What Is Credit Repair?
Technically, credit repair can involve fixing your bad credit in any way, shape or form, but when most people use the term, they’re referring to the process of disputing errors on credit reports. You can go through this dispute process for free with each of the credit bureaus on your own. This involves filing a formal dispute with the credit bureau(s) in question either online or via snail mail. That formal dispute should provide a detailed explanation of the error and you’ll want to include any supporting documentation you have along with it. (You can learn more about disputing errors on your credit report here.)
Many people, however, don’t have the time or don’t understand how to make their case, so they look into hiring a credit repair company to dispute errors on their behalf. These companies can charge a fee for their legwork (more on how that works in a minute), but there are times when the extra help can certainly be welcome. (Say you have multiple errors across credit reports or you’ve been the victim of widespread identity theft.) We’ll delve deeper into both types of credit repair, starting with credit repair businesses, since there’s a good chance that’s what someone is referring to when they use the term.
How Does the Credit Repair Business Work?
To get to the heart of what credit repair is and how credit repair companies operate, we went to Randy Padawer, Consumer Education Specialist with Credit.com partner Lexington Law, which represents consumers who want to repair their credit.
“Credit repair leverages your legal right to three standards: Credit reports must be 100% accurate, entirely fair, and fully substantiated,” Padawer said. “Too many lesser credit repair companies skip over those last two standards — which involve communicating with your creditors — in favor of depending upon simple credit bureau disputes by themselves.”
Here’s a good example of when a reputable credit repair service can help you do something you may not be able to accomplish yourself. If you have a collection account that’s been sold to a few different debt collectors, it may appear on your credit report multiple times. That information is accurate, but having that one debt dinging your credit score multiple times may not meet the “fair” standard Padawer mentioned.
If you have items on your credit report that don’t meet the three standards Padawer mentioned, then you may want to consider credit repair — either DIY or via hiring a professional. (Errors are more common than you may think: a Federal Trade Commission study found that 1-in-5 consumers have an error on at least one of their credit reports. You can check your credit reports for errors by pulling them for free every 12 months at AnnualCreditReport.com, You can also view your free credit report summary, updated every 30 days, on Credit.com. This free tool breaks down your credit score into five major factors and gives you a grade for each. You can even get an action plan with tips on how to improve the credit factors that are pulling down your score. Checking your own credit reports and scores does not hurt your credit score in any way.)
What Do Credit Repair Companies Do?
A good credit repair company will also first pull your credit reports from each of the three major credit reporting agencies to pinpoint your credit issues. Why all three? Because each credit reporting agency has its own “data furnishers” (aka lenders, credit card companies, debt collectors, etc.) who report your credit information to them. And there may be errors that appear on one of your credit reports, but don’t appear on the others.
Once those errors have been identified, you’ll then give a credit repair company any supporting documentation you might have or need. For example, if there’s a bill on your credit report that your husband or wife was actually responsible for under your divorce decree, you can use that document to prove it shouldn’t be impacting you.
In some cases it might be difficult to determine what to include as far as supporting documentation goes — that’s another way a credit repair company can help you. For example, if you’re a victim of identity theft and a fraudulent account is appearing on your credit report, it can be tough to prove it isn’t yours since you naturally don’t have any documents relating to the account.
When the bureaus and data furnishers receive the dispute and supporting information, they will then work with the credit repair company to determine if the item should be removed from your credit report. The major law dictating your rights when it comes to credit reporting is the Fair Credit Reporting Act, but it isn’t the only law on your side when it comes to credit repair.
“A good credit repair company will scrub questionable credit report items against other laws — like the Fair Credit Billing Act, which regulates original creditors; the Fair Debt Collection Practices Act, which oversees collection agencies; and others that address medical illness, military service, student status and other life events,” Padawer said.
How Long Does Credit Repair Take?
Getting negative, inaccurate information off of your credit reports is one of the fastest ways to see an improvement in your scores. Since credit bureaus have to respond and resolve a dispute within 30 days (there are a few exceptions that may extend this to 45 days), it’s a short timeline that can help consumers who want to buy a house, get a new car or open up a new credit card soon and don’t have the time to wait to build good credit in other ways.
But that doesn’t mean a credit repair company can tell you exactly when your credit score will improve since some consumers’ credit issues are much more complex than others.
“Since every case and credit report is unique, no professional firm can ethically predict an exact outcome,” Padawer said. “When picking a credit repair company to fix your bad credit, don’t ask about the future, but instead ask about what real clients have seen in the past.”
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