The “credit repair” sector has emerged due to the recent financial crises, as customers look for solutions to personal economic problems like bad credit.
Numerous credit repair businesses have emerged over the past ten years in response to consumers’ rising desire to address their negative credit. These new businesses frequently provide guarantees that they would assist people in restoring their good credit scores.
Financial counseling is a service that many legitimate credit companies provide. Still, some more recent credit restoration businesses make spectacular or implausible claims, including vows to “erase bad credit” or entirely wipe out credit debt. Due to this, many customers have been duped by credit repair fraud.
What Is a Credit Score?
A credit score between 300 and 850 is determined by various businesses or lenders using their individual credit rating methods. The three credit reporting organizations produce a person’s credit reports and compute credit scores. Experian, TransUnion, and Equifax are the three main credit bureaus.
Depending on the business or lending institution that determines a person’s credit score and the methods they employ, a person may have numerous credit scores.
A higher score indicates that a person is more creditworthy or more likely to repay a loan on time and per the terms of the loan arrangement. A person is more likely to be able to borrow money if they have good credit since lenders are more likely to trust them to repay their loans.
The FICO credit rating system is the most frequently utilized in the United States. Based on the data in their credit reports, it creates a person’s credit score. Once more, it aids lenders in determining a borrower’s likelihood of repayment.
The amount that can be borrowed, the number of months it will take to return, and the cost of the loan—the interest rate—are all impacted by this.
In general, many lenders think that creditworthiness is good when a score is above 670. Generally speaking, a person’s credit score determines how likely creditors are to lend to them and how much danger they face of defaulting on a loan.
For instance, the Freddie Mac and Fannie Mae credit score systems will be used by the lender when a person applies for a house mortgage loan. A score below 620 is poor in those systems, and a score above 640 is good. However, a FICO score of 580 would be sufficient if someone is seeking a loan through the Federal Housing Administration, which assists those with bad credit.
The fundamental tenet of all credit systems is that a person should have a higher credit score if they pay their debts on time and in full.
How Can I Avoid Having Bad Credit or Raise My Credit Score?
In general, many businesses that give consumers loans believe that scores above 670 signify strong creditworthiness. Once more, the smaller a person’s risk is, the more probable it is that creditors will lend to them, and the higher their score is.
People shouldn’t take on more debt than they can afford with their income to avoid having a low credit score. After that, one ought to be able to make timely loan payments. It is best if someone pays their bills no later than 30 days. A smart suggestion is to avoid opening and closing credit lines frequently.
If a person’s credit score is too low, they can take steps to raise it. A person must be informed of the credit reporting agency’s name, address, and phone number (CRA) that generated the report if they are denied credit, housing, insurance, or a job because of a credit report. If a business denies them credit based on the report, the person has the ability, under the Fair Credit Reporting Act (FCRA), to seek a free report within 60 days.
The truth is that there is no way to delete negative information from a credit report if it is accurate, despite some businesses’ claims to the contrary. Errors or inaccurate information may be rectified. It is more difficult and may take years to get rid of true information unpleasant to a person.
If someone has a poor credit score, they should add good information to their report by taking out credit, but not more than they can afford to pay back, and doing it on time.
Are Credit Repair Businesses Trustworthy?
Credit regulations generally permit the establishment and operation of credit rehabilitation businesses. They are nevertheless bound by a wide range of restrictions and laws. For instance, credit repair organizations cannot:
- Lie or be dishonest in order to gain someone’s credit history or score
- Obtain identification details without the consent of the user
- Engage in fraudulent or otherwise illegal commercial practices
- Make false statements about the services they provide.
- Receive payment for yet-to-be-performed services.
The licensing and certification of a credit repair company are one of the primary issues in determining its level of excellence. That is, since licensing criteria may differ by jurisdiction, it may be challenging to distinguish between a legitimate credit repair firm and a phony organization.
A Credit Repair Scam: What Is It?
Credit repair scams are techniques used by phony credit repair businesses to extort money or personal data from unsuspecting customers. Scams involving credit rehabilitation come in various forms, including:
- Misrepresentation: By saying something like, “You cannot acquire credit for ten years if you have filed for bankruptcy, the organization may mislead a potential customer. To avoid damaging your credit, you must sign up for our services. Such bankruptcy information might be false, deceptive, or both.
- Misusing EINs: A typical scam involves a credit repair company telling a private individual to apply for an employer identification number (EIN) under the pretense of a business in order to establish a new credit record. The use of an EIN to create a false identity is prohibited by law.
- Abuse of Social Security Numbers: Some purported credit repair businesses merely try to collect important details from clients, including their social security numbers, without actually providing any services. Then, they will use that person’s SSN to access additional crucial data or documents.
There are numerous additional types of credit restoration fraud. Any organization that requests your information without providing a clear explanation of how it will be used or makes outrageous claims should be avoided.
What Advice Should You Follow When Dealing With Credit Repair Businesses?
While some people may need credit assistance, there are various precautions you can take to keep yourself safe from dishonest credit repair techniques. You should take into account the following:
- NEVER work with a “credit repair firm” that prevents you from getting in touch with the big three credit bureaus.
- NEVER collaborate with a repair company that flouts standards set by the sector.
- NEVER fall for promises to “clean off debt,” erase bad credit history, or extend credit, “regardless of your history.
- NEVER work with credit repair businesses who assert they can take advantage of business or credit system “secrets” or loopholes.
- DO request a written explanation of your rights.
- DO carefully research any contract before signing it. If you are asked to sign any agreements, you might want to have a lawyer analyze them.
- DO find out if you have the right to break agreements or contracts.
Do I Need a Lawyer for Issues Regarding Credit Repair?
For some people who need financial assistance, credit rehabilitation can be effective. To safeguard yourself from fraud, you must ensure that you are working with a reliable, legitimate company.
Before establishing a connection with a credit restoration organization, it is in your best interest to speak with a knowledgeable credit attorney. A lawyer can defend you throughout a case if you have legal questions, conflicts, or concerns.
