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If your credit score is being dragged down by collections, late payments, and other negative information, you might consider hiring a credit repair service to fix it. But can they actually improve your bad credit?
Yes, credit repair companies can help you fix the issues with your credit history. But will it be worth the fee they charge you?
See, the key concern with credit repair companies is that all of the services they are charging you for are actions that you can complete yourself for free.
How Credit Repair Works
When you hire a credit repair service they will first sit down with you and look through your credit reports. They will then discuss the issues they find and outline how they can help you improve your bad credit.
They will also want to discuss with you what your expectations are.
Then comes all the legal stuff where they explain their fee, inform you of your rights, set out a contract, and have you sign whatever forms they need you to sign (varies from company to company).
Then they get to work on the credit repair process.
The main goal of a legitimate credit repair company is to work on getting inaccurate or fraudulent information removed from your credit reports. They will go directly through the major credit bureaus to resolve this.
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On your behalf, they will send a dispute letter to each credit bureau for each inaccurate entry that appears on the report. The information they can dispute includes:
- Late payments
- Credit inquiries (in cases of fraud)
- Collection accounts
- Old accounts (7+ years old)
- Tax liens
- Civil judgment
Legally speaking, they are only supposed to dispute inaccurate or fraudulent information.
Suppose you have legitimate derogatory information on your credit reports, i.e., a collection. In that case, they can also help guide you in reaching an agreement with the collector to pay the debt and have the account removed from your credit report.
Credit bureaus have an obligation to only report truthful information on your credit reports. For that reason, credit repair companies have have no legal grounds to challenge accurate, negative information on your credit report.
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In practice, successful credit repair companies will dispute your negative credit report items, even if they are legitimate. If they are good at what they do, often they will have success with it.
Good credit repair professionals know all of the credit reporting loopholes and best disputing practices. You’d be surprised how successful a good credit repair agency can be.
The credit repair company may also suggest that you open new, healthy accounts to further improve your credit score.
Only after they have begun performing services can they charge you any kind of fee.
What Do Credit Repair Companies Do for You?
The bulk of what they do is dispute negative items on your credit report. This involves sending a series of letters, on your behalf, to the credit bureaus.
In addition to filing disputes, they also offer a variety of related services:
- Credit monitoring– the credit repair company will pull your credit reports to see what issues you have and keep you apprised of any changes to these credit reports.
- Credit counseling– some, but not all, credit repair companies offer their customers education on how credit and credit scores work. This can include guidance on steps you can take yourself to further improve your credit.
- Defining your rights– as part of the contract review, the credit repair company has to outline your rights as a consumer. If they ever request you to sign away your rights, decline their service and report them to the FTC.
- Initiating disputes– credit repair agencies will contact each of the credit bureaus on your behalf to initiate a dispute. This is often done by sending a dispute letter, but it can also be done via the credit bureau’s online portal.
- Contact creditors/lenders– the credit repair company can also directly contact the original creditor or lender on the account to obtain further information or resolve the issue.
- Contact collection agencies– the credit repair company can request validation of the collection account directly from the collection agency and send cease and desist letters to them on your behalf.
- Research & documentation– the credit repair company will work with you to obtain any documentation needed to support disputes.
How Much Does Credit Repair Cost?
Credit repair services range in cost from company to company and may change based on the level of services that you need.
There are two main ways that credit repair can structure their fees: flat-rate membership fee or a per performance fee.
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A company that charges per performance may charge you a small fee each time a derogatory mark is removed from your credit reports. This fee can range from $20 to over $100 and is often charged per credit bureau.
Credit repair companies that charge a monthly flat-rate fee are more likely to offer different levels of services. For example, they may offer a basic package that offers credit monitoring or help with goodwill requests for a discounted price.
Subscriptions can start out in the neighborhood of $50/month and quickly exceed $100/month.
The upside to companies that use a performance or subscription model is that you can cancel the service at any time and save a little money doing so.
Also Read: How to Get an 800 Credit Score After Bankruptcy
While credit repair agencies can discuss pricing with you before rendering services, they cannot charge you before performing services. This is a requirement of the Credit Repair Organizations Act.
How to Verify that a Credit Repair Company Isn’t A Scam
I’d like to tell you that all credit repair companies out there are legitimate, but the fact is that many are not.
Since you are giving these people access to your most sensitive financial information, it is essential to do your research first.
When looking at credit repair companies, you can always check out their reviews on the Better Business Bureau website, Google, or Facebook to get an idea of what other people thought of their services.
Also, be on the lookout for these red flags that indicate this credit repair agency might be a scam:
- They offer a guarantee or promise that they shouldn’t, eg, “We’ll erase your bankruptcy from your credit reports”
- They have poor reviews or no reviews
- They require you to pay upfront (this may actually be illegal)
- They ask you to lie or make false claims to the credit bureaus or creditors
- They ask you to sign away your rights
- They in any way violate (or ask you to violate) the Credit Repair Organizations Act
A credit repair scam could make your credit score worse. It can also damage your relationship with the major credit bureaus and any lenders/creditors they have contacted.
