If you find yourself with a lower-than-desirable credit score, it might be tempting to jump at the first offer you get for help. Instead, your top priority should be finding a reputable and legitimate credit repair agency.
So, who can you turn to if you find yourself with bad credit? Which credit repair agencies are legit? How can you avoid getting scammed?
We wanted to find out, so we turned to two experts to learn more about credit repair agencies, what they do and which ones to avoid if you find yourself in debt.
Debt Management Organizations
Credit repair agencies can help you boost your score in two ways: by helping you manage and pay off your debt, and by disputing negative items on your credit report.
Let’s talk about the debt-management strategy first. This type of credit repair involves good old-fashioned hard work — no shortcuts.
If you’re serious about improving your credit score, chances are you also need to get serious about managing your finances better. These groups can help. Many of them are nonprofits, which means their primary goal is education, not making money off you.
“We encourage consumers to engage in self-help to repair their own credit,” says Thomas Nitzsche of Clearpoint Credit Counseling Solutions, a nonprofit organization based in Atlanta.
“Understanding what makes up a credit score and building good financial habits will benefit them in the long run instead of seeking the quick (and often temporary) fix of a credit repair company.”
First, they’ll want to get a sense of your complete financial picture before advising you of your options.
Chances are, if your credit score is in the toilet, you’ve also got some debt. That may be a good place to start, says Nitzsche.
“Effectively managing debt can help you organically increase your own credit score,” Nitzsche said.
An organization like Clearpoint can help you set up a repayment plan by acting as a coordinator between you and your creditors. A credit counselor can help you lower your interest rates and total monthly payments.
Another perk of a debt management plan is that it allows you to make one lump payment, which the company distributes to your creditors — no more keeping track of dozens of bills and due dates.
On average, a debt management plan can reduce your interest by half and lower your monthly payments by 20%, Nitzsche said.
Getting on a payment plan (which can also alleviate that feeling of drowning in debt) is almost guaranteed to boost your credit score, too.
“On average, clients increase their credit score by 106 points in the first 36 months if they stick to their payments,” Nitzsche said.
There is a monthly fee for a debt management plan like the one Nitzsche describes, but it should never exceed $50 per month, he said.
Disputing Negative Items on Your Credit Report
Other credit repair agencies are for-profit companies that help improve your score by disputing certain items on your credit report.
These companies start with a detailed review of your credit reports from the three major credit bureaus: Equifax, Experian and Transunion. Then, they draft dispute letters to the bureaus, objecting to the negative items on your credit report.
“By law, you have a right to dispute these negative items,” according to Lexington Law Firm, which has been helping consumers improve their credit since 1991.
“Any negative listing you feel may be inaccurate, untimely, misleading, incomplete, ambiguous, unverifiable, biased or unclear can be disputed with the credit bureaus. If the item cannot be verified, then it must be removed from your credit report.”
What does “unverifiable” mean? Let’s say one of your creditors went out of business — there’s no way for the bureaus to verify an item on your report from that creditor, so they have to remove that item.
These agencies are persistent, too. If negative items are not immediately removed from your credit report, Sky Blue Credit Repair will keep disputing them to “maximize the probability of achieving the desired outcome,” according to the company’s website.
These companies charge an initial startup fee, which can range from $20 to $100, and a monthly fee of $59 to $90. Some of them don’t make you pay until you see results, while others have money-back guarantees if you’re not satisfied with their services.
How to Spot a Scam
Whichever route you choose to improve your credit score, how do you know if you’re working with a legitimate organization? Look for a few telltale signs.
It sounds obvious enough, but your first step should be Googling the company or the organization by name. If it’s legitimate, chances are it has a well-established website.
“Seeking an agency with a long history and with positive consumer feedback is also important,” says Nitzsche. “A simple Google search can tell you a lot about an organization and if you cannot find anything about at all, it’s a big red flag.“
The company has likely been rated by the Better Business Bureau, and companies with high marks from the BBB often promote that score on their websites.
Consider where you heard about the company. Was it advertising on TV late at night, claiming to work miracles? Did you learn about it from a reputable news organization?
Another good thing to ask yourself: How long has this company or organization been around? Many of the most legitimate credit repair agencies are well-established and have a proven track record of helping consumers.
“Companies promising quick solutions for things like ‘credit repair’ or ‘debt forgiveness’ should be approached with extreme caution or avoided altogether,” said Bruce McClary, a spokesman for the National Foundation for Credit Counseling.
“Nobody can guarantee that your debt will be completely forgiven or that you will reach a perfect credit score by using their service.”
McClary added that these organizations or companies should be upfront about the details of their services — you should know exactly what you’re getting for your money, and how the service works.
He also advised looking for accredited organizations or those backed by a membership organization, such as the National Foundation for Credit Counseling or the Council on Accreditation.
Other scam tactics: The company promises to create a new identity for you, demands money upfront, is vague about its services and when it will perform them, or won’t specify how much money you’ll owe.
McClary said one common scam is for an organization to falsely associate itself with a government program or agency. Some will even try to get you to believe there was a presidential declaration that led to the creation of a new governmental program, he added.
“They may also use direct marketing tactics that look like official government communication,” he said. If you spot this type of scam, “The best thing to do is report them to the Consumer Financial Protection Bureau or your state attorney general.”
Your Turn: Have you ever worked with a credit repair or debt management organization?
Sarah Kuta is an education reporter in Boulder, Colorado, with a penchant for weekend thrifting, furniture refurbishment and good deals. Find her on Twitter: @sarahkuta.