Why a credit repairer shouldn't fix your credit report

You're feeling stressed. You've just checked your credit report, your credit history looks like it's in bad shape, and you need to figure out how to fix it. After all, you want to apply for a home loan, and a lender may not accept your application with a poor credit history and credit score.

Then you see an ad for a credit repair company, claiming to clear your defaults and reduce your debts so that your credit gets back to good health. It sounds too good to be true!

You should be wary of the promises credit repairers make.

And it is.

If your credit history is in poor shape, or you've found information on your credit report that seems inaccurate, going to a credit repairer can seem like a great option. But you should be wary of the promises they make. In this post, we take a look at the risks of enlisting the help of so-called 'credit repairers' and what you should really do to repair bad credit.

Why would you need to repair your credit report?

Your credit report is a component of your credit profile that gives an overview of your credit history. It provides information about former and outstanding debts, your repayment history, loan applications you've made, the credit you hold (such as credit cards) and any debt agreements. Lenders can use your credit report as part of assessing your eligibility to receive a loan. They may also review information on your application form plus any other information they have on you such as if you are an existing customer.

Bad credit history due to mistakes on your credit report could affect your ability to take out a loan, for example a home loan. That's why it's important to address any incorrect information.

If you repay all your debts on time then your credit report is likely to look pretty good to a lender. But if there is information that indicates you are unreliable in repaying debts, this will be a red flag. Sometimes, this information can be inaccurate, as mistakes do occur.

For example, you might find listed defaults you don't actually have, default amounts that are incorrect, a misspelling of your name (which could indicate that the debts listed aren't yours), an outstanding debt your creditor failed to notify you of, or credit card accounts you don't remember creating (these can signal identity fraud). These will all act as indicators of a bad credit history to lenders, who won't know the information is wrong.

It's important to rectify any incorrect information as soon as possible.

Negative information on your credit report will affect your credit score, potentially resulting in loan rejection and affecting your chances of securing credit in the future. So it's important to rectify any incorrect information as soon as possible.

What's the risk with enlisting a credit repairer?

Credit repair, or 'debt solution' companies claim to be able to remove bad information from your credit report for a certain fee. However, many of these businesses are simply taking advantage of their customers.

The Washington Post recently reported a case in the United States involving credit repair companies that had illegally charged their clients advance fees, misled them and failed to disclose the limits on their money-back guarantees. The firms - Prime Credit LLC, IMC Capital LLC, Commercial Credit Consultants and Park View Law - settled for $2 million with the Consumer Financial Protection Bureau.¹

Credit repair firms in the US were found to be taking advantage of their customers - and the same thing is happening here in Australia.

Similar cases have occurred Down Under. The Australian Securities and Investments Commission (ASIC) conducted an investigation into 'debt management' firms. In a report titled Paying to get out of debt or clear your record: The promise of debt management firms released in 2016, the Commission found that:

• Fees were not sufficiently transparent.
• Fees were often high and payable before the service was actually delivered.
• The risks were not adequately disclosed.
• Debt management firms didn't have sufficient legal knowledge.
• These firms rarely disclosed that there were free services available to consumers.²

ASIC warns consumers that you cannot trust credit repair companies. Information on your credit report cannot actually be removed as credit repair firms claim to be able to do - unless the information is incorrect. And in cases where the information is inaccurate, you can resolve this for free. 

You can actually take steps to repair your credit report for free - you don't need to enlist the help of a credit repairer. 

What should you do instead to get rid of mistakes on your credit report?

Get a copy of your credit report first to go through your credit history information. Your credit report is freely available from a credit reporting agency such as Equifax. Any information on your report that could paint your credit health as poor should be checked to make sure it's correct. If it is, you won't be able to remove it (no matter what a credit repairer will tell you). However, if you believe some information is wrong, here are the steps you should take:

• Contact your lender/credit provider. If they made the mistake, they will contact the relevant credit reporting agency to remove the information from your report.
• Contact your credit reporting agency and alert them to the inaccurate information. If you got your credit report from Equifax, you can visit our Corrections Portal. Equifax's Customer Corrections team will investigate your request and respond within 30 days. If we're unable to make the correction, we'll let you know in writing.
• Contact the Credit and Investments Ombudsman if you aren't satisfied with the outcome from either your credit provider or your credit reporting agency.
• Make a complaint to the Office of the Australian Information Commissioner (OAIC) if you aren't satisfied with the investigation conducted by the Credit and Investments Ombudsman.

The services listed above are free, while a credit repair company could charge you up to $1,000 to fix a single listing, according to ASIC estimates.³

Don't go to a dodgy credit repairer who'll charge you exorbitant fees while making promises they can't keep when you can get the help you need for free. It doesn't cost anything to repair a credit report in Australia if the information is found to be incorrect. Visit our Corrections Portal for more information.

Need more information? ASIC MoneySmart also provides more information about credit repair.

¹ The Washington Post. 'Credit-repair' firms pay $2 million to settle complaints of abusive practices. Accessed August 2017. 

² Australian Securities and Investments Commission. Paying to get out of debt or clear your record: The promise of debt management firms. Accessed August 2017. 

³ Australian Securities and Investments Commission. Credit repair. Accessed August 2017.