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Credit Repair and the Truth About Bad Credit; American Financial Solutions Provides Tips on the Reality of Managing Negative Credit

Credit Repair What you need to know. Image

In today's society, having good credit is as essential as owning gold and property was a century ago. With good credit, individuals can enjoy lower interest rates on major purchases, potentially pay less for insurance, and avoid concerns about credit checks by employers. Credit repair businesses offer services to help consumers clean up negative information on their credit reports, but these services may not always deliver as promised. Becky House, Education Director for American Financial Solutions, provides important insights for those considering using a credit repair business.

House emphasizes that consumers can perform the services offered by credit repair agencies themselves, saving hundreds of dollars in fees. For example, instead of paying a credit repair organization $400 to attempt to remove a negative item from your credit report, you could use that money to pay off a $400 debt or even negotiate a settlement for less. This direct approach not only saves you money but could also help open access to additional credit building opportunities.

Credit repair organizations often make various promises to attract customers seeking to improve their credit scores. Some common promises include:

  1. Removal of Negative Items: They promise to remove negative items from your credit report, such as late payments, charge-offs, collections, bankruptcies, and foreclosures. 
  2. Quick Results: Many claim they can achieve significant improvements in your credit score in a short period, often as little as a few months.
  3. Dispute Accuracy: They promise to dispute inaccuracies on your credit report with the credit bureaus and creditors, arguing that this will lead to the removal of these items and thus improve your credit score. They often cite a “609 letter” or note Section 609(a)(1)(A), Section 611(a)(1)(A) and Section 611(5)(A) of the Fair Credit Reporting Act
  4. Credit Score Increase: They often guarantee a specific increase in your credit score, although this is not something that can be guaranteed due to the complexity of credit scoring models.
  5. Personalized Services: Some claim to offer personalized services tailored to your unique credit situation, providing a more effective solution than you could achieve on your own.
  6. Money-Back Guarantee: To instill confidence in their services, some organizations offer a money-back guarantee if they fail to deliver the promised results.

Additionally, these agencies cannot remove accurate, negative information more effectively than an individual can. The Fair Credit Reporting Act prohibits the erasure of timely and accurate negative information from a person's credit file.

The Credit Repair Organizations Act governs credit repair agencies and stipulates the following:

  • The company must provide consumers with a copy of their rights under the Fair Credit Reporting Act and any applicable state laws before conducting business.
  • The agency must wait three days after a contract is signed before performing any services, allowing consumers to change their minds without incurring charges.
  • The company cannot charge or collect money until the promised services are fulfilled. 
  • The company cannot suggest creating a new credit file using a false Social Security number or an Employer Identification Number (EIN) from the IRS, as this is illegal.

A report by the Consumer Financial Protection Bureau (CFPB) found that credit report disputes are far more common in majority Black and Hispanic neighborhoods. This highlights the importance of monitoring your credit report and disputing any inaccuracies, especially in communities where discrepancies are more prevalent.

To make positive changes to a negative credit report, consumers should first obtain copies of their credit reports from all three major credit reporting agencies at Review the reports for errors and dispute any inaccuracies with the credit reporting agencies. Non-profit credit counseling agencies, like American Financial Solutions, can assist with this process at no charge.

Adding positive information to the credit report is also crucial. Secured credit cards, share-secured loans through credit unions, or having a family member or friend co-sign on an account are effective methods for many consumers.

Improving a negative credit record takes time and effort. Beware of anyone promising quick fixes for a fee. As the old adage goes, if it sounds too good to be true, it probably is. For more information and assistance with managing credit, debt, budgets, and financial planning, contact a non-profit credit counseling agency, like American Financial Solutions.

Published Apr 4, 2024.