Credit Service Companies, also known as credit repair companies, help consumers improve credit reports, for a fee. Typically this involves dealing with credit bureaus, creditors, and other agencies on the consumer’s behalf. Attorneys may also provide or specialize in credit repair. Non-profit consumer credit counselors, however, are not generally considered credit service companies. Though they help with budgeting and can establish repayment plans with creditors — sometimes part of a thorough credit investigation process — improving a consumer’s credit rating is generally not part of the service a nonprofit company provides.
Be wise before you pay. You’ve probably received solicitations from companies promising to erase or fix bad credit. You may have heard that these companies are nothing but scam operations, but if you have poor credit their offers may sound tempting. You need to understand what these companies do so you can make your own decision whether it’s an option you want to try.
In the early days of credit repair, these companies relied on one primary method to improve credit reports: exploiting weaknesses in the credit bureaus’ verification processes. The Fair Credit Reporting Act (FCRA) — the law that governs credit reporting –requires that credit reporting agencies investigate and resolve information disputed by a consumer within a reasonable time, generally thirty days. If credit bureaus cannot verify information that the consumer has disputed within that time period, it must be removed.
Credit repair companies would inundate the credit bureaus with multiple requests to investigate the same account(s), and eventually the credit bureau would fail to respond to one or more of these requests. Then the information would have to be removed because it was not properly investigated and resolved. Credit bureaus caught on to this approach and made changes in their procedures to catch repeated requests to investigate the same account(s). Under the FCRA rules, credit reporting agencies are allowed to refuse to investigate “frivolous” disputes, and so now they just categorize these multiple requests as frivolous, rendering this tactic ineffective.
As a result, new tactics have evolved. Some credit services companies claim they use little known loopholes in the law to improve credit. Others claim to have special techniques unknown to the general public.
Today the law is pretty clear on the responsibilities of credit reporting agencies, creditors, and consumers alike, although it’s true that many consumers aren’t familiar with their rights. As for using special techniques, there may be some truth to the claims credit repair companies make, but unfortunately some of the newer tactics they try are actually illegal.
Before you start looking for a company to help you improve your credit, it is important to look at your situation critically and honestly. What are your current circumstances?
•Is there information on your credit report that is being reported incorrectly?
•Is there information on your credit report you may be able to improve through negotiation with your creditors or collection agencies?
•Do you just want to wipe out the past?
If you are hoping to have multiple late payments on your accounts deleted from your report, get a legitimate bankruptcy removed from your credit file, avoid paying a debt, or hoping to remove factual but negative information from your report, a legitimate credit repair company probably won’t be able to help you in the long run. Though these problems can make getting credit difficult (or expensive), the simple fact is that only the passing of time and paying your future bills on time will improve your credit.