Credit repair companies have long claimed to have the magic solution to ‘fix’ or ‘improve’ your credit record. Most also charge exorbitant fees (over $1,000) where much of cost has been up-front or ‘top-heavy,’ creating further distress on those who seek the services of credit repair companies at a vulnerable time.

These high fees are generally not justified, particularly when the costs are greater than the default against their credit status. In fact, many of the credit repair companies make the most of the free services of the ombudsman schemes to help remove the default listing – without informing their client that such a free service exists. In a media release this year, the Australian Credit Ombudsman Service Limited condemned the behaviour of a number of credit repair agencies who did not appear to be acting in their client’s best interest and who caused disruptions to the ombudsman service.

Reforming the credit repair industry

In a recent report published by the Consumer Action Law Centre and Melbourne Law School, researchers highlighted the need for reform within the industry to bring about transparency and promote more ethical and professional practices. Some of the recommendations include:

• The creation of a licensing system which ensures that all Credit Risk Agents (CRA) and Companies are registered with an industry body. The licensing scheme should be administered by the Australian Securities and Investments Commission.
• The licensing system should highlight a list of responsibilities and duties for the CRA and credit repair companies, including provisions to act in the client’s best interest.
• No up-front fees and two-weeks cooling off period for contracts entered between a credit repair company and the client. This will allow the client to opt out of the contract if they feel that the contract no longer suits their needs.
• Terms and conditions explained to the client prior to signing. These details should be clearly stated on the CRA’s website.
• Credit repair companies and CRAs should explain to the customer that an ombudsman can help remove defaults on credit for free.
• Credit repair companies should be part of an ombudsman scheme where the client will have the ability to make complaints without going to court.

What many customers of credit repair companies may not realise is that they themselves can take simple steps to improve their credit rating if they feel something has been claimed against them in error. On most occasions, people would only realise that a claim has been made against them when they lodge an application to extend their credit limit.

Simple steps to improve your credit status if a claim is made against you in error

• First, contact your credit provider. This may be your bank or your credit card company.
• Speak to them about the why your credit record is in the present state.
• You would need to provide evidence that your circumstances have changed and why the default against your credit is an error and should be removed.
• Check whether the claim against your credit has been removed.

If you cannot resolve the issue with the creditor, you can take the issue to the Ombudsman for free. This is a simple do-it-yourself process that can save you money and time.