When researching a credit repair company, if they have decent reviews and you encounter none of the red flags mentioned above, then they are likely not a scam.
Also Read: Credit Repair Companies in Las Vegas
Can I Repair My Credit on My Own?
If you are looking to fix your credit, you don’t need to resort to credit repair agencies. All of the services they offer are actions that you can complete yourself for free.
Credit monitoring – there are many free services for obtaining free credit scores and reports. For example, you can sign up for a free credit score from a company like Credit Karma or Experian, and you can obtain free credit reports from annualcreditreport.com.
Once you know what the issues on your credit history are, you can address them yourself.
Open disputes with the credit bureaus – you can open a dispute with each credit reporting agency, often via their website or by mail, if you prefer. The types of credit report information worth disputing include:
- Unpaid collections – if they were paid/settled
- Inquiries – if fraudulent
- Old debts – that have the incorrect delinquency debt
- Fraud/Errors – the result of identity theft or clerical errors
- Bankruptcies – only if they were reported in error
From here, the credit bureau will launch an investigation. They will contact the lender, creditor, or debt collector requesting additional information on the debt. They may also request supporting documents from you, the consumer.
If the creditor, lender, or collection agency cannot provide documentation to support the debt/collection within 30 days, then the information will be removed from your reports.
It is important to note that this information can reappear on your credit report(s) later if supporting information is provided outside the 30-day window.
- Contact creditors, lenders & collectors– you may also be able to resolve issues by directly contacting the bank, lender, or collection agency that holds the debt.
- Freeze your credit– if your credit history has been damaged by fraud or identity theft, you can freeze your credit for free by contacting each of the individual credit bureaus. This ensures no new accounts can be opened or inquiries made.
- Credit lock– this locks your credit so that others cannot see your credit without your permission. It is easier to enable/disable; just be aware that the credit bureaus often charge a fee for this.
- Requesting goodwill adjustments– if a derogatory mark, like a late payment or collection, is valid then you can try requesting a goodwill adjustment from the original lender/creditor. If the account has since been closed, you can try sending a letter to have your account removed.
How Long Does Credit Repair Take?
Credit repair usually takes months – anywhere from three to twelve.
Once you initiate the repair process, whether you are working with a credit repair agency or tackling it yourself, you could see improvement within 30 days.
Especially when opening disputes. If the creditor/lender agrees with the dispute quickly, the issue can be resolved in under 30 days.
Or, if the lender, creditor, or collection agency doesn’t respond to the credit bureau’s request for documentation supporting the debt within 30 days, the derogatory information will be removed from your credit report at the end of those 30 days.
If you need to open multiple disputes with multiple credit bureaus, then this process could take much longer than 30 days.
Other actions for repairing your credit, like goodwill adjustments and settling collections, could take several months. But at a minimum, if your repair efforts are successful, you should begin seeing improvement to your credit score within six months.
Are Credit Repair Services Legit?
Credit repair services can be legitimate, but not all of them are.
All credit repair industries have to adhere to the Credit Repair Organization Act.
This legislation stipulates that credit repair companies have to be upfront about their pricing, can’t make guarantees or misleading statements, can’t engage in fraud, can’t force you to sign away your rights, and cannot charge you until services are rendered.
The state you reside in may have its own laws regarding how a credit repair company can operate. For example, some states require credit repair agencies to employ a dedicated attorney, while other states may regulate fees.
Suppose the credit repair company you work with does not do everything above board. In that case, it could further damage your bad credit as well as hurt your relationship with the major credit bureaus and existing lenders.
Why You Should Never Hire a Credit Repair Company?
I wouldn’t say that you should “never” hire a credit repair company. However, like mowing your lawn, it is something that you can do for yourself.
There is nothing that a credit repair company offers that is not something you can achieve on your own.
If you work with a reputable company, they provide convenience, expertise, and usually good results. (Though there are no guarantees here!)
In a worst case scenario, a dishonest company could further damage your credit by engaging in fraud or encouraging you to open new accounts that further lower your credit score.
Is it worth the risk?
If you struggle to understand credit reporting and how to fix your credit score yourself, you can always look into credit counseling services. These companies are not-for-profits that can offer you guidance in fixing problems and achieving good credit on your own.
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- Writing a Sample Letter to Remove Repossession From Credit Report
- How To Fix Credit After a Car Repossession
Amanda Garland is a personal finance blogger living in Dallas, TX. 10 years ago she was living paycheck to paycheck and knew nothing about how credit works. She learned some hard lessons in her fight for financial stability. Now she has a friendly competition going with her husband to see who can reach a credit score of 850 first. She is also a poet, having obtained a Bachelor of Fine Arts degree in Creative Writing.