Monday, 30 July 2018
Reproduced with permission of ASIC's MoneySmart website.
Don't pay to fix your credit history - do it yourself
If debt is getting you down or you have a bad credit history there is free help available. If you pay a debt solution company just remember that they may not always be able to do what they claim and can charge high fees for things you can do yourself.
This page explains what credit repair companies can and can't do for you, how to save money by fixing your own credit and how a free financial counsellor can help you if you are struggling.
How credit repair companies work
'Credit fix', 'credit wash' or 'credit repair' companies act on your behalf to challenge incorrect listings on your credit report. They may tell you they can fix your credit history and solve your debt problems but, in many cases, they may not be able to do what they say they can. You could end up paying a lot of money without being any better off.
Fix your credit history
Credit repair companies may claim they can improve your credit rating by having negative information removed from your credit report, but default listings and other correct historical information cannot be removed. Plus, you can arrange for any wrong information to be removed yourself for free.
Debt fixes and solutions
Credit repair companies may also offer 'debt fix', 'debt management' or 'debt solution' services to get out of debt and help you take back control of your finances. Many of these solutions can have serious long-term consequences for you and your credit rating.
Do not sign up for any of the following debt management services until you understand what they mean for you in the long term. You can read more about these options on ASIC’s MoneySmart website:
- Debt agreements - an agreement to pay an amount you can afford, over a period of time.
- Bankruptcy - when you are legally declared unable to meet your debts.
- Debt consolidation - rolling all your loans into one loan.
Before agreeing to any of these solutions, seek free help to manage your finances from a financial counsellor.
You can also watch the Australian Financial Security Authority's (AFSA) video on how to avoid untrustworthy debt advisers.
Things to consider before using a credit repair company
Before you sign up with a credit repair company, make sure you understand what services they are offering, their fees, and the terms of their contract.
If they cannot clearly explain what services they are going to provide, this could be a warning sign, and you might be better off trying to repair your credit report yourself.
Fees charged by credit repair companies
Credit repair companies typically charge very high fees, as much as $1,000 to fix one listing in your credit report. Depending on the size of your debts, signing up for a credit repair service could make your financial problems worse rather than fix them.
Even if they are not able to fix any entries on your credit report, the credit wash company could still charge you high fees. Credit repair companies cannot remove or change items on your credit report if the details are correct.
If they make you pay an upfront fee, that could be a red flag that they want to make sure they get paid even if they can't help you.
Charging you for free services
A credit repair company may contact an Australian Ombudsman's external dispute resolution (EDR) service to resolve your case. The company could then charge you a fee, even though in Australia Ombudsman services are free and are designed to be easy for people to use.
You could save yourself a lot of time and money by contacting an Ombudsman directly, rather than going through a credit repair company.
How to fix your own credit problems
A poor credit report or credit score could affect any loans or credit you apply for in the future, so it's important to make sure the information is correct.
If there are errors on your credit report, you have the right to get them fixed. There is no charge for this, but your credit report can only be changed if a listing is inaccurate.
Find out how to check and correct a wrong listing on ASIC’s MoneySmart credit report webpage.
There is also guidance on how to get a good credit rating on ASIC’s MoneySmart credit scores webpage.
Free debt help from financial counsellors
If you're struggling with debt, a financial counsellor can help you come up with a solution or understand the options available to you. Financial counselling is a free and confidential service.
In Australia you can call the National Debt Helpline on 1800 007 007.
Fixing a wrong credit listing should not increase your money worries. Understand exactly what a credit repair company can do and the costs involved. It may be better to do fix the issue yourself.