Beware of Credit Repair Agencies

Firms claiming they can help you obtain stellar credit in a short time span usually charge hefty upfront and monthly fees, and produce limited results.

How Credit Repair Agencies Operate

Credit repair firms write to the credit bureaus on your behalf, disputing negative items on your report (even if those items are accurate). The bureaus then legally have 30 days to investigate the dispute. If they can’t complete their investigation in that timeframe, they are legally obligated to drop the disputed item from your report. In this way, the credit repair clinic aims to get the negative (though usually accurate) information removed from your report. If the first attempt fails, the credit repair agency will send another letter disputing the same information again, hoping the bureaus will fail this time to complete their investigation in 30 days.

An Unethical Practice

Credit repair agencies aren’t technically breaking the law, but are their practices ethical? Many feel that disputing negative, though accurate, information is an unethical manipulation of the law. The credit repair firms are trying to exploit a provision in the Fair Credit Reporting Act that requires the bureaus to investigate consumer disputes within 30 days. The repair firms hope that by overwhelming them with disputes, the bureaus will have no choice but to drop the negative information that they have not had time to investigate.

Credit repair agencies are also viewed as unethical in that they are impersonating you, the consumer, when writing to the bureaus. They will usually ask you to sign a limited power of attorney that legally allows them to write letters in your name.

Credit bureaus have wised up to these tactics and will often reject any dispute from a credit repair firm. So before you pay to have your score magically improved, know the facts and realize that you're likely making a poor investment. Try improving your score on your own before paying someone else to help.