Unfortunately, none of those promises are true. Credit repair companies offer to “fix your credit” by removing negative elements from your credit report. They offer to file disputes about negative items on your behalf with credit bureaus and have them removed. What is the problem with this approach? The whole strategy is based on taking advantage of a legal loophole in the credit system.
When accurate items are removed, it is only temporary, at best, a few months. Credit repair companies offer to help consumers improve their credit scores in exchange for a fee. Some are legitimate businesses, while others are little more than scams. Here's what a credit repair company can and can't do for you.
How Credit Repair Companies Work The most common way that credit repair companies work is to dispute all the negative elements that appear on your report, whether they are accurate or not. Because the credit bureau has 30 days to investigate, this random dispute method may produce positive results temporarily. During the consultation, the items in question will not be included in the credit rating and a notice will appear under each disputed item. If the creditor does not respond with proof that the item is correct, the credit bureau will withdraw it.
A credit repair company is a third-party service that contacts credit reporting agencies on your behalf. In exchange for a fee, the company will remove inaccurate or negative information and help you improve your credit over time. Credit repair companies are organizations that claim to help consumers improve their credit in exchange for a fee. Work with credit bureaus and creditors on your behalf to eliminate errors from your credit report.
While many of these companies are scams, there are legitimate credit repair companies. Credit repair companies are not allowed to hide the above notices in the language of their contracts. And finally, credit repair companies are not allowed to force or entice you to sign a waiver whereby you would waive some or all of the above rights. You can find ads for free credit repair companies, but this usually just means you'll get a short free consultation.
Once you have the EIN, you will be prompted to apply for a new credit with it, so you can create a whole new credit history. If the credit reporting agency approves your dispute and removes the false information, you should see a credit rating increase. The goal of these companies is to increase their credit by disputing outdated or incorrect information on their credit reports, tracking results and monitoring to ensure that errors do not reappear. By law, you are entitled to a free credit report every 12 months from each of the three major national credit bureaus: Equifax, Experian and TransUnion.
Once the company has reviewed your credit report, it will contact the credit bureaus or data providers who provided the information. If you have paid old credit cards and you don't plan to use them anymore, and they don't charge annual fees, keep those credit cards open. Keep in mind that there is nothing a credit repair company can do for you that you can't do on your own. This is where the credit repair service asks you for an Employer Identification Number (EIN) from the Internal Revenue Service, which has the same number of digits as a Social Security number.
The intention is for credit bureaus or providers to delete credit information altogether or modify it in a way that is more favorable to the consumer. This can happen when creditors report misinformation to the credit bureau or if an identity thief takes out credit in the consumer's name. The theory with pay-for-elimination is that it keeps the customer satisfied because they are only paying for tangible results, and the credit repair company stays on the right side of the CROA because it doesn't charge its customers until the results have occurred. Typically, these companies offer to review your credit reports and address any negative elements they can with credit bureaus on your behalf.