Credit Repair Services - Do They Really Work?

You've made some unwise financial decisions, lost your job, or have had medical expenses. You were late with loan or mortgage payments and now your credit rating is bad. You want to repair your credit, but what's the best way to do this? Can you do this on your own, or is a credit repair service a good option?

A quick Internet search for "credit repair service" yields 13 million results. It's a big business! But what exactly does a credit repair service do? The claims can seem too good to be true. A credit repair service typically asserts that if you need good credit to buy a car or get a mortgage, the service has insider techniques for erasing bad credit. But the sales pitch is very carefully worded. They say they can help resolve questionable items, or clear up inaccuracies, or eliminate costly errors on your credit report. All at a low, affordable fee. 

The Federal Trade Commission

Fortunately, at the very top of your Internet search result is a website you can trust: the U.S. Federal Trade Commission at ftc.gov. The FTC is blunt: they say that you should save your money because most credit repair services are scams. 

Here is what the FTC says about anyone's ability to erase accurate and timely information on your credit report: "It's illegal: No one can remove accurate negative information from your credit report." 

The fact is that credit repair services have no more legal rights or abilities than you do. If you want to pay a hefty fee to have a service try to accomplish what you could do yourself, it's your choice. But remember that credit repair services cannot guarantee results.

What to Watch Out For

If you are considering a credit repair service, here's how to tell if the company behind it is a scam: 

• You are asked to pay in advance. Under the Federal Credit Repair Organizations Act, credit repair companies cannot demand payment until they have performed the promised service.
• You are told to dispute every item in your credit report regardless of its accuracy.
• You are not told that you could repair your credit report yourself for free.
• The company asks you to apply for credit under a different identity. This could be a felony!
• The company insists that you do not contact any of your creditors directly. 

What Can You Do?

In the United States there are three major credit bureaus: Experian, TransUnion, and Equifax. These three companies report on consumer credit to lenders. It is their reports and the underlying information that you can examine and, if necessary, repair. 

According to federal law, once a year you are entitled to request a free copy of your credit report from each of the three agencies. According to the U.S. Fair Credit Reporting Act (FCRA), you are also entitled to receive a copy of your report if a lender takes "adverse" action against you. To receive your reports, log onto www.annualcreditreport.com, or call 1-877-322-8228. 

Examine the reports carefully. If you see any erroneous entries, or examples of good credit that have been omitted, then you must write a letter to the credit bureau. Explain exactly what you think the error or omission is. Send your letter by certified mail, return receipt requested. Send a copy of your letter, along with copies of relevant receipts or statements (do not send originals!), to the company that originally reported the transaction—a credit card company, your mortgage lender, or a retail store. 

Unless they consider your request to be frivolous, the credit bureau has 30 days to investigate and reply. If an error is detected, federal law requires that consumer credit agencies and their sources follow a strict procedure to notify you and make corrections. 

The bottom line is that a legitimate credit repair service will do nothing more than what you could do for yourself. It's your choice.