Having a good credit rating is essential for various aspects of life, from getting low-interest loans to securing a job or a rental property. So it’s no surprise that when faced with a credit report showing debt problems or errors, many people turn to credit repair services to fix the issue. However, before you spend your hard-earned money on these services, it’s important to understand how they operate. In the majority of cases, hiring an outside company will do nothing more than waste your money.
The Deceptive Methods of Credit Repair Businesses
The most common approach used by credit repair businesses is disputing all negative items on your credit report, regardless of their accuracy. By doing so, they temporarily remove these items from your credit score calculations and display a notice under each disputed entry. During the 30-day investigation period, the credit bureaus are obligated to remove the disputed items if the creditors fail to provide proof of accuracy.
Sounds promising, right? Unfortunately, there are significant drawbacks to this method. Firstly, if the information being disputed is correct, credit repair services will re-report it when they submit new data to the credit bureaus. Moreover, intentionally disputing accurate notations is not only illegal but also an abuse of the credit reporting process. Lastly, if there is genuinely inaccurate information on your report, you have the right, as guaranteed by the Fair Credit Reporting Act, to dispute it with the credit bureaus for free and without any assistance.
Another dubious practice employed by these businesses is file segregation. This involves applying for an Internal Revenue Service Employer Identification Number (EIN), which has the same number of digits as a Social Security number. The credit repair service then instructs you to use this EIN to apply for new credit, effectively creating a fresh credit history. However, this practice is not only illegal but also rarely effective. Starting over with a blank credit history is often perceived negatively by lenders and may raise suspicion.
Alternative Methods to Repair Your Credit
Thankfully, there are alternative ways to repair your credit without relying on credit repair services. If you find inaccurate information on your credit report, you can directly contact the credit bureau and dispute the item yourself. In the case of negative but accurate information, consider the following options:
- Letting the debt drop off naturally: Most negative information stays on your credit report for seven years from the date of last activity. Chapter 7 bankruptcy remains for ten years, while defaulted student loans and unpaid child support may persist until resolved.
- Settling accounts in collections: If you have accounts in collections, you can choose to pay them in full or offer a settlement. Keep in mind that settled accounts have a slightly negative impact on your credit report compared to fully satisfied accounts, so carefully consider the financial benefits versus the effect on your credit.
- Rebuilding credit responsibly: Start using credit responsibly as soon as possible, as this is the best way to overcome past credit problems. Secured credit cards and credit building loans are excellent tools for rebuilding credit. With a secured credit card, you deposit a sum of money (often a few hundred dollars) that serves as collateral. This deposit usually equals your credit line. Use the card for expenses within your budget, always pay on time, and avoid carrying a balance. By doing so, you can establish a positive credit history.
FAQs
Q: Can a credit repair company legally remove accurate negative information from my credit report?
A: No, credit repair companies cannot legally remove accurate and timely negative information from your credit report. Anything a credit repair clinic can do for you legally, you can do for yourself at little or no cost.
Conclusion
While a good credit rating is crucial, paying someone to repair your credit is simply not worth it. Hiring a credit repair company will likely result in wasted money and potential legal trouble. Instead, take control of your credit by utilizing the alternatives mentioned above. Remember, you have the power to repair your own credit and establish a bright financial future.