Credit repair services takes time but works in the end.
When you borrow someone money and promise to pay later, you have gotten into a credit agreement. In other words, you are under an obligation that involves trust. Before lenders can allow you access to their money, they must determine your creditworthiness. Credit bureaus help make their work easy by keeping financial records of every consumer. From the data obtained, credit agencies can decide if you can borrow money or not.
There are numerous organizations licensed to help you improve your creditworthiness. These service providers apply different strategies depending on your problem. For instance, they can request that a reporting agency show proof of accuracy. Besides, they may ask for substantial evidence from the information providers. Part of the task involves sending direct correspondence to the credit bureau. It could take the form of an inquiry while at times, the query could be on negative information that ought not to be in the report.
Upon determination that the item questioned had no material basis, the reporting agency must remove it from your report. Similar action prevails if the report contains information published in a manner that seems unfair as stipulated by the existing statutes on consumer protection. Meanwhile, as the credit bureau removes the incorrect items, your credit score starts improving.
Consumer data – fodder for the credit industry
Credit repair service providers rely on databases containing information on every adult American’s credit status. Despite the measures taken, one cannot rule out the chance of there being an element of error. Some of the entries are inaccurate resulting in situations where many consumers cannot obtain credit. Only after the deletion of wrong entries can you access a loan. Removal of the same is a tedious and costly exercise.
Owing to the frustration and hopelessness many consumers go through, companies have come up with the sole aim of helping. For a fixed fee, you can have a professional to assist in challenging any information that portrays you negatively. Sadly, some agencies offer poor services and end up compounding the already bad situation.
Errors in credit reports
Regardless of the magnitude, once you find an error, fixing it will take you many months. Under the Fair Credit Reporting Act, you can have someone assist you to investigate and identify errors in your credit report. You need be very keen on what the credit bureaus report. Otherwise, you will soon start having your mortgage or car lease applications rejected. Increased borrowing costs is another repercussion.
Agencies compelled to maintain accuracy
Even though there are numerous credit reporting agencies, TransUnion, Experian Information Solutions and Equifax are the largest. Collectively, these companies release over three billion reports annually. Besides, they keep track of over 200 million consumers in the USA. The FCRA requires that all reporting companies put in place measures to ensure the highest possible level of accuracy in data. On the other hand, you have full rights under the same law to question the credibility of reports. Also, credit bureaus must investigate your claims.
The information held by credit bureaus stays in the form of a report. Your file contains details such as:
- Your full name
- Date and year of birth
- Place of residence
- Where you work
The system keeps a track record
Credit bureaus maintain data on the types of loans you have taken in the past and are currently servicing. It also shows balances in your bank account, the date you opened these accounts and your utility bills payment frequency. If you have been late in paying your bills, the credit report will capture that. Take it seriously or not, but your credit report has much authority. Lenders will always refer to it before giving you loans. Employers and insurance companies pay much attention to these reports. You must, therefore, tread with care and ensure that you maintain a good credit rating.
All boils down to paying off your debts
Creditors take a keen interest in your payment history. Prompt payment shows that lenders can trust you to pay back their money on time. History of how you have been handling debt repayments accounts for 35 percent of the credit score. Debt owed is another component that holds weight in your score. The more you owe, the higher the risk. Around 30 percent of the score is because of your outstanding debt. Credit history accounts for 15 percent of the rating in your credit report. Lenders would trust a person that opened their first credit account five years ago than one who got theirs recently.
Credit score affects you knowingly or otherwise
A bad credit status often results in harassment by collecting agencies. At times, your credit status may have been because of a situation that was beyond your control. Perhaps you had medical bills to clear or was going through a tough divorce. Alternatively, you may have borrowed money to meet some expenses. In these instances, the intention was to use credit as a temporary buffer before you got back on your feet again. Whatever the case, the truth is that you want to raise your score.
