Credit repair companies are companies that work to dispute inaccurate information on your credit report in hopes of improving your credit score. While there are reputable credit repair companies, there are also fraudulent ones. These scammers often make too-good-to-be-true claims and charge consumers upfront for services that they can’t deliver. Spotting a credit repair scam isn’t easy, but there are some red flags to look out for.
If a credit repair company asks for personal or financial information like your Social Security number or bank account information, this is a red flag. Credit repair companies should never request this type of information from you; it is a common method used by identity thieves to steal your personal info. If you do give out this information to a bogus credit repair company, it can lead to serious consequences, including financial loss and even legal issues.
A legitimate credit repair company will communicate on your behalf with the three major credit bureaus (Equifax, Experian and TransUnion) to correct errors on your report. They should also help you to improve your credit habits by encouraging you to pay bills on time and limit how much you use of your available credit. The best credit repair companies will also explain your legal rights, which include the right to a free credit report each year and the right to dispute mistakes on your own without paying a fee.
Many people turn to credit repair when they can’t afford to pay their bills or when lenders stop lending them credit due to low scores. However, it’s important to remember that credit repair can only do so much. According to the Consumer Financial Protection Bureau, only about 30% of your credit score is determined by credit utilization and only 35% is determined by your payment history. If you’re struggling financially, you may be better off working with a credit counselor to negotiate with creditors and set up affordable payment plans. A counselor can’t get negative items removed from your credit report, but they can help you build a good credit history over time.
If you’re interested in working with a credit repair company, be sure to read reviews and check for complaints before hiring one. The CFPB offers an online complaint database, which can help you spot potential problems. You can also search for complaints with your state’s attorney general and the Better Business Bureau.
If you find a company that meets your needs, be sure to read their contract carefully before signing. Scammers will often try to hide their fees in confusing language or will require you to sign a contract that gives them three business days to cancel. You can also try to pause a subscription online for a month of service without cancelling it entirely. This can save you money on monthly payments and prevent you from getting charged a startup fee if you decide not to continue with the service.