Are Credit Repair Companies Legit?

Your credit is an important part of your finances. That is why it is important to handle it with care. Unfortunately, not everyone can properly handle their credit (sometimes due to no fault of their own). When your credit gets to a point where you feel like it needs help, you may turn to options like a credit repair company. Are these companies legit? Can they help your situation? You may be surprised to find out just what these companies can do for you.

What is a Credit Score?

First, let’s talk about your credit score. Your score is an important piece of your finances because it allows lenders to assess the risk that’s associated with you as a borrower. If you have a good score, then lenders have more confidence in providing you different financial products. If you have a bad score, then lenders can view you as high risk and be hesitant to extend their services.

Your credit score is determined based on the information found on your credit report. Information found on your credit report can include:

  • Credit Account Information
  • Hard inquiries
  • Public Records
  • Collections
  • Credit Utilization Rate
  • Credit Account Balances
  • Payment History

What Factors Impact Your Credit Score?

The information on your credit report will impact your credit in different ways. Factors that will impact your score are:

  • Payment History
  • Credit Utilization
  • Credit History
  • Hard Inquiries
  • Credit Variety

How these factors will impact your credit varies on the scoring model. Credit bureaus use the scoring model they choose but the popular one is the FICO scoring model. The percentages listed below in how each factor impacts your credit score will be in regard to the FICO scoring model.

Payment History

Payment history is the most important factor in your credit because it makes up 35% of your score. Lenders want to be able to see your payment history so they can get a better idea of how you will repay your loan, credit card, etc. Your payment history will look at late payments, bankruptcies, lawsuits, collection accounts, and more.

Credit Utilization

Your credit utilization ratio (also known as your debt-to-limit ratio) looks at how much credit you have available to use compared to what you are using. This factor makes up 30% of your credit score. Let’s look at an example, if you have a limit of $5,000 between 4 credit cards, then you should aim to spend no more than 30% of that limit (which would be $1,500). A good rule of thumb is to keep your utilization below that 30% limit to avoid more of a negative impact.

Credit History

How long you have been using credit, the ages of your account, etc. make up your credit history. Your credit history impacts 15% of your credit score so it won’t have a huge mark but it will be visible. Generally, the longer the history then the better the score. That is why when you close old accounts (even if you don’t use them anymore) you may see your score drop.

Hard Inquiries

There are two types of inquiries:

  • Soft Inquiries
  • Hard Inquiries

Soft inquiries do not impact your credit score, while hard inquiries do. Soft inquiries are popular for people to use just to get the best estimate of your score without actually accessing personal information. However, hard inquiries are a different story. These inquiries require written authorization to access the credit report information on file. Hard inquiries are usually required for getting a loan, purchasing a car, etc., and they impact 10% of your score.

Credit Variety

No one should put all their eggs in one basket. That saying is true even in regards to your credit! It is important to have a variety of credit accounts from installment loans to revolving credit. Your credit variety is tied with hard inquiries at 10% in terms of how it impacts your credit score.

Understanding Your Credit Report vs Your Credit Score

It is important to understand your credit report and your credit score when it comes to learning about your credit. Your credit report is a statement that contains details about your credit activity, and current status information about credit accounts. Your credit score is calculated by credit bureaus using the information that is on your credit report. So while they are different, they are connected.

What is a Credit Repair Company?

Credit repair companies are a third party agency that aims to remove information from your credit report in exchange for a payment. These credit repair companies advertise that they can help people remove unverifiable or inaccurate information from their credit report.

What are Credit Repair Services and How Do They Work? 

Not every credit repair company is the same but generally the company will start the credit repair process by getting a copy of your credit report from the three major credit bureaus (Experian, Transunion, and Equifax). From there, they will analyze the report to look for negative marks like collections, bankruptcies, etc.

Once they get together a list of all the negative marks they can begin making a plan for how they want to dispute or negotiate the errors. Again, it is important to keep in mind that every credit repair agency is different. However, credit repair services include:

  • Requesting Validation Information
  • Submitting Dispute Letters
  • Handling Debt Collectors
  • Recommending Credit Applications

How Much Does Credit Repair Cost? 

You need to confirm the cost of credit repair based on the credit repair companies in your area. However, you can typically expect them to charge in two ways. They will either offer a pay-per-delete model or subscription-based model.

The more popular payment model is subscription-based and usually ranges from $50 to $150 a month depending on the services you get. These monthly fees will also generally require start up fees of up to $150. This can lead you to spend a lot of money on credit repair, especially if you use their services for months.

Are Credit Repair Companies Legit?

