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Credit Repair Companies: How Do They Work?

GoCardless
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Last editedNov 20212 min read

Access to good quality credit is essential for your business. Most SMEs rely on avenues of credit when starting up and to ease regular operations. But not all credit is created equal. As in your personal finances, a poor credit rating can preclude you from the best rates of interest, making borrowing an increasingly expensive proposition.

High interest rates can make a lasting dent in your profit margins and prolong your debt. This means that your business debts can have a lasting impact on your company’s cash flow. While SMEs need to understand that debt is not a dirty word, they also need to understand the lasting impact that poor quality credit can have on their operational finances.

If you want to improve your credit rating quickly, a credit repair company may seem like a heaven-sent solution. But when we take a closer look at how they work, we can see that they come with caveats.

What is credit repair?

Whenever you apply for a business or personal loan, credit card, or any other form of credit, the prospective lender will check with several credit reference agencies (CRAs) such as Experian and Equifax to ascertain your creditworthiness.

As well as looking at your credit rating, they’ll look for red flags that could mark you out as a liability. These may include:

  • Bankruptcies

  • CCJs

  • Arrears

  • Disputes

  • Overreliance on credit

  • Tax liens.

Sometimes, however, companies and individuals can find themselves with poor credit ratings due to no fault of their own. Identity theft or erroneous information supplied to credit agencies can cause unpleasant surprises when you check your company’s credit score.

Credit repair is the process of removing erroneous and inaccurate information from your credit report and negotiating with creditors in order to improve one’s credit rating.

How credit repair companies work

Credit repair companies claim to be able to restore or improve your personal or business credit in exchange for a fee. Some may charge an upfront fee, while others may charge a monthly service fee.

Credit repair companies work to restore your business or personal credit by:

  • Identifying and clarifying any inaccuracies and misunderstandings with CRAs

  • Writing to creditors to dispute any erroneous negative marks on your credit    report

  • Negotiating with creditors and debt collectors on your behalf

  • Advising on the setting up of new accounts to add more positive data to your   credit report.

Do you need a credit repair company to improve your credit?

Not at all.

In fact, credit repair companies are not legally allowed to offer services that you cannot legally do yourself. Credit repair companies are bound by the Credit Repair Organizations Act and the Fair Credit Reporting Act in the US and the Consumer Credit Act in the UK.

Furthermore, there are some instances where a credit repair company is not the right entity to contact in order to improve your credit score. In some cases, such as identity theft or fraudulent transactions, adverse factors on your credit report may require legal intervention.

However, negotiating with creditors, tracking down inaccurate or misinterpreted information and removing it from your credit report takes time and effort. Time and effort that not all business owners are able to spare. 

It’s up to you to decide how much time, effort and stress you’re prepared to take on in order to save the money that you would pay to a credit repair service. Depending on your current operational and cash flow situation, you may be more inclined to reach out to a non-profit credit counselling service or simply make contact with creditors and CRAs by yourself. 

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