credit repair companies

How Do Credit Repair Companies Work?

Studies have recently shown that 56% of consumers have bad credit. If you’re part of the 56%, there’s help available. It can be hard to improve your credit on your own, but thankfully, some companies can help repair your credit. Before you decide to hire a credit repair company you should know how they work.

Credit Reports

The first thing a credit repair company will do is obtain a current credit report. The Federal Trade Commission did a study in 2012 that found that one in four people had an error on their credit report that was affecting their credit score and history negatively. When it comes to your credit history, you want everything to be 100% correct. If you haven’t obtained your free annual credit report, you can get it by going to Annual Credit Report — this website was created by the three major credit reporting bureaus to allow consumers access to their credit history absolutely free.

Budget Assistance

Many people develop bad credit because they have poor budgeting skills. If this is your issue, credit repair specialists can help go over your budget and determine how you can avoid getting into debt again. Additionally, these experts can help you increase your credit utilization score — this is how much credit you have versus how much you’re using. Having a high credit utilization percentage can decrease your credit scores.

Attorney vs. Non-Attorney

You may find that some credit companies work with attorneys. The first thing you need to do is determine if the law firm is certified. Some credit repair companies are actually law firms, which can allow them to scam customers into paying thousands more than necessary.

The main reason you’d need to hire a law firm is if you intend to sue someone. A credit repair agency that has an attorney on standby will help you if a disputed charge is fraudulent and isn't removed from your credit history. Something like this would be very expensive. It’s always important to dispute with the major credit reporting bureaus first, and then take it to court if your issues aren't resolved.

Another large difference between attorney versus non-attorney credit repair businesses is that the companies that use lawyers are usually much more expensive. While some companies are as low as $37, law firms often charge for advanced packages for $79.95 or $99.95. 

Prohibited Actions

In 1997 the Credit Repair Organization Act was inducted into law, which outlined a number of things that a credit repair agency can’t do — this law was an attempt to cut down on the number of scams. Now, legally, credit repair services are prohibited from taking money before the completion of services. Additionally, credit repair organizations must give consumers a written disclosure explaining their legal rights about their credit history.

Credit repair companies also must offer clients a written contract with all of the terms and conditions of payment: a detailed description of services to be provided, any guarantees, and the estimated length of the contact.

Some other things that the 1997 law enacted was a three-day cooling off period that allows consumers to cancel any agreement signed with a credit repair organization, and the ability to make contracts void if companies don’t follow the law. Above all, credit repair organizations were prohibited from making deceptive claims about their services.

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