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What Are Credit Repair Services, and Are They Worth the Money?

You don't need to pay for a credit repair service to improve your credit score.

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A credit repair company can offer a range of different services to help you grow your credit score after past mistakes. The main action these companies take is trying to get negative information removed from your credit reports. Since these companies are for-profit organizations, they do this in exchange for payment.

Credit repair companies often find ways to target individuals who are struggling with debt, offering promises of easy financial freedom. But the services offered by these companies come at a significant cost that can send folks with existing financial problems even further into debt. And there’s no guarantee a credit repair company can actually improve your credit score.

If you find yourself targeted by an ad for a credit repair company, use caution in taking their promises at face value. Credit repair companies offer a paid service, but anything these companies do on your behalf can be done on your own, for free.

What is a credit repair company?

A credit repair company charges you a fee in exchange for reviewing your credit report and disputing negative items on your behalf. 

Many consumers have errors on their credit report that could lead to higher-than-necessary payments on loans or insurance policies, according to the Federal Trade Commission. But these errors can be identified and addressed through an established credit repair process. The Fair Credit Reporting Act gives you the right to dispute inaccurate information and have any wrong information removed or corrected. Credit bureaus have 30 days to respond to disputes with a completed investigation, according to the law.

Did you notice that the intervention of a credit repair company isn’t mentioned? That’s because this can all be done on your own.

Are credit repair companies the same as credit counselors?

People occasionally confuse credit repair companies with credit counseling agencies, but the two are very different. 

For one, credit repair companies are for-profit, while credit counseling agencies are typically nonprofit organizations. While the former offers a limited paid service, the latter takes a big-picture approach to your overall financial health. 

Credit counselors will usually perform a free audit of your finances and help guide you toward the best strategy from a list of options. This education-based approach tends to be more successful at getting people out of debt and helping them stay there.

How do credit repair companies work?

Credit repair companies dispute errors on your credit reports by filing formal complaints on your behalf. The goal is to have incorrect or outdated information removed.

But a credit repair company cannot remove negative information from your credit report if it’s accurate.  If a company claims it can remove a series of negative credit marks from your credit profile, that’s a good indication that the company may not be reputable and could possibly be a scam.

Once you select a company, it will conduct an in-depth review of your credit report to identify any items negatively affecting your score. It will then contact the three major credit bureaus, Equifax, Experian and TransUnion, to resolve what items it can. 

The disputes can include areas like bankruptcies, tax liens and charge-offs, which all may be disputed or negotiated for removal through letters to the credit bureaus, letters to your creditors or even a simple verification.

Again, all of this work can be done on your own, it just takes some time and effort.

How much do credit repair companies cost?

Working with a credit repair company can be costly, unlike partnering with a credit counseling agency, which typically offers free or low-cost services and places a greater emphasis on education.

“Credit repair services cost money,” said Brian DeChesare, founder of Mergers & Inquisitions, a blog devoted to banking and finance. “This can be challenging for people who are already deep in debt.”

The actual costs vary from a one-time fee to a per-item fee for every negative mark the company removes from your credit report. Some credit repair companies provide monthly pricing as well, which can include an average setup fee of $100 and can cost hundreds per month. Ultimately, the cost of credit restoration will depend on several factors like where you live, what services you need and the severity of your case.

Is a credit repair company worth it?

According to credit expert John Ulzheimer, formerly of FICO and Experian, it comes down to your personal situation and what you’re willing to risk.

“To the extent you don’t have the time or the patience to deal with the credit bureaus and you’re ok paying for a service that you can do yourself for free, then a credit repair company might be a viable option,” he said. “There are so many bad actors that it’s not possible to universally state “yes, it’s a good idea” and there are enough ethical players that the real answer is going to be “it depends.”

Credit repair services can be worth it in some scenarios. If you feel entirely overwhelmed by your credit issues and you know you need third-party help to get organized and figure out your next steps, reaching out for help may be worthwhile. However, there are free resources available that you might consider before looking to a credit repair company.

Credit counseling is a free service for anyone struggling with debt who wants to know more about their options. Some good options include the National Foundation for Credit Counseling and the Financial Counseling Association of America. You can also check the Justice Department website, where you can find a list of approved credit counseling services in every state.

