Credit Repair
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What is credit repair?
Credit repair is when a third party, often called a credit repair organization or credit services organization, attempts to get information removed from your credit reports in exchange for payment. These companies are for-profit and their services are marketed as being able to help people improve their credit. Credit repair is legal at the federal level and in almost every state (in Georgia, credit repair is a misdemeanor).
Some credit repair companies suggest their services are designed to help consumers remove inaccurate or unverifiable information from their credit reports. In reality, however, many credit repair companies are simply trying to get negative, but accurate, information removed from credit reports before it would naturally fall off a credit report. There are steps that you may be able take to repair your credit if there’s inaccurate information on your credit history.
The Credit Repair Organizations Act
The federal Credit Repair Organizations (CROA) Act not only defines what a credit repair organization is but also how these companies must operate. Enacted in 1996, CROA clearly articulates what credit repair companies must do, and must not do, to remain compliant with federal law.
Practices that are not allowed under CROA include:
- Advising credit repair customers to make false statements to credit reporting agencies
- Advising credit repair customers to change their identification to prevent the credit bureaus from associating them with their credit information
- Charging credit repair customers any fee for services that have not been fully rendered
- Guaranteeing that they can remove information from their credit repair customer’s credit reports
The CROA also requires credit repair companies to notify their customers of the following:
- They have the right to dispute their own credit report information for free
- They can sue the credit repair company if they violate CROA
- That while the credit bureaus must maintain reasonable procedures to maintain the accuracy of credit information, mistakes may occur
Credit repair companies are not allowed to hide the above notices within the language of their contracts. These disclosures and others must be provided in a separate standalone form. And finally, credit repair companies are not allowed to force or entice you to sign a waiver whereby you would give up some or all of the aforementioned rights. Any attempt to do so would be a violation of the CROA.
What Do Credit Repair Companies Do?
Ultimately, credit repair companies communicate on your behalf either with the credit bureaus or with the companies that reported or “furnished” your credit information to the bureaus. These data furnishers are almost always debt collectors or financial services companies, like banks and credit card issuers.
The intent is to have the credit bureaus or furnishers either delete the credit information altogether or modify it in some way that’s more favorable to the consumer. Communications by credit repair companies can happen via the internet, phone or U.S. mail. The U.S. mail has historically been the method that’s preferred by credit repair companies for several reasons.
Mailing a few letters to the credit bureaus might sound unsophisticated, but it’s the approach that works with how credit repair companies tend to operate. Some credit repair companies employ a process called “jamming,” which involves sending repetitive and often frivolous letters to the credit bureaus and their data furnishers.
The theory is if a credit repair company can send a large volume of dispute letters challenging the same item over and over, that somewhere along the way either a credit bureau, lender or debt collector will fail to process the dispute within the 30-day period specified by the Fair Credit Reporting Act (FCRA), resulting in the account being deleted.
Does Credit Repair Work?
While some credit repair companies claim to have deleted millions of negative credit entries, there are no reliable statistics available regarding the effectiveness of credit repair services. There are also no statistics about credit repair’s impact on their customers’ average credit scores, how many of the disputes they file result in deletion, or the average price paid by a credit repair customer.
Because there is nothing a credit repair company can do that you can’t do for yourself, it’s better to ensure the accuracy of your credit reports on your own. The process is free, and has always been. Also keep in mind that accurate negative information will automatically be removed from your credit reports once it’s seven to 10 years old.
How Much Does Credit Repair Cost?
Credit repair companies generally charge one of two ways. The first is a garden-variety subscription service in which the credit repair company charges your credit card at the end of the month for services performed during the previous month. Subscriptions for credit repair generally fall somewhere between $50 and $100 per month, although there can be outliers. With the subscription fee structure, the credit repair company has a financial incentive to keep you as a paying customer as long as possible.
The second method of payment for credit repair is called “pay per delete.” With pay per delete, the credit repair company only charges you when an item on your credit report is actually deleted pursuant to their efforts. The theory with pay per delete is that it keeps the customer happy because they are only paying for tangible results, and the credit repair company stays on the right side of the CROA because they don’t charge their customers until after results have occurred.
How long does credit repair take?
The credit bureau usually has 30 days after receiving your dispute to investigate and verify information. Typically, the credit bureau will reach out to the company that provided the information and ask it to investigate. The credit bureau is required to send you the results of the investigation within five business days of the completion of the investigation.
But if the credit bureau determines the dispute is “frivolous” it can choose not to investigate as long as it communicates that to you within five days.
What Is a Credit Score?
A credit score is a number between 300–850 that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
How Credit Scores Work
A credit score can significantly affect your financial life. It plays a key role in a lender’s decision to offer you credit. People with credit scores below 640, for example, are generally considered to be subprime borrowers. Lending institutions often charge interest on subprime mortgages at a rate higher than a conventional mortgage in order to compensate themselves for carrying more risk. They may also require a shorter repayment term or a co-signer for borrowers with a low credit score.
Conversely, a credit score of 700 or above is generally considered good and may result in a borrower receiving a lower interest rate, which results in their paying less money in interest over the life of the loan. Scores greater than 800 are considered excellent. While every creditor defines its own ranges for credit scores, the average FICO score range is often used.
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
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