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Credit repair often appears mysterious, and is described by many as “shady.” Many credit repair firms are not transparent, and involve lots of unusual charges and fees. Others engage in very questionable (and sometimes illegal) tactics, including encouraging their customers to lie, by claiming they’ve been victims of identity theft.     

What Is Credit Repair? 

How does credit repair actually work? Is it right for you? And lastly, what should you look for in a credit repair company? These are things you must consider before hiring a firm to work on your credit. 

Credit repair, broadly defined, is the process of improving (i.e. “repairing”) your credit score. One major part of credit repair is the removal of negative items, such as late payments, collections, tax and bankruptcies, from consumer credit reports. This is done through use of the Fair Credit Reporting Act (known as the FCRA), a federal law which requires that anything which appears on your credit reports must be accurate, verifiable, complete and timely. 

Requirements Of The Fair Credit Reporting Act (FCRA) 

Let’s take a look at each of those requirements. The accuracy requirement states that anything which appears on a credit report must contain the  “maximum possible accuracy.” 

This means not just that the negative item (such as a late payment or bankruptcy) actually happened, but that every aspect of it is listed correctly on your official credit reports. This includes the amounts owed, payment history, dates an account was opened and closed, and the many other data fields that appear on credit accounts. In short, credit bureaus have important responsibilities around ensuring the accuracy of what they place on your credit report.   

A study from the Federal Trade Commission (FTC) suggests that at least one in four customers have errors on their credit reports. Clearly, credit bureaus are often not meeting their legal obligations. 

Verifiability means that there is proof of whatever is listed on your credit reports. If a credit card company claims that you were 30 days late on an account, they need to be able to provide proof of that. If a medical debt collector adds extra fees onto a collection account, they must be able to prove that such fees (not to mention the original treatment) were authorized. 

Companies which place information on credit reports, such as credit card issuers, student loan providers, mortgage companies, and debt collectors, are known as data furnishers, or simply furnishers. Furnishers report information to credit bureaus, through the use of a software called Metro 2. Upon request, data furnishers have to provide proof that information on an account is accurate. 

This can include locating original account documents, such as the contract you signed with a credit card issuer, or your payment history on an account. It might also involve providing proof of legal compliance, like documentation that a credit card issuer is authorized to collect on debts in a particular state.  

The more forms of verification a data furnisher is required to provide, the higher the chances they fall short. Upon request, credit bureaus are also required to “show their work”, or detail the methods used to verify negative credit items. 

Information on credit reports must also be complete. Let’s say that you owed a debt, and you paid it. If a creditor fails to mark the debt as paid (i.e. they simply leave that field blank), then the account is not being reported in a complete manner. Along those lines, if you’re marked as having paid late in a particular month, but the months when you paid on time aren’t reported, your report is clearly incomplete.  

Lastly, each item on a credit report must be timely, i.e. not outdated. This means that, for most credit items, they can’t stay on your credit report for longer than 7 to 7.5 years. Certain bankruptcies can remain for up to 10 years. 

Issues with timeliness are common, especially with collections and charged-off debts. Furnishers often leave these items on credit reports for longer than permitted. 

If something on a credit report does not meet the requirements of accuracy, verifiability, completeness and timeliness, it must be removed. How does this work? 

Basically, you prepare a dispute letter for each item on your credit reports, which might not meet legal requirements. Once a credit bureau recieves this letter, they will contact the furnisher. They will ask the furnisher to either verify that the item is being reported accurately, or otherwise, to delete the item. 

A credit bureau (and thus furnisher) typically has 30 to 45 days to respond to a dispute. Keep in mind that if a credit bureau believes that a dispute is frivolous or irrelevant, they can tell you so – and refuse to investigate your credit item any further. 

You can also dispute items directly with furnishers – though you should do so only after you’ve already disputed with the credit bureaus. While dealing with the data furnisher is a later step in the process, it can often yield great results. Since furnishers are the ones who report information to credit bureaus, and have the most information regarding an account, disputes with furnishers are often far more effective.

 Issues on credit reports often aren’t resolved in the first round of disputes. It is quite common for credit issues to take 6 to 8 months to resolve. In some cases, you might even need to file a lawsuit (if violations of your rights were serious enough), in order to get things resolved. 

What A Credit Repair Company Does 

Where does a credit repair company fit into all of this? While you are legally allowed to dispute negative items on your own, working with a firm that understands the credit improvement process, and specializes in it, can be of great value. Credit bureaus often fail to correct or remove inaccurate or unverifiable items, if not disputed in a specific way, or if there isn’t a credible threat of legal action (i.e. a lawsuit).

A 2015 study from the Federal Trade Commision (FTC) found that even after a dispute and investigation by credit bureaus, most of those who filed credit disputes, continued to believe that at least some of the information remaining on their credit reports was innacurate. In other words, most credit disputes, when conducted directly by consumers, don’t seem to work. 

Court cases indicate that bureau employees often process upwards of 10 disputes per hour, which does not allow for a  thorough investigation. An effective credit company can use these shortcomings to your advantage, in a way that leads to the removal of negative items. This company may have specialized knowledge, or may have attorneys on staff, who can help move disputes along more efficiently. 

Credit Repair Companies To Avoid

However, the reality is also that there are lots of terrible credit repair companies out there. Some firms have been caught defrauding clients, or encouraging people to file false reports of identity theft, which is illegal. Many others charge high fees, but deliver few results. So, how do you select a credit repair firm? 

What Should You Look For In A Credit Repair Company? 

First, only work with a firm which is led by experts. Would you trust  a financial advisor trained as a circus clown, but watched a few YouTube videos on money money management, to become your financial advisor? That might sound silly, but many credit repair companies are led by folks with little knowledge of the FCRA, outside of having read basic books, or taken a simple class on credit issues. 

In a tough case, where credit bureaus fail to meet legal obligations, these companies often don’t know what to do. In fact, many credit repair firms don’t even write the dispute letters they send out, but rather, purchase form letters from other providers. 

So, what are you paying them for?  Stick with a company that is led by experts. 

We’ve compiled a list of questions you should ask a credit repair company, before hiring one. The more questions you ask, and the better you understand the process, the greater the chances that you’ll hire a good company.  

Is Credit Repair Right For You? 

How do you decide whether credit repair makes sense for you? If you have 1 or more negative items on your credit report, you could be a strong candidate for credit repair. 

If these negative credit items are newer (i.e. they occured in the past few months), you might want to wait until at least a year has passed, before you fix your credit. After all, you should make sure that your financial situation is relatively stable, before you begin the credit repair process. 

Along these lines, if you are behind on payments for an open credit account (such as a credit card or mortgage), your money might be best spent on becoming current on the account, rather than working with a credit repair firm. If the accounts where you fell behind are already closed, then working with a credit repair firm is fine. 

If done properly, credit repair can be an incredibly powerful tool for improving your finances, and through that, your life as a whole. While finding the right credit company can sometimes be tricky, when you do find a good one, they can make your life much easier.