Fundamentals of Credit Repair

 

Whether it is building your dream home or buying your favorite car, applying for a hefty loan, or your dream job, your credit score is a crucial factor. From personal lenders to auto insurance companies, from mortgage lenders to your future employer, everyone will refer to your credit score before making their decision. Thus, maintaining a high credit score is of paramount importance and credit repair agents have come into the limelight.

The market size of the credit repair industry had been declining since 2015, by a rate of 6.4%. Currently, it has a market size of $2.8 billion. The trends associated with this industry are opposite to that of others. 

Its growth is countercyclical to the growth of the overall business cycle. The credit repair industry grows during recession periods and underperforms during times of economic boom. Periods of economic recession witness rising levels of unemployment, standard disposable incomes, and higher default rates on bank loans, mortgages, and credit cards. People miss their payment dates, struggle to pay the outstanding debts, and accumulate even more debts. 

Thus, they end up hampering or lowering their credit score. In times like this, credit repair agents or credit repair companies are their saviors. The United States has one of the biggest credit repair industries in the world, with 80,099 credit repair businesses operating across the state.

However, just having some elementary information about credit repair is not enough to be a successful credit repair consultant. The credit repair specialists should specialize in a plethora of fields associated with credit repair. Let us take a look at all the fields related to credit repair and their fundamentals.

Calculation of Credit Scores

Credit is an indispensable part of many people’s financial planning. It can be of two types, consumer credit (for personal use) and credit for business use or agricultural purposes. In most cases, financial institutions (mainly commercial banks) money lenders, and small business owners provide credit.

Before granting credit, the lenders verify the creditworthiness of the debtor. They make their decision after judging the debtor’s intention to pay, his paying capacity, and collateral pledged in case of default. All these factors determine his creditworthiness and affect the credit score.

The credit scores range from 350 to 850, and all individuals aim to maintain a credit score of more than 700. Credit repair bureaus such as Equifax, Experian, and Transunion collect information about the consumer’s credit history (type and number of credit accounts, used and available credit, length of credit history, payment history) and calculate the credit score. The scores can vary from one agency to another based on the information they have included in their credit report. Thus, no consumer has one credit score. The credit scoring models also vary across the credit reporting agencies. The most common scoring method, FICO, is under the regulation of the Fair Credit Reporting Act (FCRA). The recalculation of the FICO score happens every time a consumer or lender requests for the credit score.

Thus, with varying credit scores, the task of the credit repair agent is to verify the information from all the credit reporting agencies. They should maintain regular correspondence with the credit bureaus and cross-check all the information.

Analyzing the Credit Report

Though credit repair might seem a tedious process, individuals can do their credit repair themselves. However, the main reason for employing credit repair agents is to identify those items which an individual would most likely miss. Credit repair agents should be able to spot these errors, duplications, and derogatory remarks on the credit report. The steps related to analyzing a credit report are:

• Reviewing the credit report with the client — The credit repair specialists pull out their client’s credit reports from the various agencies (Equifax, Experian, and Transunion). Usually, credit consultants do a free consultation session with their clients to guide them through their credit reports and explain to them the nitty-gritty of their credit score. They help clients to identify the causes that are leading to a poor credit score. Also, they point out the discrepancies, if any are present, in the credit score provided by the three credit agencies. This session aims to understand if the client needs any credit repair services or not, and consequently, what help the credit repair consultants can provide.
• Identifying the items to dispute — The next step towards improving the credit score is to identify the mistakes in the credit report. There might be many mistakes in the credit report, such as duplicate credit accounts, faults in payment history, and expired negative items. These items have to be disputed and removed from the credit report. Thus, credit repair agents should gather relevant documentation regarding these items and contact the credit bureaus. The credit agents aim to convince the bureaus to remove the negative information from the customer’s credit reports. Credit agents should follow this process for credit reports from all three credit agencies.
• Prioritizing the negative items to dispute — While there might be many negative items, some items require more urgent attention than others. An experienced and well-trained credit agent will be able to prioritize and decide which items to dispute first. Thus, it becomes relatively simple and less time consuming to improve the customer’s credit score.

Offering a Credit Audit

Many credit repair companies offer a credit audit to their clients so that they can understand their credit reports and their financial position better. A credit audit is a much broader concept as compared to a loan review. In a credit audit, the credit repair agents do not just look at individual credit ratings. A credit audit aims to examine credit quality, credit control, and all other aspects related to granting and monitoring credit. Maintaining credit quality is necessary for individuals due to the cash costs associated with poor credit quality. Thus, credit repair agencies usually provide a free credit audit session to their future clients to ensure that their clients can appreciate the value of their services.

