Having a good credit rating is important. Without it, you may be denied a mortgage loan and lines of credit, a job, a rental, and even an insurance policy. If your credit report shows a history of debt problems or contains errors, you may consider using a credit repair service to “clean it up.” Before you pay, however, know the way these businesses operate. In the vast majority of cases, hiring an outside company will do NO MORE THAN WASTE YOUR MONEY and damage your credit even futher!
How credit repair businesses work
The most common way credit repair businesses work is to dispute all negative items that appear on your report, whether they are accurate or not. This method will usually backfire. Because the credit bureau has 30 days to investigate, this random dispute on an account renders that account invisible to credit scoring which can temporarily produce positive results. During the inquiry, the items in question won’t be included in a credit score, and a notice will appear under each disputed item. If the creditor doesn’t respond with proof that the item is accurate, the credit bureau will remove it.
Sound good? Well, there are a couple of problems with this process. The first is that if the information the credit repair service is disputing is indeed correct, they will re-report it the next time they submit data to the bureaus. Once this happens, each account will again be visible to credit scoring and your credit score will lower, often even lower than it was in the first place! Also, deliberately disputing accurate notations is an illegal misuse of the process. Lastly, if an item genuinely should not be on the report, the Fair Credit Reporting Act guarantees you the right dispute the information with the bureaus easily and for free.
Another practice these types of businesses may use is file segregation. This is where the credit repair service has you apply for an Internal Revenue Service Employer Identification Number (EIN), which has the same number of digits as a Social Security number. Once you have the EIN, you are then instructed to apply for new credit with it, so you can build an entirely new credit history. This practice is not only against the law, it is rarely effective. By starting all over again you will have a blank credit history, which lenders often perceive as negative or suspicious.
Alternatives to credit repair services
You can repair your own credit in a number of ways. If the information on the report is inaccurate, simply contact the bureau on your own and dispute the item. For negative but accurate information, you have a couple of options:
Building and maintaining a good credit rating keeps your opportunities open. However, tempting it may be to pay someone to undo damage, you are your own best resource. In short, no one can legally remove accurate and timely negative information from a credit report, and everything a credit repair company can do for you legally, you can do for yourself at little or no cost.