Having had a negative history bogging you down, repairing your credit would seem like a good idea. Credit repair professionals will assist you in planning your loan repayments. To help you succeed, they must first obtain credit reports from the main credit bureaus. These reports do at times contain errors. With the help of credit repair companies, you can fix mistakes as well as enter into negotiations with lenders on the removal of negative items on your credit report.
Steps you can take
If you still have any loans outstanding, you could begin by committing to pay. Making advance payments or making additional settlement on top of the agreed installments will significantly reduce what you owe. On their part, lending institutions will take note of your intention and treat this as proof of financial responsibility. Besides, learn how to use a budget as a tool for planning your finances. Form a habit of not taking out another loan before you have repaid the current one fully. Project your cash inflows and outflows such that you anticipate and set aside funds for loan repayments.
Credit repair – the only thing left
Nonetheless, when you have done all that you think is prudent and still end up with low credit scores, then consider credit repair as an option. Every American citizen desires to live in a beautiful house, drive the car of their dreams or even start a business. With all these desires and limited resources, you have no choice but to borrow money. However, along the way you end up losing your job. Unbeknown to you, someone steals your information and impersonates you to obtain a loan. Worse still is where some lenders give erroneous data about your dealings with them. These and others end up in your credit report and paint you as uncreditworthy.
Many people think that reporting bureaus generate their revenue from the fees charged to consumers. On the contrary, credit providers are the main income generators. Each time you apply for a mortgage, lease or loan, the financier pays to obtain information about your history. Since you are not the real customer, credit bureaus may not treat you so well. The large volume of requests piles pressure on the three leading agencies. As a result, they push their employees by offering them production quotas. They also reduce the turnaround time for handling calls.
Can credit repair companies help improve your score?
The answer is a firm yes. However, there is a caveat on the extent of services you can receive. You must understand that your report should have something that is inaccurate. No company can claim to help improve your credit scores if all information is correct, fairly reported and has proof. Avoid repair agencies that ask for payment upfront while promising to remove information that is accurate despite having a negative connotation.
Some companies may also ask that you refrain from getting into direct contact with credit bureaus. Others coerce you into creating a new identity and use that to dispute your credit report. Doing so is illegal and could land you into more trouble than what you currently face. Under the Credit Repair Organizations Act, service providers must furnish their clients with written contracts. Ensure that you obtain one and check that it has clear details of the services you expect. Other features include:
- The right to cancellation in three days
- Turnaround time for raising your credit score
- Cost of credit repair
Scams you need to avoid
With the flurry of consumers seeking credit repair, do not be surprised to learn that some people will masquerade as helpers. They exploit your misfortune when you are most vulnerable. Here are some of the most predominant scams; avoid them:
- Obtaining a fresh social security number
The federal government allows citizens to have only one social security number. It is illegal to get another one; the law treats such as identity theft. Some cons will offer this as part of their credit cleanup work. Stay away from such.
- Seeking for an employer identification number
Scammers may request you to obtain a new tax ID number. They will convince you that once you have the new EIN, the system recognizes you as a business entity. Also, the fraudsters tell you that with that number, you now have a clean credit status. No creditor can lend money to a new business; they need to see your credit history first.
- Challenging every negative entry in a credit report
The law provides that credit agencies keep a record of your account for seven years. This requirement holds for both negative and positive items. Any attempt at falsely reporting negative reports amounts to fraud and could land you in trouble.
- Clean credit
Here, a company approaches you in the pretext that it is a credit counseling agency. They will tell you that they can help boost your credit status within a short time. After the cleanup, the fraudsters state that through their influence you can secure a mortgage, car loan or another type of loan.
Every lender that you approach for a loan assess your credit score differently. One more thing; your income has no impact on credit score. The difference is in your discipline in settling your bills. Timely payment leads to improved scores while delays attract negatives.
Alex is a former budget manager turned entrepreneur. He works mainly at home on his credit score advice website and writes a financial blog on the side. He hopes to expand his business into a full online lending company for bad credit as soon as he gets enough investors.