How to verify a credit repair company

If you do decide to reach out to a credit repair company, watch out for some of the common warning signs of credit repair scams. The Consumer Financial Protection Bureau lists several red flags, such as:

  • Asking for payment up front: Due to protections afforded under the Credit Repair Organizations Act, credit repair agencies can’t charge any fees until they’ve rendered services. 
  • Making promises that sound too good to be true: If credit repair companies say they can erase accurate negative information from your credit reports, or they make other outlandish claims, that’s a huge red flag.
  • Failing to provide complete or accurate information in response to all your questions: If a company struggles to answer your questions or acts frustrated about your inquiries, you shouldn’t use it.
  • Holding back information: If the company doesn’t inform you of your legal rights to obtain a written contract with the company and to cancel that contract within three business days, this is another sign it’s not reputable.
  • Asking you to misrepresent information: If a company asks you to lie or misrepresent anything about your identity or finances, don’t work with it.

According to Ulzheimer, another good idea is to see how long the company has operated and to check their social accounts.

“See how long they’ve been in business. The bad actors often get nabbed. Also, check them out on social media,” he said. “If you see some guy standing next to a Lamborghini that he doesn’t own, parked in front of a house where he doesn’t live, claiming to be the “bureau killa” then you should avoid them like the plague. Bombastic claims are often the calling card of fraudsters.”

Check the Better Business Bureau for complaints

You can also check to see if the company has complaints against it, through the Better Business Bureau. If you’re in doubt about the legitimacy of a particular company, it’s best to play things on the safe side and look elsewhere for help.

“It’s important to watch out for credit repair companies that guarantee score increases, demand payment up front, advise you not to contact the credit bureaus directly and request that you misrepresent information by creating a new ‘credit identity,’ which is entirely illegal,” said Matt Woodley, founder of Credit Informative.

Ways to improve your credit on your own

We’ve mentioned you can perform all the steps of credit repair at no cost -- but how exactly does this process work?

“There is no secret tool credit repair companies have that gives them the ability to do what consumers could otherwise accomplish on their own for free,” said Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. “The only potential value presented by these offers is the fact that they are promising to do most of the leg work for you, but the value of that is even questionable based on how much they can accomplish.”

There are many things you can do on your own to work towards credit restoration, including:

  • Check your credit: Request your credit reports from all three agencies, Experian, TransUnion and Equifax, and examine them for errors. You can access your credit report from each credit bureau once per week, for free at AnnualCreditReport.com.
  • Dispute inaccuracies on your credit report: If you spot a mistake on your credit report, you can dispute an error at each of the three credit bureaus: Experian, TransUnion and Equifax.
  • Implement better financial habits: Making payments in full, on time, every single time is the best way to heal your credit score.
  • Keep your credit utilization rate low: Your credit utilization, how much debt you carry versus the amount you have access to, plays a large role in determining your credit score. It’s a good practice to keep your credit utilization below 30% -- and even lower to boost your score. So, if you have one credit card with a $1,000 credit limit, try not to use more than $300 in credit on that card.
  • Refrain from taking on additional debt: If you’re working on improving your credit score and paying down debt, try not to take on new debt since this will only add to your balance.

How long does credit repair take?

To resolve all of your disputes, you can expect credit repair to take anywhere from three to six months. This timeframe largely depends on the scope of the work. If you only have a few minor blemishes to fix, it might take less time.

Understanding the Credit Repair Organizations Act

The Credit Repair Organizations Act also entitles you to certain legal rights when dealing with credit repair companies. For example, companies are prohibited from demanding up-front payment before services are rendered and must let consumers cancel for any reason within the first three business days. 

Terms of service must be outlined in a written contract, which has to include payment structures, an estimated time frame to complete the credit repair services, and any performance guarantees. The Credit Repair Organizations Act also forbids credit repair companies from using deceptive advertising practices, such as making false promises.

The bottom line

When you look at the services provided by credit repair companies and the fees they charge, you may find credit repair services aren’t worth the cost. In most cases, those funds would have a much bigger impact on paying down outstanding debt.

This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

Lisa Bernardi is a freelance writer with a background in personal finance, insurance, and international business. Lisa's work has been published by NextAdvisor, Bankrate, Reviews.com and The Simple Dollar, among others. Lisa has lived in four countries, speaks three languages and holds two international degrees, including a master's in international business from Universitat Pompeu Fabra in Barcelona.
Holly Johnson is a credit card expert and writer who covers rewards and loyalty programs, budgeting, and all things personal finance. In addition to writing for publications like Bankrate, CreditCards.com, Forbes Advisor and Investopedia, Johnson owns Club Thrifty and is the co-author of "Zero Down Your Debt: Reclaim Your Income and Build a Life You'll Love."
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