What Are Credit Repair Services?

When you have bad credit and keep getting turned down for loans and credit cards, you may begin to feel desperate to somehow repair your credit rating. You may see ads from companies promising that they can repair your credit for a fee. It may sound tempting, even if it's expensive, because a higher credit score can give you the freedom new accounts and making major purchases. Just be sure you know what you're getting into when you decide to hire a credit repair service.

Definition

Credit repair typically refers to a process by which negative information is removed from your credit report. This information may include things like late payments, accounts on which you defaulted and even foreclosures. Negative information brings down your credit score. By getting it removed, a credit repair service is able to raise your score. The raise can be significant, depending on how much bad information they are able to remove.

Process

A credit repair service typically uses a process in which they dispute negative items on your credit report. By law, if the credit bureaus cannot verify a negative item, they must remove it from your report. A good credit repair service will be familiar with a wide variety of reasons for which a negative item can be disputed. This can often be done on a technicality, even if you really do have a delinquent account with the creditor. Some creditors won't be able to provide the required paperwork for verification, while others might not even answer the credit bureau's inquiry. When this happens, the item is removed.

Research

If you are planning to use a credit repair service, Dani Arthur of Bankrate.com says you should do some research first. Check out any companies you are considering with the Better Business Bureau to see if they have any unresolved complaints. Look up the company on online watchdog sites like Ripoff Report. Contact the state attorney general's office in your area to see if they have any open investigations on the firm.

Warning

Ethical credit repair services must follow guidelines laid out by the Credit Repair Organizations Act. Dani Arthur says that a good company should give you a contract that spells out the amount you will be paying and the terms, a detailed description of the company's services, how long they will take and any specific promises and guarantees. The company should also give you its physical business address and phone number. If a credit repair service is unwilling to do this, do not do business with them.

Alternatives

As an alternative to using a credit repair service, you can do your own credit repair. You are entitled by law to get a free copy of your credit report from Transunion, Experian and Equifax every year. Get your reports, make a list of any questionable information and file your own disputes. Many Websites, such as the Credit Infocenter, provide free tools for preparing your disputes and lists of reasons that you may be able to use. This process will not cost you anything out of pocket, and you may be able to achieve significantly positive results.