In the quest for a better credit score, many turn to credit repair companies, enticed by their promises to fix credit issues. However, beneath the surface, these companies often harbor risks that can leave consumers in a worse financial position. We at Texas Bay Credit Union aim to unveil these hidden dangers and guide Texans toward safer alternatives.
What You Should Know
- Understanding Credit Repair Companies: Credit repair companies offer services to improve an individual's credit score, usually by disputing errors on credit reports (good and bad, accurate or inaccurate) or advising on improving credit behavior. While this sounds promising, understanding their methods is crucial before enlisting them.
- High Costs and Fees: Many credit repair companies charge substantial fees, requiring upfront payments or high monthly charges. These fees can add a significant financial burden without guaranteed results compared to free or low-cost DIY credit repair methods.
- Misleading Claims and False Promises: Some credit repair companies make alluring promises, like completely erasing bad credit or swiftly boosting credit scores. However, consumers must remember that improving credit is often gradual, and some claims may be legally and practically impossible.
- Scams and Fraudulent Practices: Credit repair scams are not uncommon. These can range from companies taking money without services to illegal activities like creating new identities. It's essential to recognize and steer clear of these fraudulent practices,
- How Credit Disputes Work:
- When a credit bureau receives a dispute, it will contact the creditor to verify the information. They have 30 days to respond.
- While the dispute is in progress, the item is removed from your credit file. This temporarily can improve your score. However, if the creditor responds and proves the information is accurate, the item will be put back on the record and the credit score will be affected.
- Length of Time Negative Information Remains on the Record: Collections, charge-offs, judgments, and accounts reported late during the loan’s term remain on the credit report for seven years from the last activity or first delinquency date.
The Risks of Quick-Fix Tactics
Disputing Accurate Information: Some credit repair companies suggest disputing all negative items on your credit report, regardless of their accuracy. However, this can backfire, as credit bureaus are adept at identifying frivolous disputes. Continually disputing accurate information may be flagged by the bureaus, potentially leading to negative consequences.
Short-Term vs. Long-Term Impact: While some strategies may offer a temporary boost, they can be detrimental in the long run. For example, closing old accounts to remove negative history might decrease the average age of your accounts, adversely affecting your score.
Choosing a Credit Repair Company
Before deciding on a credit repair company, it is essential to conduct thorough research, read reviews, check the company with the Better Business Bureau, and understand what these companies can legally promise and accomplish.
The Credit Repair Organizations Act regulates these companies, but not all comply. This act protects consumers by barring credit repair companies from demanding advance payment, requires their services to be offered through a written contract, and gives consumers certain contract cancellation rights. Engaging with disreputable companies can lead to legal troubles, so choosing a company that adheres to the law is vital.
Tips for choosing:
- Do not pay anything upfront.
- Beware of promises to improve your credit score overnight.
- Do your research on the company.
Better Yet – Do It Yourself for FREE
A credit repair company cannot do anything you can’t do yourself – and you can do it for free. Her are the easy steps:
- Get your credit report. You are entitled to one every 12 months from each of the three credit reporting bureaus (Equifax, Experian, and TransUnion). You can get a free report from all three in one place: www.annualcreditreport.com.
- Carefully read through it and understand what is affecting your credit score. The three companies offer guides, but know you can visit Texas Bay for help!
- Dispute inaccurate information.
- Cards/accounts you don’t recognize
- Late payments reported – that weren’t actually late
- Contact your credit companies to negotiate.
- Remove late payment reports – this can be done if there are only one or two over a long period of time.
- Rate – you can always ask for a lower rate.
Let Us Help
Texas Bay Credit Union offers Financial Wellness Check Ups to help you get your credit back on track and help you get your credit back in good standing. Through this FREE service, we’ll pull your credit report and walk you through it so you understand exactly what is helping and what is hurting your credit score. We’ll work on a plan that may or may not include credit union products that can help you build better credit. We encourage you to set some time aside and make an appointment to visit with one of our knowledgeable financial service representatives to get this process started.