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Should I Use a Credit Repair Company?

Money Girl answers listener questions and tells you the truth about using a credit repair company.

By
Laura Adams, MBA
April 9, 2014
Episode #351

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I recently received several questions about using credit repair companies.

Latanya asks: "My husband and I have poor credit even though we paid someone $2,800 to repair it a couple of years ago. Do you know how we can fix our credit without spending money that we don’t have?"

Ashley asks: "I checked my credit report and found 3 accounts that I don’t recognize. They show delinquent payments—no wonder my credit is so bad. Should I hire a credit repair company to fix this?"

Ron asks: "I have very poor credit because I’ve made a lot of bad decisions and now have a ton of debt. Should I use a credit repair company to get my credit cleared up?"

In this episode I’ll answer these questions and tell you the truth about whether you should use a credit repair company.

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Are Credit Repair Companies Legitimate?

Should I Use a Credit Repair CompanyYou’ve probably seen or heard TV and radio ads that say something like, “Got credit problems? Let us help you erase your bad credit forever, guaranteed!”

Unfortunately, these ads are likely signs of a scam. There are no legitimate organizations that can make those kinds of claims. As much as you might want to believe it, there’s no quick fix for poor credit.

No one can legally remove negative information from a credit report, if it’s accurate. Only time can help. It takes 7 years for bad marks to go away—except for bankruptcy which sticks around in your credit history for up to 10 years.

According to the Credit Repair Organization Act (CROA) it’s illegal for a credit repair company to misrepresent their services or to even charge you before they've delivered those promised services.

They’re forbidden to suggest that you do anything illegal, such as:

  • making false statements on a loan or credit application
  • altering your identity to change your credit history
  • applying for an Employer Identification Number to give creditors instead of your Social Security Number
  • misleading a credit reporting agency

Following illegal advice means you’re committing fraud and may be subject to fines or jail time.  

If you’re like Latanya and have been burned by a bogus credit repair company, you can sue them for your financial loss and even seek additional punitive damages. Be sure to report problems with a credit repair company to your state attorney general and to file a complaint with the Federal Trade Commission at ftc.gov/complaint.

Following illegal advice means you’re committing fraud and may be subject to fines or jail time.  

How to Repair Mistakes in Your Credit Report

But let’s say you’re like Ashley and have inaccurate information in your credit file that’s hurting your credit. Errors could range from fraud to mistakes in reporting from creditors.

You have the right to dispute credit errors and get them corrected for free.The credit reporting agencies and the companies that provide your information to them are responsible for correcting errors in your credit history.

So you should never pay any person or organization to clean up your credit report. The truth is that anything a credit repair company can do legally, you can do for yourself at little or no cost!

You’re entitled to a free report from each of the 3 nationwide credit reporting agencies—Equifax, Experian, and TransUnion—once every 12 months at annualcreditreport.com. You can get all 3 reports at the same time, which is a good idea if you suspect a problem or haven’t checked them recently. Or you can stagger your credit report requests throughout the year, which is what I recommend. 

I created a free video tutorial called the Credit Score Survival Kit, that shows you step-by-step how to get your credit reports and dispute errors at no charge. Staying informed about what’s in your credit report is a smart way to catch an identity thief who may be on a spending spree using an account opened up in your name.

The Federal Trade Commission also has information about how to do credit repair on your own.

What Causes Bad Credit?

To win the credit game, it’s critical to have credit accounts in your name and to manage them responsibly. Some common causes of bad credit are:

  • making late payments
  • having a short credit history 
  • having a “thin” file with no or too few accounts
  • having high debt balances

Many people who are struggling with poor credit are like Ron, who said he’s accumulated more debt than he can handle.

See also: 7 Essential Rules to Build Credit Fast

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