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Your credit score does not reflect your worth as a human being. It can't measure your capacity for doing good, and it says nothing about the quality of life you lead. However, a credit score can make it harder for you to land a personal loan when you need one or to rent a home. In other words, in regards to personal finances, the higher your score, the less stress you're likely to encounter.
So, what do you do when your credit score is low enough to slow you down? As a consumer, your best bet is to ensure your credit score is correct, and we'll discuss how to do that in a moment. In the meantime, let's look into companies that claim they can repair your credit and whether those companies are legit.
First things first
No matter what you're told, no one can legally make accurate information disappear from your credit report, thereby raising your credit score. Let's say you ran into trouble a few years ago and failed to make car payments. Eventually, the car was repossessed.
If you check one of your credit reports from any of the big three credit reporting agencies -- Equifax, Experian, or TransUnion -- it's a near-certainty that the late payments and repossession will show up and continue to show up for up to seven years.
Because it's true that you missed payments and that the vehicle was repossessed, those two things cannot legally be removed from your reports. However (and this is big), any mistakes found on your credit report can be removed.
For example, if you scan one of your credit reports and find a balance listed on a credit card you've never owned, it's your legal right to have it removed. All you have to do is dispute that portion of your credit report with the credit reporting agency in question. It has 30 days to investigate your dispute. If it finds you're correct, it must remove the remark from your report.
When a credit repair company promises you the moon
There may be legitimate reasons you want to pay a company to help erase mistakes from your credit report. For example, if you're not confident in your ability to interact with a credit reporting agency, you may want to hand the task off to a company that works with them every day.
The problem is that there are plenty of scam companies and organizations out there that promise to do things that cannot legally be done. According to the Consumer Financial Protection Bureau (CFPB), the following signs should serve as giant red flags, indications that you're being scammed.
Tells you that you must pay an upfront fee
It's all about getting your money. Under the Credit Repair Organizations Act, credit repair companies cannot request or receive payment until they've carried through with what they've promised.
Sets up a monthly payment plan
Some scam companies set up monthly payment plans in an attempt to get around the law. They know they're breaking the law, and now, they're asking you to go along with it.
Promises to remove true negative information
No one can get rid of negative credit information if it's accurate. You have to wait for it to fall off your report after several years.
Asks you to dispute accurate information
Let's say you've missed credit card payments and it's bringing your credit score down. A company asks you to dispute the information on your report. When a company asks you to dispute true negative information, it's running a scam.
Won't tell you your rights or explain what you can do for yourself for free
A legitimate credit counseling service will let you know that you can work on your credit report without anyone's help, and then likely walk you through the process. If a company makes it sound as though only it can help, it's a scam.
Tells you not to contact the credit reporting agencies
The company doesn't want you contacting Equifax, Experian, or TransUnion directly because you might figure out that you don't need the company's help cleaning up your report.
DIY credit repair
You can receive a free copy of all three of your credit reports by visiting AnnualCreditReport.com. Once you've had a chance to look for errors, here's how to dispute any mistakes you find:
- Write a letter to the credit reporting agency and ask it to remove (or correct) the inaccurate information. Include your name, address, each mistake that needs to be fixed, and why.
- Send a copy of your credit report with mistakes you want fixed circled. Include any copies of documents that support your request. Be sure to hold onto the originals in case you need them later.
- Send the letter by certified mail and pay for a "return receipt" so you have proof of when the credit bureau received it.
You can also dispute mistakes online (on the credit reporting agency's website) or by phone.
Is paying for credit repair a scam?
Yes, it can be. However, if you truly need help cleaning up inaccurate information on your credit reports, there are legitimate credit counseling agencies that can help. Just as important is how a good credit counseling agency can help you develop a workable household budget.
If you decide not to go it alone, both the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America (FCAA) offer a search tool to help you find accredited, reputable companies near you.
Negative remarks on your credit report are not the end of the road, and they certainly don't last forever. Think of them more as "bumps" in the road, inconveniences to get over until they fade away.
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