Do Credit Repair Companies Work?

Credit repair companies do work, but that may not be the full answer you need. In fact, the real question is whether you need a credit repair company at all? There is nothing a credit repair company can do that you can’t do yourself.

Like doing your income taxes, or changing the oil in your car, there are things you can do but may prefer to pay someone else who is more qualified and experienced in the service required.

According to Consumer Reports, credit repair has grown into a $5 billion per year industry. That means there are a lot of competitors, too much scamming, and incentives for companies to take shortcuts.

Another question is whether a specific credit repair company is effective. That depends, and there is a real risk of running into a company looking to scam you. Choosing to engage a credit repair company or service is your first decision. Engaging a legitimate company is the second, but equally important decision.

Anyone can get into a credit-related jam, and anyone can get themselves out of such a situation. An incorrect item on a credit report, whether accidental or a sign of a scammer misrepresenting you, can happen to the most responsible of borrowers. An individual can check credit reports, which are available free of charge, for incorrect or fraudulent items. That individual can then challenge the item, backed up with documentary evidence if possible, and get it removed.

A legitimate credit repair company, for a price, can take care of this chore for you. You will have to be sure the company is legitimate and decide whether the costs and fees are worth the time and effort you will save.

What Do Credit Repair Companies Do?

Consumer Reports did a study and found that 44% of people had errors on at least one of their credit reports. These errors could include accounts or loans that have been paid off but appear as unpaid on the report; loans listed multiple times; incorrect personal information; actual debts that are incorrectly listed as being in the collections process.

There are also fraudulent transactions because of scams or identity theft.

Under the Credit Repair Organizations Act (CROA), companies may identify and report these errors, helping to get them corrected. Legitimate companies may not remove accurate information, no matter how negative it might be.

Before engaging a credit repair company, make sure they are in compliance with CROA. If they offer to perform services that violate CROA, you may be well advised to find a different company.

Likewise with any company that guarantees it can remove anything from your credit report. You have three business days to cancel a contract with a credit repair company without paying for their services.

How Do Credit Repair Services Work?

When you contract with a credit repair company, you begin what is normally a 30-45 day timeline for an investigation and conclusion.

The first step they take is to pull your credit reports from the three companies that offer them: Experian, TransUnion, and Equifax. Using multiple reports allows an investigator to spot discrepancies, anomalies, and signs of fraud. For example, two similar credit scores and one inconsistent score may show that something is amiss. The company will then file disputes to remove incorrect information.

When you ask, Does credit repair work? it is important to know what that means. Yes, the credit repair process does work for spotting and removing errors that may be affecting your credit score.

But no, it is not a magic wand that removes every negative item on your credit history. Legitimate negative items remain.

Again, you can do anything that a credit repair company can do. The company can do some things better – such as being more thorough and experienced, but also by offering services such as credit monitoring, identity theft protection, and debt management plans.

Do Credit Repair Agencies Really Work?

If you’re unsure exactly why you’re having trouble with your credit rating, a credit repair company may be a good solution. This is their area of expertise, and they may be better equipped to detect and resolve problems. Think again of having a tax professional handle your income tax returns.

But you will pay the same price for their services whether you get the desired result or not. Correcting errors may improve your credit score, but there is no guarantee of that.

You can do anything a credit repair company can do, including:

• Acquire your credit reports
• Look for errors and inconsistencies
• Dispute any mistakes

That takes time and you may not be able to locate legitimate problems. So, the question is whether the convenience of turning your credit problem over to professionals is worth the expense, minus any money the investigation saves you.

Pros and Cons of Hiring a Credit Repair Company

Pros: 

• The staff at a credit repair companies work on problems like yours all day, every day. They may recognize problems that you won’t, and they know exactly what to do when they locate it.
• Even if you are able to find the same errors as a professional, it will take you time and energy to do that and fix the problem. If saving that time is worth the cost, factor that into your decision.
• If the credit repair service is successful, you may find yourself with an improved credit score and a credit report scrubbed of any erroneous information.

Cons: 

• You may be fine with an initial charge to engage a credit repair company. If that’s $100 or so, you know what you’re paying and what you can expect to get. But beware of monthly fees and other costs in addition to that initial outlay. Know what you’re paying, in its entirety, before signing anything.
• In these days, you can find a scam on your phone before you get out of bed in the morning. Scammers have infiltrated everything we do and everything we use. Credit repair is no exception. Make sure you deal only with CROA-affiliated companies who do not promise the impossible.
• Scrubbing legitimate items, even negative ones, is an example of the impossible and even the illegal. This is a service meant to spot and repair errors on your credit report. It is not a magic wand.
• No legitimate credit repair company will guarantee results because that is not possible. Remember that when you’re making a decision whether (and which) credit repair service is right for you.

