If you’re struggling with debt and searching for a solution, you’re far from alone. According to Statista, Americans have $15.4 trillion in consumer debt including $800 billion in credit card debt.
Credit repair might seem like the way to a better financial future, but it could be the wrong path if you choose a less-than-reputable agency.
Review the details about how to spot credit repair red flags and what to look for in a legitimate credit recovery provider.
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Are Credit Repair Specialists Legit?
Companies that advertise credit repair can possibly help you resolve your debt. However, many firms in the industry take your money without living up to their promises. In addition, it can be difficult to distinguish credit repair services from other types of debt relief.
How To Know if a Credit Repair Company Is Legit
Legitimate credit repair companies have various methods of resolving your debt and improving your credit score. They may contact the three major credit bureaus to dispute errors and incorrect information that lowers your score. They may also attempt to reach a settlement with creditors if you have debt you cannot pay.
Carefully review the company’s information so you know what to expect before you pay for credit repair.
Green Flags That a Credit Repair Company Is Legit
These are the good signs that a credit repair company can legitimately help you reduce your debt:
- No fees until six months after your credit improve in compliance with the federal Telemarketing Sales Rule
- Transparent pricing policies
- Detailed explanation of their processes and what to expect during credit repair
- Available money-back guarantee or another clear form of recourse if you are unsatisfied with their services
- Free consultation to understand your legal rights and clarify expectations
- Attorneys and other credit repair professionals on staff
- Access to tools that allow you to track your debt payoff and credit score progress
- Access to a personal advisor who guides you through the process of credit repair and answers your questions
Each state has its own laws that credit repair companies must follow. For example, some states require firms that advertise credit repair to have a licensed attorney on staff.
Red Flags of a Credit Repair Scam
First, be wary of a credit repair agency that promises a quick fix. Legitimate credit recovery typically takes several years as the company’s agents negotiate with creditors on your behalf.
You should also understand the federal Credit Repair Organizations Act. Credit repair companies that violate CROA are operating illegally. Steer clear of companies that:
- Do not provide a written contract with terms, conditions and clear deliverables
- Tell you to put untrue information in credit applications, dispute requests and other documents
- Suggest you change your identity to avoid debt and repair credit
- Advise you against contact with credit bureaus
- Promise removal of disputed items, including accurate negative marks
- Require payment before starting services, including monthly payment plans
- Do not let you cancel without a refund in the first three days of your contract
- Do not explain your legal rights in writing
- Guarantee that your score will improve by a certain number of points
The Federal Trade Commission warns that some fraudulent credit recovery firms give you a nine-digit number that looks like a Social Security number for taxes and other financial purposes. This so-called credit profile number is usually a stolen Social Security or employer identification number. Using it can result in criminal prosecution.
Related: Credit Repair Scams: Everything You Need to Know
Where to Find a Legitimate Credit Repair Specialist
The Consumer Financial Protection Bureau, a federal agency, provides a searchable database of credit repair agencies where you can check the legitimacy of these companies. You can also check the Justice Department’s list of approved credit counseling agencies.
You can also review a credit repair company’s record of customer complaints on the Better Business Bureau website. Companies that have accreditation from BBB must meet certain ethical and service standards.
Customer reviews and ratings on sites like Google also provide insight as to whether credit repair companies live up to their promises.
Is Credit Repair Right for You?
Even when a credit repair company is legit, it may not make sense for your situation. First, you need to make sure you can keep up with the monthly fees for the service, which often range from $100 to $300 per month. This amount may be out of reach, especially if you’re already struggling to get out of debt and improve your credit.
To benefit from credit repair, your credit report must contain errors or incorrect information. If you’re not sure, get a free copy of your credit report from each of the three credit bureaus. You can do so once a year or whenever you get denied for credit.
Credit repair companies cannot legally remove accurate accounts and details. Examples of issues that qualify for removal include:
- Debts the creditor cannot verify or validate
- Negative marks from more than seven to 10 years go
- Misspelled entries, such as negative information that belongs to someone with a similar name
- Legal actions such as bankruptcy that are inaccurate
- Accounts that belong to someone else
Sometimes, these inaccuracies result from fraud or identity theft. In this case, you may qualify for free credit repair through your bank or credit card company.
You can also attempt to dispute inaccurate records on your credit report yourself. If you don’t have time to do so or prefer to hand this task off to the professionals, you may be a good candidate for credit repair.
Taking steps to improve your payment history can also help you build better credit over time. You can also boost your score by using less of your available credit.
Even when you pay off old accounts, do not cancel them. Part of your credit score is the age of your accounts; the longer your credit history, the better your score.
Proceed With Caution
Using these strategies together with credit repair can potentially amplify the impact of recovery.
Choosing a legitimate service in this industry can be tricky. If you decide to move forward with credit repair, review these red and green flags carefully before signing on the dotted line with a specific service.
Recommended: The Best Credit Repair Companies
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