit report. It’s not as rare as you think. 2021 Survey by Consumer Reports It found that more than a third of the approximately 6,000 people surveyed found at least one error on their credit report.
Mistakes can include not deleting old debts that have been paid off or charges incurred as a result of confirmed identity theft, all of which can lower your credit score. To resolve these, he will need to file a dispute with each of the three major credit bureaus: Experian, Equifax, and TransUnion.
Credit repair services offer to bring these disputes on your behalf. There is no guarantee that they will be successful, and if everything is correct on your credit report, there is nothing they can do.
You can do this yourself for free, but it takes time and patience. This type of service can be helpful for people who feel anxious or intimidated by this type of bureaucracy.
Things to be careful about
People facing the threat of financial ruin are understandably stressed, and unfortunately, this can make them vulnerable to credit repair telemarketing schemes that overpromise great results. There is a gender.
There are some red flags to be aware of. If a company guarantees results, you should look elsewhere. Also, if you are forced to pay in advance, it may be a scam.
“The law says you can’t make a claim until the problem has been removed from your credit report and you can prove it’s been gone for at least six months,” said Sarah Chemben, chief executive officer of the nonprofit organization Working Credit. “It has been a long time since I’ve been in the middle of a long time.” Credit counseling company.
In August, the Consumer Financial Protection Bureau reached a $2.7 billion settlement with two of America’s largest credit repair brands, Lexington Law and Credit Repair.com, for charging illegal upfront fees for their services. Reached. Both companies have been banned from telemarketing their services for 10 years, and PGX Holdings, which owns both companies, has filed for bankruptcy.
Besides misleading promises and fee structures, the credit repair field also attracts more unscrupulous actors.
Last year, a federal judge shut down a national credit repair company called Financial Education Services after the Federal Trade Commission accused it of being a $467 million pyramid scheme targeting people whose finances were disrupted by the pandemic. did.
In addition to allegedly offering a variety of bogus credit repair services, the FTC also accused the company of locking customers into pyramid schemes that promised rewards for bringing in more credit repair customers. It was actually a pyramid scheme, the agency said. . A lawyer representing the company did not immediately respond to a request for comment.
In a separate case in 2022, federal prosecutors alleged that a group running a credit repair company stole customers’ identities as part of a larger real estate fraud. The alleged masterminds of the scheme have pleaded not guilty and are awaiting trial. Their attorneys did not respond to messages seeking comment.
What are the other options?
Experts say if you find yourself in a lot of debt, there are several steps you should take to get your finances back on track. Credit repair is actually just the first step in the process and should not be considered final.
The next thing to deal with are late payments that are causing your credit score to drop. Call the person you owe money to and see if they can work out a repayment plan or agree to make a small lump sum payment in exchange for forgiveness of the rest of the debt. Delinquent payments can stay on your credit report for up to seven years, but the impact is smaller once the delinquency is reported as completed.
For people in this situation, there are many nonprofit credit counseling services that can help you plan your way forward.
If the situation is so bad that bankruptcy may be a reasonable option, it’s time to consult a bankruptcy attorney to determine your next steps.
“Having to file for bankruptcy can be extremely painful and even embarrassing, but once you get through it, you can start rebuilding your credit history fairly quickly,” McCrary said. “But if you take this step, you really need to learn how to prevent patterns from repeating.”