Does Credit Repair Work?

“Credit repair” probably sounds like it should be something helpful, right? After all, what could be wrong with wanting to repair your credit?

But when it comes to financial services – especially services from agencies that aim to “help” you with your credit and debt – names are often deceiving.

For example, credit counseling and credit repair probably sound similar, but they couldn’t be more different. The main difference is that credit counseling is usually free, while credit repair is most definitely not.

In fact, credit repair is a nearly $5 billion-a-year, for-profit industry that often takes advantage of people who genuinely need help fixing their credit.

What Is Credit Repair?

Credit repair is a financial services industry made up of companies that claim they can help you improve your credit reports and scores. But what credit repair companies actually do is charge you for something – filing credit report disputes – you can do for yourself for free.

These companies often claim they can get any incorrect or negative information removed from your credit reports. But their claims aren’t exactly… honest. Here are a few reasons to steer clear of credit repair companies:

• You can dispute errors on your credit reports for free, and it can be done in a matter of minutes.
• It’s illegal to remove accurate information from your credit reports, even if it’s negative.
• They might get some accurate information removed from your credit reports, but only temporarily while it’s being investigated.
• Disputes filed by credit repair companies are less likely to be successful than disputes you file for yourself.
• Many credit repair companies are one-person operations that use illegal or fraudulent tactics or encourage you to break the law.

If you’re still not convinced that credit repair is a shady industry, consider the fact that there are a variety of free guides online that teach you how to start your own credit repair business. In other words, any old fraudster can start up a business and get their hands on your money and your credit reports.

How Does Credit Repair Work?

Credit repair is a fast-growing industry that’s full of solopreneurs (individuals who are self-employed). In other words, it’s difficult to predict exactly how your experience with any one credit repair company could go.

With that said, there are some well-established companies you can work with. Here’s a step-by-step look at what they typically do:

1. Give you a written contract that shows your total cost and rights.
2. Begin charging a monthly fee.
3. Pull your credit reports from all three major credit bureaus (Equifax, Experian, TransUnion)
4. Identify negatives in your reports, like bankruptcies and collection accounts.
5. Send dispute letters to the credit bureaus.
6. Wait 30 days for the credit bureaus to investigate the disputes.
7. In some cases, attempt to negotiate with creditors to reduce your payments or account balances.

Does Credit Repair Really Work?

Credit repair can work in limited cases … at least sort of. If you have errors in your credit reports, and you don’t want to dispute the errors yourself, a legitimate credit repair agency can take over the job for you.

Then again, they might not be all that successful at improving your credit, since credit bureaus can dismiss disputes if they believe the disputes were submitted by credit repair companies.

Ultimately, it’s illegal to remove accurate information from your credit reports, whether by an individual or an agency. But for anyone who wants to improve your credit, take heart: negative information doesn’t stay on your reports forever. In most cases, it’s removed after seven years.

How Much Does Credit Repair Cost?

How much you will have to shell out in order to repair your credit depends on which approach you take. Here’s a breakdown.

• DIY Approach: You can pull your credit reports from annualcreditreport.com for free and then file disputes against inaccurate information for free.
• Credit Repair Services: Companies may charge initial setup fees ranging up to $200, plus monthly fees from $60 to $180 a month or a fee of $25 to $100 for each deleted item. Late fees can range up to $20 per late payment.

In other words, paying for credit repair can get expensive fast. If you go through Lexington Law, for example, which is one of the largest credit repair companies in the U.S., you’ll pay $139.95 per month for their services.

Most customers work with Lexington Law for six months, which means they pay a minimum of $839.70… and with no guarantee of any results.

Pros and Cons of Credit Repair

If you look around online, you won’t find many positive reviews from people who have used credit repair services. For people who do have positive things to say, they may have never been informed that they could file their own credit disputes for free.

Instead of taking your neighbor’s or coworkers’ word for it, consider these pros and cons before hiring any company to help fix your credit.

Pros:

• Potential Credit Improvements: When certain errors are removed from your credit reports, the result can be higher credit scores.
• Better Credit Terms: If you end up with higher credit scores, it will be easier to get approved for loans and credit cards.

Cons:

• Cost: The services can cost as much as $150 a month or $100 for each deleted item. Meanwhile, nonprofit credit counseling services are free.
• Scams: According to the Consumer Financial Protection Bureau, the majority of credit repair companies use fraudulent tactics.
• Illegitimacy: If a company doesn’t have a state-licensed lawyer on staff, they’re not legally authorized to file your disputes.
• Time-Consuming: The process often takes six months or more, to complete.
• No Guarantees: There’s no promise that credit repair will result in any changes to your credit reports or scores.
• You can DIY: You can pull your own credit reports for free, and it’s free to file disputes, too.

Should You Hire a Credit Repair Company or DIY?

You might be considering paying for credit repair services in order to get so-called quick and convenient help. But don’t expect these companies to deliver on either front. You could end up paying a monthly fee for six months or more, with no changes to your credit profile.

Even worse, you could end up getting tricked into committing identity fraud or being scammed in some other way.

With DIY credit repair, you don’t have to spend a cent, and you don’t have to worry about being taken advantage of. You can easily review your own credit reports and follow the instructions to file a dispute. If you file online, the process takes only a few minutes to complete.

Alternatives to Credit Repair

If you’re looking for help with improving your credit, it’s definitely available! Instead of hiring a for-profit company, try getting professional help. Depending on your situation, there are certain credit products you can also use to help you gain points. Here are a few options:

• Credit Counseling: Talk to an NFCC-certified credit counselor for free and professional one-on-one assistance with reading your credit reports and filing disputes.
• Debt Management Plans (DMPs): Ask a certified credit counselor if a DMP can help you manage debt and improve your credit scores by allowing you to pay your debt off with lower interest rates and fewer fees.
• Secured Credit Cards: If you don’t qualify for credit cards, but want to start adding positive information to your credit reports, try opening a secured card. You qualify for one of these products by making a cash deposit.
• Authorized user: If you know someone with good credit, ask if they’ll add you to their credit card as an authorized user. If they do, the credit card account information will appear on your credit reports and benefit your scores.

Is Credit Repair the Right Choice for You?

Credit repair is almost never a good choice. Sure, if you don’t want to spend time reviewing your own credit reports and filing disputes, you might consider hiring a credit repair company to do it for you. But don’t get your hopes up about the results because nothing is guaranteed.

If you really want to raise your scores – and keep them up for the long term – make the repairs on your own. Better yet, reach out to a certified, nonprofit credit counseling agency for free, professional guidance before you start the process.