Is It Dumb To Use Credit Repair Companies?

Neal’s Notes:  What follows is a guest post and one person’s experience with Lexington Law the credit repair firm.  I think Mike has many valid points but I think his positions sometimes miss. Different people face different credit challenges.  Mike is a financial expert who already was successful improving his credit score on his own.  Others may not have that skill set or time.  With your permission I’ll weigh in to try to give you a balanced view.

My credit sucks. There’s really no better way to say it but over the last 12 months, I’ve taken strides to improve it. This meant paying all of my bills on time, paying off a lot of student loan debt and settling with a few student loan creditors which had my loans in “collection”. As a result of my efforts, I was able to increase my score by more than 180 points in just one calendar year. Still, my credit score barely sneaks above 600.

Neal’s Notes: That’s amazing.  180 points in one year!  Having started at around 400 he had a lot of work to do.  Obviously he did the work himself .  Good for you Mike!

Improving my score beyond the score has proven to be more difficult, and after writing about credit and DIY credit repair ideas, I decided to enlist the help of experts. A company called Lexington Law has been promoting the service of credit repair for a long time and without knowing their fee structure or just how effective their techniques and strategies are, I signed up for a free consultation. It turned out not to be a good use of my time.

Having said that, I must tell you that the folks I spoke with over at Lexington Law were very professional, very courteous and genuine individuals. The product they offer however was of no value to me.

Lexington Law Free Consultation

My free consultation started by filling out a quick short form online, and upon completion I was told I would be contacted by a credit repair firm called Lexington Law. Sure enough a few hours later, I received the call from a gentlemen (let’s call him Jim) interested in improving my poor credit. It was at this point I thought of telling him what I do for a living so I could be spared the basics on how a credit score was tabulated but I decided to go for the full experience. I had every intention of signing up for their services if I really thought they could help improve my credit, so I gave everyone I spoke with my full attention.

Jim did a nice job of going slow and explaining to me what makes up a good credit report and score, how it is calculated and why it’s a very important part of my financial life. He then asked for my permission to pull a free credit summary from TransUnion, which I agreed to. It was here where he learned that my credit was sub-par and we briefly discussed all of the negative items on the report. Once completed, he suggested a three step process in which Lexington Law could improve my credit.

1. Dispute all inaccurate information on my credit report
2. Request from creditors that negative information be removed from my credit report
3. Construct a plan to improve my credit with future good behavior

Nothing groundbreaking in the plan above but for the right price, I considered allowing Lexington Law to do all of the heavy lifting. Writing personal letters to each of my 30+ creditors (and all three credit bureaus) is time consuming so if the monthly or one time fee was low enough, I may have said yes.

Lexington Law Credit Repair Fees

In order to proceed with Lexington Law, they had to pull my full credit report (more than just the summary above) from TransUnion, which cost me $10. Then, after five days of a “waiting period”, Lexington Law was to charge me a one time work fee of $99.95. Every month I decided to continue to enlist their services, the fee was $89.95. My rep Jim suggested that for the best results, I should give them one full year in order to properly dispute and find resolution.

Neal’s Notes – Now the monthly fee is $99.95 a month. And the fee for a credit report is now $12.95.

Any Value in Lexington Law?

Depending on how important your credit score is to you (I plan to buy a house in the next 12 months, so it’s crucial I improve mine), spending $1,100 to take your credit to the next level may make sense. The value of a product or service is different for everyone, so perhaps Lexington Law can actually provide a good value for some consumers.

But the problem with credit repair companies are two fold. First, the service they offer has no guarantees. After one year of allowing them to work on my credit, they could come back and say “We ried, but no one wanted to remove the bad stuff.”

Neal’s Notes:  This isn’t really accurate.  The attorneys at Lexington can (and do) force creditors and credit bureaus to clean up credit history if the data is inaccurate, incomplete or unverified.  They don’t simply rely on the kindness and goodwill of creditors. On average, Lexington customers get 10.2 items removed from their credit history – or 27% of their bad history removed.  They don’t guarantee results and they certainly can’t hand customers a clean history as if there never were any problems.  But in Mike’s case, 30% fewer credit dings could have easily translated into a much lower mortgage rate.  And there is another very important point.  The FTC prohibits companies from guaranteeing results – that’s why Lexington doesn’t do it.  The companies that did make guarantees are out of business.  So I don’t consider this to be flaw by any means.

In this case, all that I have to show for my $1,100 is one very expensive credit report, and a plan of action that I’ve already been working on for the past year.

The second and more glaring flaw to this whole set-up is the fact that consumers with bad credit don’t have $1,100 to spend. I wrote above how time consuming writing letters can be and perhaps for some, spending $1,100 is worth it to avoid that tedious work but I’m willing to bet that consumers with very low credit scores can’t afford to just throw money at their problems. Lexington Law is asking Americans with tough financial situations to take a monster size risk in improving their credit. With no guarantees mind you.

Neal’s Notes – Yes, the service costs money.  It’s $99.95 a month – not $1100 all at once – but it does cost money.  I believe the real question is if the result is worth it.  Lexington Law is #1 in the field for a reason.  Also, you can read in my full review of the company, they have thrived in an industry that is under tremendous government scrutiny. They’ve expanded hugely while dozens of competitors get shut down by the FTC.  They must be doing something right.  Right?

Are Credit Repair Companies a Scam?

The easy answer to this question is no. Companies like Lexington Law provide a service which is clearly defined but they don’t guarantee results. The fees are charged monthly and they do not steal or swindle you out of your money. However, the return you’ll receive on your investment comes with risk, and many consumers cannot even afford to make that investment.

If you are looking to improve your bad credit, and are simply buying time for bad items to be removed, you can do everything Lexington Law can. Sit down, write letters to your creditors asking for a good faith removal of the bad items on your credit report and try your damndest to make payments on time, larger than the minimum. And even if your attempts fail, you would have accomplished everything Lexington Law could have, for quite a discount.

Thanks Mike.  Sounds like Lexington wasn’t a fit for you for a variety of reasons.  But for others who don’t have the expertise you have, it might be worth a try. Lexington Law goes far beyond asking for “good faith removal” of bad credit data.  They are a team of lawyers who know the law and know the buttons to push in order to get results. I understand that Mike decided at the onset not to sign up and for him, it may have made sense.  But I actually think it’s a shame he didn’t give them a try and then decide, even after a month or two, if it was worth it or not.

This Post comes from Michael, chief editor of DoughRoller.net.