Credit repair is a legal service offered by some companies that want to assist subprime consumers in improving their FICO scores.
Considering how much employers, landlords, and U.S. creditors (such as Utah mortgage lenders and California credit card issuers) rely on TransUnion, Equifax, and Experian to measure the creditworthiness of customers, fixing problematic credit reports is an effective way to move up credit score ranges more quickly.
However, there are unscrupulous characters that give credit repair a bad name. Scams are left and right, so you need to be more skeptical of companies advertising such service. Here’s how you can exercise due diligence:
1. Watch Out for “New Credit Identity” Promises
A reliable credit repair company will help you increase your credit scores by reviewing your credit reports to find inaccuracies you could dispute. Removing negative items from your file is one way to boost your creditworthiness fast.
An untrustworthy company might have a different tactic in mind. The creation of the so-called “new credit identity” is a scheme where you would be promised to be given a new credit profile. This way, you could start over with a clean slate.
The problem with having a new credit identity is that it is illegal. Applying for financial products without using your original social security number is considered fraud. If you use the information of another person, you might even be charged with identity theft.
2. Beware of Upfront Costs
A credit repair service is not free. But you should not be pressured to pay the price upfront. If a company refuses to help you unless fork over the dough, it is probably a scam.
The law says that a credit repair company must provide a credit report covering over six months showing the promised results before asking or receiving payment.
3. Ask about Your Rights
In the credit repair business, transparency is everything. A company should be able to tell and explain to you about your legal right to fix the errors in your credit report yourself at no cost, as stated by the law.
You will just hire a credit repair company to do the heavy lifting for you. The fees they collect are only for the convenience of not having to do the dirty work yourself.
4. Demand a Contract
You should be given a written agreement discussing the services being performed on your behalf, the amount you are expected to pay, and the period when the services are going to be done.
Of course, the necessary details about the company, like the name of the business, address, and contact information, must be in the contract too.
Also, it should include a termination clause. There should be a statement in the agreement stating that you can cancel it within three days in case you change your mind.
In the end, using a credit repair company is worth every penny if you hire the right one. If you inadvertently work with a scammer, you could get slap with fines or be sentenced to prison.