I've been trying for several years now to fix my credit. I have tried contacting the three credit bureaus over and over about inaccuracies on my credit report, but they keep telling me that they have "verified" the information and then do nothing to correct it. This has cost me the ability to refinance my home (which has just adjusted up by 2%) and has made my credit card interest rates jump, too. At this point, there are so many mistakes on my report that I am afraid to even apply for any credit because I don't want to be embarrassed when the clerk tells me I don't qualify for a store credit card.
I have been looking into having a professional company repair my credit, but there seems to be a lot of conflicting information online. Can you give me some advice on how to choose a credit repair company?
Sincerely, Sue
Dear Sue,
As you've already experienced, trying to fix the errors on your credit report can be a daunting and frustrating task. While there have been changes in legislation that should provide greater protection for consumers, the credit system does not operate the same way as our criminal system... that is, with credit, you are guilty until you find a way to prove your innocence.
What most people do not understand is that credit bureaus are NOT government agencies. They are for-profit, multimillion dollar corporations that gather and sell your private personal information to creditors, insurers, employers, landlords, telemarking companies and mailing list companies. Those with lower credit scores statistically apply more frequently for credit, which generates more revenues for credit bureaus. So if you feel they don't have your best interests in mind by refusing to correct credit-score-lowering mistakes, you are probably right.
That said, there are some good credit repair companies with a proven track record of legitimately helping people like you. And they are not all law firms, nor are they required to be (contrary to what some firms are advertising). Here's what you should look for when choosing a credit repair company:
- The company needs to follow the provisions in the Credit Repair Organizations Act, which was implemented by the government to protect consumers from scam artists.
- The company is not allowed to charge you in advance. They must provide a service before billing you. Look for a company that will do an evaluation and audit of your credit report before taking your money.
- The company must tell you upfront what the costs are for its services. Be wary of endless "low monthly payments." In the end, you will usually pay as much or more than a company that charges a fixed fee for a year. Think about it: what is the incentive for a law firm or company to finish your credit restoration as quickly possible if they only charge a small amount each month? And do you really think a lawyer is sitting at a computer spending hours each month to repair your credit for $40? I can't name one legitimate lawyer who charges less than $75/hour for legal services. Also look for hidden add-ons - for example, charging extra for different types of disputes, charging for each dispute individually, or adding fees for sending letters by certified mail.
- The total cost for credit repair services generally ranges between $600-800, even for firms that tout low monthly fees. You may pay a set-up fee and low monthly fee of $50, but in order to take advantage of their money-back guarantee, in most cases you need to be a customer for a minimum of one year. $50/month x 12 months = $600 (not including the set-up fee).
- Any guarantee must be clear and it must be in writing. Many firms will tout a money-back guarantee but hide how they will reimburse you if they don't perform as expected. Most require that you remain a customer for a minimum of one year before you can apply for any refund. Because credit repair can be difficult and time-consuming, this is a fair policy... but the company should say so upfront.
- Avoid companies that advise you to dispute all of the information in your report. Disputing all of the information in your report may cause the bureaus to tag your disputes as frivolous. You want a company that understands how to interpret credit reports and provides a strong strategy for what items to dispute and how best to do it.
- It goes without saying that creating a new credit identity by obtaining a federal employer identification number to use instead of a Social Security number is illegal. Run, don't walk, away from a credit repair company that suggests this tactic.
- The credit repair company should tell you what you can and can't do legally for free. You CAN fix your own credit, just like you can fix your own car transmission. If you have the time and knowledge, your Credit Mama encourages you to do so. Credit bureaus are required by law to investigate disputes and remove or correct inaccurate or unverifiable information. However, they are also legally allowed to ignore disputes under a variety of conditions. If you've had difficulty getting the bureaus to respond, or simply want the help of an expert, hiring a credit repair company may be the right decision for you.