While the service of credit repair is legit, the companies that offer this service may not be. There are plenty of legal and reputable credit repair companies but there are also scam companies as well. The credit repair industry is no stranger to scams.That is why it is important to be on the lookout for good signs that a company is legit. Some signs that can show that a company is reputable include:

  • Their Payment Model
  • Your Rights
  • Honesty
  • Written Contracts

Their Payment Model

A company should have a payment model that makes sense. Whether their payment model is subscription-based or on a pay-for-delete basis, they should keep the consumer in mind. You shouldn’t be making payments for services you didn’t receive yet.

Your Rights

Under the CROA (more on that down below),  credit repair companies are required by law to inform you of your legal rights.  This includes your ability to dispute and handle the credit repair process yourself.

Honesty

You want to make sure the credit repair company you choose handles your credit repair honestly. They shouldn’t be making any false guarantees. It is illegal to do so! If the company you are considering makes any promises then they aren’t legit.

Written Contracts

Any legit company will provide a consumer with a written contract. These contracts will detail the nature of the services and a consumer’s legal rights during the process. Written contracts are a great way to spot a legit company.

What Protections Do Consumers Have for Credit Repair?

There are plenty of protections and helpful sources that are available for credit repair. Three important protections are:

  • Credit Repair Organizations Act (CROA)
  • Fair Credit Reporting Act (FCRA)
  • Consumer Financial Protection Bureau (CFPB)

Credit Repair Organizations Act (CROA)

As mentioned above, the CROA is an act that aims to protect consumers against credit repair companies. The CROA can help prevent misleading advertisements that don’t accurately portray the services being offered. There are plenty of protections when it comes to this act. Some behavior that the CROA prohibits credit repair companies from doing includes:

  • Making false statements about credit scores and their services.
  • Changing your identity in order to remove negative information.
  • Engaging in fraudulent behavior.
  • Charging fees in advance.

Fair Credit Reporting Act (FCRA)

Even though this act isn’t directly related to credit repair, it is a part of the process. Credit repair companies can dispute claims with the credit bureaus. Under the FCRA, credit bureaus are required to report only accurate and verifiable information on a credit report. Credit repair companies take advantage of this during the dispute process. Some legislation from the FCRA that impacts credit repair includes:

  • Credit reporting agencies (CRAs) must accept disputes for free.
  • CRAs have to respond within 30 days. If there is any follow up then they are granted 15 extra days to respond.
  • They must verify information with the original provider of the dispute within 5 business days.
  • A credit bureau can terminate a dispute if it is considered irrelevant,  invalid, or frivolous.
  • If they decide to terminate the dispute then they need to let you know within 5 business days.
  • If the mark in question cannot be verified then it must be removed from the credit report.
  • A credit bureau will need to provide a free copy of your credit report to verify the negative mark is gone.

Consumer Financial Protection Bureau (CFPB)

The CFPB is a bureau that oversees financial services and products that are available to people. This bureau is a type of regulatory agency and their goal is to help educate consumers about different types of available financial products while also offering protection. There are different branches of the bureau and they each work together with that same goal in mind!

Best Credit Repair Companies of 2021

There are plenty of credit repair companies out there but we have compiled a list of the top 6 that you may want to consider. Some of the best credit repair companies are:

  • Credit Saint
  • Sky Blue Credit
  • Ovation Credit Repair
  • The Credit Pros
  • The Credit People
  • Lexington Law
  • Credit Versio

Credit Saint

This credit repair company is a great option for people to consider because they have perks like a 90-day money-back guarantee, different plans for different budgets, easy-to-understand pricing, and easy online sign-up. However, this company does have some drawbacks to be aware of since they have limited availability, expensive first work fees that range between $99 to $195, and no online chat options available.

Sky Blue Credit

Sky Blue Credit is another great option to consider when it comes to credit repair. They offer a no condition 90-day money-back guarantee, offer 50% discounts, repair up to 15 items every 35 days, and have easy to use online sign-up available. However, some people think the drawbacks may be worse than the benefits since they don’t offer credit monitoring, financial tools, and have limits on monthly disputes.

Ovation Credit Repair

A credit repair company that deserves a standing ovation is Ovation Credit Repair. This company is popular amongst consumers because they have a variety of discounts available, give users the chance to cancel whenever, provide financial management tools, and work with companies that have a good reputation like Lending Tree. However, while there are pros, there are cons as well. Some cons include limited credit monitoring available, a phone-only application process, and no around the clock support.

