Debt Settlement vs Credit Repair
Though both are in the personal finance sphere, it’s important to note that there’s a difference between settling your debt and using a credit repair service to fix your bad credit. While the former falls under credit counseling, aiming to advise on managing your money and debts, credit repair looks to challenge negative information on your report.
If you’re interested in using a credit counselor, the National Foundation for Credit Counseling offers free help.
|Resolving your debt and making a deal to pay it off at a reduced amount
||Identifying and fixing mistakes on credit report
|Negative impact on credit for up to 7 years
|Hurts chances of getting loans or credit cards
||Increases the possibility of being approved for loans and credit cards
Things to Pay Attention To When Hiring a Credit Repair Company
When signing the dotted line, pay close attention to the conditions that are being stipulated, to make sure you’re dealing with a legitimate company that won’t violate your rights or take advantage of you in the future.
- Make sure your credit repair company includes a copy of the Consumer Credit File Rights .
- You have the right to cancel any services without incurring any penalties, within three business days after signing the contract, in compliance with the FTC’s Cooling-Off Rule.
- Credit repair companies can’t charge you in advance for their services. These companies can only charge you for services they have actually fulfilled.
7 Warning Signs of a Credit Repair Scam
Credit repair companies are governed by the Credit Repair Organizations Act (CROA) and the Telemarketing Sales Rule. These laws make it illegal to make certain promises or misrepresentations and require specific disclosures when offering credit repair services.
If a credit repair service does any of the following, they might be taking advantage of you:
- Asks for upfront payment before doing any work for you. The CROA explicitly forbids companies to request or receive payment until they’ve completed the promised services.
- Avoids or refuses to explain your rights to you or asks you to waive those rights. Credit repair companies are required to give you a copy of the Consumer Credit File Rights Under State and Federal Law and a copy of the contract to view before signing. Luckily, the CROA automatically voids any waiver of rights.
- Promises to remove ALL negative information from your credit report. While a credit repair company can remove incorrect information from your report, they can’t legally take off negative data if it’s accurate.
- Tells you to give false information or dispute accurate information. Some scammers advise clients to claim they’ve been the victim of identity theft to get negative items taken off — even if no such thing occurred. This is illegal and could land you in serious trouble.
- Tells you not to contact the three credit reporting bureaus. Everybody’s entitled to one free credit report a year from each of the credit reporting companies.
- Promises a new credit identity or asks you to create one. Some shady services give you a nine-digit identification number they call a CPN (credit profile or credit privacy number). Another tactic is asking you to apply for an Employer Identification Number from the IRS. Sometimes they’ll even illegally sell you a new Social Security Number, often stolen from children. They then ask you to apply for credit using these new numbers. This is illegal and a scam.
- The contract is missing key information, such as:
- the fees charged
- a breakdown of the services to be provided
- the time period in which said services will be provided
- the company’s name and business address
- a section in the contract notifying your right to cancel it within three days of signing
Frequently Asked Questions (FAQ)
1. What is a credit repair agency?
A credit repair company is a for profit organization that analyses your credit report and disputes errors to collectors on your behalf.
2. Are credit repair companies a scam?
Credit repair companies are legal. The Credit Repair Organizations Act (CROA) was established to provide protection to the consumer, making it illegal for credit repair companies to lie to you and charge you for services they have not provided. In addition, the Fair Credit Reporting Act (FCRA) was created to protect the consumer’s personal information and avoid identity theft or the wrongful use of personal information.
3. How to avoid credit repair scams?
A deceitful credit repair company will falsely promise to erase loans, bankruptcies, and other negative items from your report. On occasions, these companies promise to give the consumer a new credit identity, and ask for money upfront. This can lead you to commit illegal actions such as identity theft and fraud.
If a credit repair company makes any of these promises to you, it is most likely a scam.
4. Can you really pay someone to fix your credit?
You can pay a credit repair company to help you fix your credit. Credit repair companies cannot delete accurate information from your credit report but they can help you by disputing errors on your behalf.
5. How to verify a credit repair company?
To avoid credit repair scams it is important to research different companies, Federal Trade Commission recommendations, Better Business Bureau (BBB) ratings, and reviews left by other consumers.
The Credit Repair Organization Act (CROA) requires credit repair companies to provide a written contract explaining in detail the services they will provide, how long it will take to help you, guarantees, and the total cost for their services.
6. What does credit repair cost?
The cost of a credit repair company depends on the services you need. Some credit repair companies charge their clients a monthly fee while others charge based on the specific services they provide.
7. Is credit repair worth the cost?
Depends on the services you need and the time you have available to dispute the error on your credit report, a credit repair company is worth the cost. Credit repair agencies offer a variety of packages at different prices to fit the needs of their customers.
8. Do credit repair companies hurt your credit?
The purpose of credit repair companies is to fix your credit, not to hurt it. However, you need to be aware that credit repair companies can only dispute errors on your report and cannot erase accurate information.
9. Can I repair my own credit?
Yes, you can DIY your credit repair. However, you must have some basic knowledge in order to succeed. You can dispute errors on your credit report as part of the services offered by Experian. Using their website you can dispute, explain and send your dispute to the bureau’s system. If there was an error, the bureau will remove it by the next cycle.
10. What if I have an error on my credit report during the Coronavirus pandemic?
If you notice any errors on your credit report, or if you feel a late payment was reported unfairly, you must contact your lender to get an answer.
11. In what ways can I manage the impact of the Coronavirus pandemic on my credit ?
The CARES Act signed into law on March 27 provides homeowners with protection against foreclosure and mortgage forbearance for borrowers with loans backed by Fannie Mae, Freddie Mac, the USDA, and the VA until December 31st, 2020. You can obtain an extension and a forbearance of 180 days.
Student loan debtors received additional relief by having loan payments suspended, collections and defaults put on hold, and interest rates set to zero until December 31st, 2020.
The three major credit reporting agencies (Experian, TransUnion, and Equifax) are offering access to a free credit report weekly through April 2021. Now is as good a time as any to check your reports for errors and, if there were any present, to use the services of a credit repair company to fix them.
How We Found The Best Credit Repair Companies of 2021
Once we concluded this phase, we selected those companies that stood out from the rest in each of the following categories:
- Best credit repair financial tools
- Best pricing for credit fixing services
- Best credit repair service guarantee
Reputation and Customer Experience
The companies in our list have been around for over ten years and have a strong reputation across different consumer-review platforms, like the Better Business Bureau (BBB) and Google Reviews.
Courtesy of https://money.com/best-credit-repair-companies/