When you get into a credit mess, there’s usually a strong temptation to turn the whole problem over to someone else hoping they can fix it fast. After all, how much do any of us know about the intricacies of credit repair? And who needs the headache?
So if you find the right credit repair company, this can prove to be a good strategy. But not all credit repair companies will help your situation. And some can make it worse – a whole lot worse.
First Things First – Some Credit Repair Companies Are Scams
The biggest complaint consumers have with credit repair companies is that they are scam sharks – and for good reason.
There is an army of businesses out there that are perfectly willing to prey on the weak and vulnerable for a quick profit. And credit repair is a rich source of people who are in a bind and desperately want to get out credit history hell. That makes them vulnerable.
These companies aren’t even hard to spot. But if you have serious credit problems and are living in a world of financial pain your judgment can be impaired. It’s understandable. Just know that anytime you see words such as guaranteed,, eliminate/remove bankruptcies and judgments, or create a new identity, it’s probably a scam. Walk away Pilgrim.
No one in the credit world can guarantee anything. Bankruptcies are public legal records, and there’s absolutely no way to make them disappear other than let time work its magic. And other than letting time pass, the only way to eliminate a judgment is to successfully challenge it and have it reversed by a judge. As far as creating a new identity – there’s no legal way to do that unless you’re in the federal witness protection program.
One typical credit repair scam is where the company promises to get delinquent accounts dropped from your credit report. They can often make this happen temporarily. They do this by filing a dispute with the credit repositories, in which case the derogatory information is removed while they investigate. But unless there is a justification for your claim, the derogatory information will be restored to your credit report once the creditor responds. Of course in the short run, the scam works, because you begin to see improvement in your credit report. But in reality, nothing positive has happened.
There’s an entire complicated process involved in repairing damaged credit. It can take months or years, and involve a lot of elbow grease. If the company is telling you that it will be anything less, it’s a scam.
High Fees – Three Steps Forward, Two Steps Back
All credit repair companies charge fees for their work, which is only to be expected. But in some cases, the fees are so high that they do little more than add to your already long list of financial obligations. This will not help your situation.
There are several ways that credit repair companies are compensated. Some charge a flat fee and I don’t like this setup. The company may collect that fee with the intention of doing little or no work to improve your credit. You’ll have no recourse if that happens and no leverage.
Subscription-based fees are the most common in the industry. The most typical range for those fees is somewhere between $50 and $100 per month. This is probably the best arrangement for you, since it works as a pay-as-you-go system in which you can evaluate whether or not any progress is being made.
A less common form of compensation is pay per deletion. In this kind of compensation model, the credit repair company will charge you for each derogatory credit entry that they are successful in removing. For example, they may charge $50 for every derogatory account they are successful in repairing or deleting. This can be an excellent fee system, since it is purely performance-based. Just be careful that you aren’t being charged for items that are only removed temporarily as discussed above.
There’s one other issue that you need to be aware of in regard to fees, and it’s somewhat ironic. While you have to watch out for the companies that charge too much, you have to be equally concerned about companies that charge too little. Such a company may be drawing in a large number of clients – for whom they will do no work – while still receiving compensation.
As you can see, credit repair is a complicated industry.
The Credit Repair Company Isn’t as “Well Connected” as Promised
Some credit repair companies will claim that they have connections with “all of the big creditors“, making it easier for them to improve your credit. This is almost certainly a gross exaggeration. No creditor will willingly eliminate derogatory information simply because some outsider has some sort of undue influence.
In dealing with such a credit repair company, you may find out quickly that they have no inside contacts at all. Its pure sales hype, designed to lure you in.
Not All of Your Debts Are Being Paid
Credit repair needs to be a holistic undertaking. That means that it needs to be able to improve all of your credit, either partially or completely. Yet it’s not uncommon for people to complete an engagement with a credit repair company, only to find out that one or more significant financial obligations was left out of the repair picture.
That could mean that not only is the debt still outstanding, but it continues to report derogatory information. Worse, you may find your credit rating on particular debt has even declined. This is a typical result when a debt is neglected.
This type of outcome can happen under different arrangements, but it’s not uncommon if you enter into some sort of repayment program with the credit repair company, in which you send a single payment each month to the company, who then distributes it to your various creditors. Please never do this. This is a perfect setup for them to keep your money and pay your creditors nothing. And even if they aren’t crooks, if they overlook one or two of your creditors, your credit rating with those lenders will be worse than what it was when you started your credit repair process.
There are a lot of firms coming into the credit repair industry all the time. Should you sign up with one of them, you can end up being one of their early test cases. It probably won’t end well.
This kind of situation is more pronounced during economic recessions. As people lose jobs, and credit deteriorates, credit repair becomes a “growth industry”. Many new firms enter the business, and many of them are utterly unqualified.
If you need to use the services of a credit repair company, make sure you first investigate the company. Do some research, find out how long they have been in business, and check the references with third-party organizations, such as the Better Business Bureau. Also, be sure to get recommendations from people who have actually used that credit repair service successfully. Most important – understand the process so you can ask good questions before signing up.
Credit repair services can work wonders to improve your credit, but you have to make sure that you go with the right one.