In a credit audit, companies study all the information present in the client’s credit report and try to figure out any part that is not in compliance with the Fair Credit Reporting Act (FCRA). The analysis starts with collecting credit reports from all the three credit agencies (Equifax, Experian, and TransUnion), followed by an investigation about their source of information, inquiries, and public records. Credit repair agencies can even ask the credit bureaus directly to disclose details about their investigation method. The next step is the validation of the debt audits. Companies can ask the debt collection companies/ creditors to submit original documents that validate the debt collection process. Credit agents also offer performance audits to the credit collection agencies. The credit repair consultants send estoppel letters, Consumer Financial Protection Bureau complaints, and FTC complaints to all the companies or agencies that have not complied with the audits. The credit repair companies must use delivery confirmation mail in their auditing process to have well-documented proof.

How to Dispute Items on a Credit Report

Individuals or their credit repair consultants have the legal right to dispute any information that is present on their credit report. However, different parameters have different weights in calculating the credit score. Thus, some negative items in the credit report might hamper the credit score more than others. Hence, it is crucial to identify these items and deal with them first. Also, the FCRA provides guidelines regarding disputing items in the credit report.

Credit repair agents can dispute any information that is incomplete, inaccurate, out of date, or something that they feel cannot be verified. All negative items in the credit report can exist for up to 7 years only, and after that, credit bureaus should remove it. However, credit reports can contain information about bankruptcy for a period of 10 years. At times, the credit bureaus report timely made payments as late payments. Credit agents should dispute this information with proper proof. Other information that needs removal from credit reports are:

• Incorrect information about account status, account number, credit limit
• Incorrect information about creditors
• Information about accounts not belonging to the clients

They should provide valid proof and documentation for disputing items on the credit report.

Use of Factual Dispute Methodology

The factual dispute methodology is a step-by-step procedure of disputing the negative items present on the credit report. After finding the inaccurate information in the credit report, the credit repair agents create a detailed plan of action to dispute the negative items. These items can include hard inquiries, late payments, bankruptcies, foreclosures, charge-offs, and repossessions. As per the factual dispute methodology, the credit repair specialists analyze each negative item in the following manner:

• They judge the accuracy of the information. They cross-check all the account details (account numbers, account status, account balance) with their client’s personal records and documents. Further, they check if there is any asymmetry or discrepancy in information between the credit reports of the three different credit bureaus
• They confirm if all the information is complete or not. Usually, credit reports have missing or incomplete information, leading to a poor credit score. Thus, credit agents verify that there are no missing account details or dates
• They need to identify items in the credit report that are not verifiable. In case they find any such piece of information that is not backed by valid proof, it is advisable to remove it from the credit report

Although there are other methods for disputing negative items, the factual dispute methodology is a strategic and logical method that helps companies to get faster results and attract high-quality clients. Credit repair companies are more likely to get referrals from clients for their services. Credit repair specialists in California use this method to train a new team of credit agents.

Writing effective dispute letters

The skill of writing effective dispute letters is a much-needed one for credit repair experts. Their job of credit repair involves writing multiple letters to credit bureaus, credit collection agencies, creditors, and other entities. Thus, they should master the art of writing dispute letters that forms the crux of their job. The letters should be simple, concise, and factually correct. There are two categories of dispute letters, Round 1 and Round 2 letters.

Round 1 letters have generic content, pointing to the inaccurate information in the credit report. They are for multiple credit bureaus and contain information about many negative items in the credit report. Round 2 letters are specifically for a particular credit bureau or about a specific piece of information.

No matter which round of letter it is, it should include a reason for disputing the negative items. Also, the letters should mention how they want the credit bureau to take action. They can demand re-investigation, removing negative items from the credit report, or proof/documentation. Finally, they should provide some form of identity proof of their clients along with the letter.

Tracking Disputed Items

After sending the letters to credit bureaus, credit repair agents should track the progress of disputed items. They should remind clients to provide them with any information they get from the credit bureaus. Also, they should contact credit bureaus and creditors independently every month to check the status of the disputed items.

All credit repair services today operate with a client monitoring system that enables their clients to monitor the progress of their credit position. Clients have individual accounts where they can log in and check out the work done by the credit repair companies. They can see for themselves how their credit score has improved and what is the current status of disputed items.

Thus, for credit repair specialists to excel in their field of service, they must be not only well trained and skilled but also persistent in their approach. Their work might get repetitive at times, with multiple credit reports, many rounds of investigation, and continuous correspondence with credit bureaus. However, it is the commitment that pays off and helps them garner repute in their field.