You might have seen an ad tempting you with a promise to clear your credit report in return for a few hundred or thousand dollars -- but this is almost always a scam. At the very least, they are overcharging you for a service you are often better off doing yourself. However, these companies are not always out to get you and might offer help you legitimately need.
Disadvantages
The Federal Trade Commission, the agency tasked with acting as a consumer watchdog for U.S. citizens, warns consumers that many credit repair companies are scams. They could vanish in the middle of the night with any money you pay upfront. The company could also push you into blatantly illegal attempts to create a new credit profile or scam lenders. A common ploy is to have you create an employment ID number and use it to apply for credit. Worse, even if you use a fake Social Security number, the credit bureaus can still track you by your address and you may lose out on Social Security benefits.
Benefits
A company can help you improve your score by doing legwork for you, such as finding errors in your report and dealing with the dispute process. Much like anyone can file their taxes for free, people still go to professionals because of their experience and expertise. If you have several errors or a particularly complex one, for example, it might be better to contract the dispute process to a credit repair company rather than spend what could be months and dozens of hours on it.
Considerations
Creditors do not always abide by federal credit reporting laws and you may not have sufficient knowledge to catch errors that a credit repair company deals with on a frequent basis. A collection agency might report the wrong date on an account -- they can only report the delinquency as 180 days from the time you missed the first payment. This means the collection account stays on your report longer than it should. Someone versed in the Fair Credit Reporting Act would probably catch this and the boost in credit can far outweigh the cost of the repair service if it saves you money on a loan.
Tip
It is up to you to decide whether a credit repair company is worth the cost to assist you in credit repair or if you can go it alone. When shopping for a credit repair company, watch out for anyone asking for upfront fees or making outlandish guarantees, such as being able to eliminate any bankruptcy. This is always illegal. Any legitimate company will inform you of your rights and list their services and fees before making you pay or sign anything.
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