How does the credit repair industry trends affect me as a consumer? If you sense the following dilemma, you are not alone. Millions of Americans have problems with their credit, with such consequences as higher interest rates or denied credit. And many feel that exactly what they need is professional credit repair help.
But credit repair companies—certainly not all, but the industry at large—have become known for exaggerated promises, hyped claims, and even illegal practices. For example, making promises they cannot fulfill, charging upfront fees and failing to deliver on their services are prohibited by Federal law. And recently, the Federal Trade Commission (FTC) has gone after dozens of companies that have broken the law. It is not unusual for these companies to pay big fines and even be banned from the credit repair business. But consumers mostly are unfamiliar with the law and may not know they are victimized until it is too late.
The trends: generic and specific
So, what is new, if anything? Are there emerging trends of which consumers should aware or of which they would be wise to take advantage? The best answer is that there are overall trends in the industry, yes. But they are trends that tend not be new, but cyclical. The credit repair industry may be viewed, to an extent, as “countercyclical”: It hurts when the economy is good and prospers when the economy is weak or downright bad.
In 2019, the total revenue of the credit repair industry was about $3.0 billion. That total was achieved by the 81,000 firms in the business.
The trend? Both that total profit, and the number of companies, were in downtrends. Remember: a strong U.S. economy, with rising wages and lower unemployment, strengthens the consumer and the consumer’s confidence. And, today, the U.S. unemployment rate is testing 50-year record lows. Wages, in general, are rising. Incomes are up. And, comparatively fewer people are struggling with their credit and in need of credit repair services.
And that shows in the industry’s trend. To be specific, the annual growth of the credit repair industry has been declining by about 7.1 percent annually since 2014 (about when the U.S. economy began to recover from the Great Recession).
A notable trend is that many debt-ridden Americans have not sought credit-repair services, but filed for bankruptcy, or, alternatively, used free online credit-repair advice. And so the decline of the industry’s revenues, since 2014, hit a 10 percent drop this year (2019).
Beware: the bright side of a booming economy for the credit repair companies is that consumers become more confident and tend to increase their debt. This certainly is occurring, today. When the inevitable downturn or recession comes, and consumers struggle with the credit they have piled up, the credit repair industry will once again be in clover.
But for now, against the backdrop of this decline in the activity, size, and revenues of the credit repair companies, a lot of observations in this report must begin “the trend continued to be toward…”
Getting down to specifics
What are some of those both new and continuing trends”
- A comparatively few data furnishers (creditors) provide the overwhelming bulk of the information on consumer “trade lines.” Let us stop, for a moment, to define one of the single most important terms in credit reporting. A “tradeline” is the basic building block, the irreducible particle, in a credit report. It is a report on a specific consumer’s account for a specific car loan, mortgage loan, credit card. It is the irreducibly concrete piece of evidence upon which vast credit reports are erected. And each month in 2019, 10,000 data furnishers provided information on 1.3 billion consumer tradelines. To whom? To such firms as Equifax, Experian, and TransUnion, each of which has more than 200 million files on consumers. As one analyst comments: “No wonder credit reports have material errors” before consumers seek credit repair. Estimates have run as high as 40 million errors in credit reports—and, as we all know, they are not easy to fix.
- In spite of the robust economy, more than one-third of American adults (some 77 million) with a credit file have at least one reported debt in collection. The average that they owed, this year, was $5,178. The tally of debt in collections, by the way, does not include problems with mortgages. Debts in collection signify attempts to collect on a credit card balance, medical bill, or utility bill (to take but a few examples) more than 180 days past due.
- A powerful and disturbing continuing trend is that half of all tradelines for debt collection are medical bills claimed to be owed to hospitals or other medical providers. Such medical debt collections affect the credit report of almost one-fifth of all consumers in the credit reporting system. Far smaller percentages relate to cable or cell phone bills, utilities, banks, auto loans, and so forth.
- Unsurprisingly, more than half of the tradelines in the big credit bureau databases come from the credit card industry. Bank cards continue to dominate, overwhelmingly, with 40 percent, while less than 20 percent come from retail credit cards.
- Mortgage lenders or servicers and auto lenders remain a very small slice of the data provided to credit reporting companies, accounting for only 7 percent and 4 percent, respectively, of reported credit tradelines.
- Much of the angst of consumers about their credit, and fully two-fifths of all disputes, related to debt in collections. Debt in collections is five times more likely to be disputed than mortgage information.
- A striking trend continued this year. It is that fewer than one in five people obtains a copy of a credit report each year. Although it is by far the most effective way for consumers to identify errors in their reports—and we saw that these run into the tens of millions—only about 44 million U.S. consumers in any given year obtain their files even for free.
- The last trend to note bears on the challenges that consumers face when disputing errors and alleged errors in their credit reports. This is the crux of the issue: Only 15 percent of the items that consumers disputed were addressed internally by the credit reporting company. Instead, 85 percent of the complaints and disputes were forwarded to the banks and other “data furnishers” who provided the original information. The problem? That with more than four-fifths of all disputes and complaints being passed along in this way, the CFPB reports that “the documentation consumers mail in to support their cases may not be getting passed on to the data furnishers for them to properly investigate and report back to the credit reporting company.”
Does that looming problem itself predict a new trend? Will it tend to force frustrated consumers in larger numbers to seek the help of credit repair companies—on the assumption that these professionals can command more respect in “the system” and get to the root of the problem?
The credit repair companies aren’t going away
Unfortunately, there is no evidence one way or another to confirm that credit repair companies can do the job where consumers fail. And many financial advisors continue to reassure consumers that they can resolve their credit issues on their own, with the ample online resources of advice now available—as well as free-of-charge nonprofit organizations that help with credit repair.
Best bet, though, is that the $3.0-billion U.S. credit repair industry will continue to have a major role. And that when the inevitable economic downturn arrives—now or in five years—hard-pressed U.S. consumers will look around for professional help.
