When your credit is bad, it’s tempting to look for a quick fix. If a credit repair company promises to fix the problem for you — in a relatively short period of time, no less — you might be persuaded to take them up on the offer.
But can you really depend on these promises? Before you get on board with a credit repair company, it’s important to understand how they work, how you can repair your own credit, and what results are realistic. Here’s what you need to know.
What are credit repair companies?
A credit repair company reviews your credit report for negative items and disputes those items with your creditors. For the most part, these credit repair companies focus on items that might be mistakes dragging on your score. They dispute the errors, forcing the credit bureaus reporting them to investigate the claims. Examples of credit repair companies you may have heard of include Credit Saint, Ovation Credit Repair Services, and The Credit People.
In general, a credit bureau is required by law to investigate disputed items within 30 days, unless the dispute is considered frivolous. A claim might be considered frivolous if you don’t include enough info about your dispute or if you try to dispute many things on your credit report without proof that they’re inaccurate. If that’s the case, you must still be notified that the claim is frivolous.
If the item is, in fact, inaccurate, it must be corrected on your credit report as soon as possible. After the change is made, you should see an improvement in your credit score.
Depending on the package offered by the credit repair company, you might pay anywhere from $30 to $100 a month or more for their services, along with additional costs, such as set-up fees. Often credit repair companies bundle additional ongoing services, such as fraud alerts and credit monitoring, in order to keep you as a customer.
While that may seem like a small price to pay for better credit, many of the things these organizations handle are actions you can take yourself for free.
What do credit repair companies do?
For the most part, credit repair companies focus on disputing negative items on your credit report. You’ll likely have the best results when repair companies target inaccurate information — because credit bureaus don’t have to remove damaging information if it’s accurate.
Several years ago, the Federal Trade Commission (FTC) completed a report that indicated about 20% of consumers had an error corrected on their credit report after it was disputed. Some of these common errors include:
- Identity errors, which include accidentally mixing up your information with someone else’s or fraudulent accounts being included on your report due to identity theft.
- Wrong account status reporting, such as reporting an account as open even if it isn’t or an account being reported as late even if you paid on time.
- Balance errors, which can include a lower credit limit than you have or a wrong current balance, making it appear that your credit utilization is higher than it is.
- Data management errors, including accounts that appear multiple times with different creditors — something that can happen if you have an account in collections.
These are the types of mistakes a credit repair company is likely to focus on. Getting these items corrected can make a difference in your credit score.
Credit repair companies look through your credit reports with all three bureaus, find the negative items, and then dispute them with the appropriate bureau on your behalf. The best credit repair companies take the time to verify that an item truly is a mistake before sending the dispute.
Other companies, though, might just dispute every negative item on your report as a matter of course. While in some cases this might have results, in many, it just ends with the credit bureau verifying that the information is correct — and nothing changes.
Are credit repair companies worth the cost?
According to that same FTC report, only 13% of consumers saw a change in their credit score as a result of resolving a dispute. On top of that, only about 5% of consumers had errors that were impacting their chances of receiving credit.
The reality is, if the items on your credit report are accurate, there’s not much a credit repair company can do in the immediate future to fix the problem. And if there are inaccurate items, you can get a free copy of your credit report and dispute the items yourself.
Worse yet, some companies pose as credit repair businesses but instead scam you out of your money. According to the FTC, there are some companies that will charge a fee for providing you with a “new credit identity,” but the tactics they use are illegal — especially if it involves assigning you a Social Security number belonging to someone else.
Legally, unless there’s an extenuating circumstance, you’re pretty much stuck with your credit identity.
What are the signs of a credit repair scam?
A reputable credit repair company will be up front about what it can and cannot do, and it won’t charge you before it does anything for you. On top of that, a good company will notify you of your rights. Here are five warning signs of a credit repair scam, from the FTC:
- Requires you to pay them before they do anything for you
- Insists that you don’t contact the credit reporting company on your own
- Suggests that you dispute accurate information on your credit report
- Tells you to provide false information when filling out loan applications
- Doesn’t include an explanation of your legal rights as they talk about what they can do for you
For the most part, credit repair companies can’t do anything for you that you can’t actually do yourself. As a result, it might not be worth it to pay for these services in many cases.
When to hire a credit repair company
Just because you can do something yourself doesn’t mean you shouldn’t hire someone else to take care of a problem.
Combing through your credit reports looking for mistakes can be time consuming. You have to look through each report individually and contact each bureau separately for the items you find. On top of that, you need to follow up, just in case the bureau isn’t investigating the issue as required by law. That’s a lot of legwork.
If you don’t have the time, energy, or confidence to handle it all on your own, it might be worth paying someone else to do the heavy lifting. On top of that, you might be interested in additional services, such as credit monitoring, offered by a credit repair company. If that’s the case, you can get ongoing help staying on top of your reports for a monthly fee.
In the end, a credit repair company probably isn’t going to do something for you that you can’t do for yourself. If you have poor credit due to accurate negative items on your report, your best recourse is to take action to improve your credit score, including making on-time payments, reducing your debt and learning how to manage your money.
Only hire a credit repair company if your credit problems are due to mistakes and you don’t have the time to manage the dispute process on your own. And before you hire a credit repair company, make sure you research carefully so you know you’re dealing with a reputable organization.