Be Cautious When Working With a Credit Repair Company
Understand what you will be paying when you work with one of these services. They will usually charge you a "set-up" fee of at least $200 and then a monthly subscription fee that ranges from $90 to sometimes over $300 - depending on your "plan."
You have to sign a written contract, you have three days in which to cancel it, and the credit repair company isn't supposed to take any payment from you until they "perform" their service. These are all requirements of the Credit Repair Organizations Act (CROA) which is a federal law designed to protect consumers from being ripped off by credit repair companies who falsely advertise and don't deliver on what they promise.
What Can a Credit Repair Company Actually Do?
In addition to charging you money - discussed above - the basic business plan of these companies is to get as many subscribers as possible and then get your permission to send out as many disputes as possible on your behalf! Remember, they can't charge you money unless they "do" something, so what you'll often hear about is a plan or package that includes this or that many "rounds" of disputing.
Let's talk about this disputing process that they do. They're going to be disputing just about everything. Credit repair companies often fire off generic disputes that cover everything deemed to be "negative" on your report - whether it's accurate or not. What's wrong with that? For one thing, it's illegal to make any statement that is untrue or misleading in these disputes.
Second, massive generic disputing can allow the credit bureaus to classify "your" disputes as "frivolous" and to legally ignore them, third, putting multiple tradelines into a disputed status with the bureaus can stop your access to new credit cold (just ask your mortgage broker). And lastly, but most importantly, legitimate credit reporting errors that could significantly improve your score if they were properly disputed with justification and additional evidence are being overlooked.
Your legitimate credit reporting error disputes are being overlooked!
That's right, the Credit Repair Companies aren't taking the time to drill down into your report and ask you about which entries are incorrect and why, they're just disputing everything with the same generic complaints. That means that oftentimes your legitimate dispute - one that you could have discovered with a little help - and one that could lead to real relief and improvement of your credit score is not going to be acted on by the credit bureau because it wasn't properly disputed.
It's actually even worse than that, what happens in many cases is that the legitimate dispute gets labeled as "frivolous" by the credit bureau because it was lumped in with all the other generic disputes about all of the other items on your report! Once a dispute is marked as "frivolous," it takes a concerted effort to get the credit bureau to take a new look at your complaint.
Who Is to Blame for the Way Credit Repair Companies Operate?
Credit Repair Companies, as we discussed above, are subject to federal (and state) consumer protection laws that hold them accountable for false advertising and ripping off customers. Why do they operate the way that they do? It's the financial incentives that are a product of the credit repair business model.
Many companies compete with each other on price - a low monthly fee. In order to do that, they need to keep doing "work" on your credit report or else they can't legally collect a fee for the month. This leads them to do as much "work" as possible (and sometimes to make it up if they can't find any) and to do it for as long as possible. You see, the Credit Repair Companies don't usually get paid for results, they get paid for "effort."
Look, accurate credit reporting entries aren't going anywhere - so deal with them by waiting and by getting more recent credit accounts opened then paying them off every month. That said, what you may think are accurate credit reporting entries, may not be. I recommend that you get the help of someone who is incentivized to help you discover errors in your report and to dispute them effectively and powerfully.
It's Free! You've got nothing to lose, and, if it turns out that you do find an error in there, you'll be on your way to better credit in no time!