The Credit Pros

This credit repair company is a fan favorite due to benefits like available financial management tools, available live chat assistance, certified FICO professional staff members, and no setup fee! However, people who like 24/7 phone support will not be happy with this company since it isn’t an option.

The Credit People

Benefits of this credit repair company include the fact that they have a simple pricing structure, use FCRA-certified consultants, have a low first work fee of $19, and allow online enrollment with around the clock account access. However, they don’t offer credit monitoring or other financial tools.

Lexington Law

This is a popular credit repair company that is liked by consumers for their long track record, online contact opportunities, legal staff and free consultation opportunities. However, even though many people like this option, others don’t due to how the plans are set up, the fact  that there’s no satisfaction guarantee, and past legal trouble with the CFPB.

Credit Versio

This credit repair company is a little different than a traditional option. They use AI software to review your credit report in order to find negative marks.  From there, they will automatically dispute letters on your behalf. They help you understand what’s going on with an easy to view dashboard! You can get this service with a monthly plan that also features identity theft insurance.

Once these dispute letters are created, you can mail them in yourself.  There are no credit experts to help you, no money-back guarantee, and no credit consultations available. Everything is automated and you basically do it all on your own. That is why this credit repair  company may not be a good fit for every user but can be beneficial for those who want help doing it on their own.

Alternatives to Credit Repair Companies

Credit repair companies are expensive and don’t provide any special services in terms of handling your credit. They dispute negative marks, but you can easily do the same. If you want to skip a credit repair company but still improve your credit you can:

  • Get Help from a Credit Counseling Agency
  • Do it Yourself

Get Help from a Credit Counseling Agency

While credit counseling agencies won’t dispute anything on your behalf, they can provide you tools to better manage your credit. Credit counseling agencies are companies that provide credit counseling through certified counselors. These credit counselors are trained professionals that can offer advice on debt management, budgeting, consumer credit, etc. They can also provide workshops and education based on your situation.

These agencies can help you handle the dispute process when it comes to negative marks on your credit report. It’s like the saying goes, “give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.” These skills can help you get an idea of how you will deal with your current credit situation and what you can do moving forward.

If you want help from a credit counselor then you can likely find them offering services online, through local offices, or over the phone. You can also review approved credit counselors online to make sure you speak to someone that is legit.

Do It Yourself

Not many things in life are easy. You may need to buckle down, and learn about how to submit a dispute if you see negative marks that are bringing down your credit. You can even do some of the same tactics that credit repair companies do like jamming.

Handling this process on your own will require time, effort, and knowledge. However, it may be worth it in the end if you successfully dispute the negative marks on your credit report all by yourself without spending money to get help.

Commonly Asked Questions

Repairing your credit can be stressful to deal with. That is why you may have some questions that others have had as well.

Can a Credit Repair Company Raise Your Credit Score?

Maybe! If they are able to successfully dispute negative marks and get them removed from your credit report then you will see your credit score improve. However, there is nothing else they can do to improve your score besides that. If they make any false guarantees then you may be dealing with a scam company.

Are Credit Repair Companies Legal?

Credit repair is legal in all fifty states for the most part. There are only special legislation rules in Georgia where it can be considered a misdemeanor. Georgia placed special laws on the credit repair industry due to the amount of scams that consumers were dealing with.

Why is Your Credit Score Important?

While your score may seem like a stressful financial obstacle to deal with, it is actually important. This score will be helpful in many scenarios like getting a loan, getting a credit card, financing a car, renting, and more.

How to Access Your Credit Report?

You can easily get a free copy of your credit report by visiting this website. You are entitled to one free report per year. If you want to review your report more than once you may be subject to fees.

Does Credit Repair Cost Thousands?

You should never be charged thousands for credit repair. While you can accumulate costs over time to potentially be over $1,000, that shouldn’t happen often. If you are getting charged an inflated rate like this then you are likely dealing with a scam.

Overall

If you feel your credit is unmanageable then you may turn to credit repair services as a way to regain control. However, credit repair companies are not a guaranteed fix, and can end up costing you hundreds of dollars in the end with no results. These companies also don’t do any magic when it comes to your credit report. You can handle the dispute process all on your own if you want. Another alternative to credit repair is getting help from a credit counseling agency. Regardless of what you decide, your credit situation may not be as stressful as it feels.

Article References

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https://www.investopedia.com/articles/pf/10/credit-score-factors.asp

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https://www.creditkarma.com/advice/i/credit-repair-companies#c

https://www.forbes.com/advisor/credit-score/credit-repair/

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https://www.investopedia.com/terms/c/credit-repair-organizations-act-croa.asp

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