What’s So Wrong with Credit Repair? The Differences Between Credit Repair and Credit Counseling

The signs are visible along the road for most Americans on their daily commute. If it isn’t a sign or a billboard, maybe it’s printed on the back window of a van or seen with a dancing sign-spinner on the side of the road. Millions of commuters will see the same words: credit repair.

Credit repair businesses make big promises: higher credit scores with no work, often within tight timelines. Sometimes they even guarantee it! But is it really possible?

In most cases, the answer is no.

Overall, “credit repair” is frequently associated with practices that do not adhere to our ethical standards and acceptable practices. For example:

• Credit repair is often a temporary endeavor that prioritizes a quick fix over long-term solutions.
• Many unethical credit repair businesses perform tasks for the client, instead of educating the client on how to fix their credit independently.
• Credit repair companies participating in poor business practices are secretive about their methods and do not accept responsibility when those methods do not work. They may refer clients to other businesses or firms without disclosing the nature of their relationship to those businesses or firms.

Credit counseling provides long-term solutions to credit problems

Credit counselors don’t want their clients to keep coming back for years on end. Their goal is for clients to learn how to manage their own credit. Rather than harvesting the same clients for longer periods of time, credit counselors empower their clients. Credit counselors understand their hard work will result in future referrals and word-of-mouth marketing that leads to new clients.

Shadier credit repair businesses seek customers who rely on them to fix their credit. They don’t provide the proper education to keep customers from repeating their credit mistakes. They often grow relationships built on codependency instead of trust.

Here is a common strategy frequently used by unreliable credit repair businesses:

• The credit repair business will dispute all negative items on a credit report, even those that are accurate.
• The customer’s credit score will sometimes see a brief increase, but this is often temporary.
• However, this increase will go back down after the disputes are investigated and accurate negative items are placed back on the credit report.

Unfortunately, many of the consumers of credit repair businesses don’t have the education necessary to understand how these unfair practices are working against them. Furthermore, most credit reporting agencies now have policies in place to detect this strategy and prevent it from working at all.

How to tell if a credit repair business is reliable

Is a credit repair business advertised with only a simple sign with a phone number? Does the business have a name, a website or additional information available? Look at the sign below.

Does the price seem too good to be true? Why doesn’t the business offer a name or a website?

Are there reviews available online? What are the reviews saying? When speaking with the business, does the business offer testimonials and treat you with respect? Are they willing to provide upfront information about their credit repair process?

Ask questions to make sure the business has your best interest at heart before agreeing to their terms.

At NACCC, we recommend that credit counselors with reputable businesses make their name, address (or P.O. box), phone number, email and other information readily searchable and available to potential clients. Listing the names of counselors associated with the business (and providing brief introductions) adds a personal touch and demonstrates that the counselor is unafraid to be known and is prepared to be a supportive member of the local community and business environment. A counselor who makes their contact information readily available is a counselor who is less likely to disappear or hide from clients.

Honest credit repair businesses do not ask for payment upfront, and only bill clients after services have been rendered. They provide a contract that outlines the services offered and the customer’s rights. In fact, in most cases, asking for payment upfront violates the Credit Repair Organizations Act (Title IV of the Consumer Credit Protection Act). The act is designed to protect consumers from deceptive business practices in credit repair and provide consumers with the information required to make an informed decision.

Ethical credit counselors do not guarantee specific results for their clients. They may discuss the positive results of previous clients (without divulging personal information, of course), but are clear that results can vary by situation, and that ultimately, the client is responsible for taking action on managing their credit score.

What do you think about credit repair companies? Let us know in the comments below.

Ready to improve credit scores and change lives? Our Certified Credit Counselor program has received an upgrade! It now includes an additional supplement, The Power of Negotiation. Learn how to negotiate with creditors and improve a credit score the right way. Learn more about becoming a Certified Credit Counselor.