How Much Do Credit Repair Services Cost?

You will pay a fee to engage a credit repair company. That means giving them your information and contracting for them to take the next steps. That startup fee can range from $50 to $200 before any work is done.

The contract will include a monthly fee, somewhere from $60 to $180, which can add up by the end of the process.

Many companies charge a fee for each item deleted from your credit report. That fee can range from $25 to $100 per item.

As you’re doing the mental calculation of the total cost, it is worth reminding yourself that you can do all of this yourself.

How Long Does Credit Repair Take?

Those monthly fees become more significant when you factor in how long this process can take. The standard is 30-45 days for a credit bureau investigation into any items you challenge. But it may take months to see meaningful results in your credit report, and you may want to remain engaged with the credit repair company during that process.

Accurate negative items on your credit report remain there for up to seven years, regardless of any services provided by a credit repair company.

Can You Repair Your Credit Without a Company?

You can, and in most cases you should, do credit repair yourself. The DIY method is not difficult and will save you a lot of money.

Start at annualcreditreport.com, a site that includes a link for pulling up free weekly credit reports from each of three companies (Experian, TransUnion, Equifax) that keep track of credit. You can also check your own credit and debit activity for fraudulent charges.

Wherever you find errors, you can file disputes with your card provider or the credit agencies. It may take a month or so for that to be resolved so make sure to keep track of the results. You may get the same result as a credit repair company would get, but your personal cost will be zero.

That makes do it yourself credit repair the safest and least expensive way to address a problem on your credit report.

Warning Signs of Credit Repair Scams

Scammers work hard to present themselves as legitimate businesses, right up until the moment they have pried your money from you. There are red flags that you can look for before committing your cash:

• Upfront fees, especially if they exceed standard amounts from $50 to $200.
• Excessive monthly fees, especially if you’re asked to commit for more than two or three months. Again, this is a sign that you’re dealing with someone whose priority is separating you from as much cash as possible.
•  Guaranteed results, especially promises to remove accurate negative information, which is illegal.
• Offering or suggesting changing your identity.

• Know these acronyms: CROA and CFPB. The Credit Repair Organizations Act is a law that regulates and monitors companies that offer credit repair services. The Consumer Financial Protection Bureau (consumerfinance.gov) provides guidance and resources for all areas of credit card and banking issues, including credit counseling scams.

Alternatives to Credit Repair Companies

The simplest way to avoid scammers or even legitimate but pricy credit repair companies is to find a safer low-cost option. There are several.

• Nonprofit credit counseling. As the name implies, this service is offered at no cost to the consumer. Companies are regulated by the Internal Revenue Service and must act in the client’s best interests. Their nonprofit status depends on providing honest and reliable counseling.
• Debt management plans operate differently from nonprofit counseling. There is a fee, often charged monthly, for the service. The idea is the company works with your credits to find a fixed payoff amount at a lower interest rate so you can afford the payments. You pay a regular monthly fee for a set period of time – usually 3-5 years – until the debt is cleared.
• There are other ways to build (or rebuild) your credit, even while going through a debt counseling or management process. Secured credit cards can be used like regular credit cards, but first you pay a deposit to the creditor. If you deposit $500, you can use the card at restaurants or for other purchases up to that amount. If you make your monthly payments on time, you can build up your credit score.
• Becoming an authorized user of another person’s account can also allow you to build your credit score by using and then repaying the card. These are secure, scam-proof ways to re-establish your credit rating.

FAQs About Credit Repair Companies

• Do credit repair services really work? Yes, they do, but there are key points to keep in mind. You can do anything a credit repair service does: review your free credit reports, identify any errors or fraudulent charges that could affect your credit score, and report them to your creditor and the credit bureaus. The companies charge you to do that work, and that means you become open to scammers.
• How much do credit repair companies charge? There is a range of fees. The upfront fee can range from $50-$200, so it is wise to find out exactly what that fee covers. It can cost an additional $60-$180 per month for the duration of your credit repair process. On top of that, some companies charge a fee for each item deleted from your credit report. Those fees range from $25-$100.
• How long until results show? It can take 30-45 days for reported errors to be investigated and resolved. But it may also take another month or two for the corrected information to appear on your credit reports.
• Will credit repair companies improve my score permanently? A successful credit repair can remove errors and fraud that affected your credit score. After that, it’s up to you to pay your bills on time, monitor your cards for future scams and protect your cards from identity thieves and fraudsters.
• What’s the difference between credit repair and credit counseling? There are connections between credit repair and credit counseling, but there are differences as well. If credit repair is like a visit to the emergency room, think of counseling as the preventive advice a doctor or nurse gives you to keep yourself well in the future. And counseling is free while credit repair comes with a cost.