Credit Cards » Credit Card Guides » What Are Credit Repair Companies And Should You Consider It?
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What Are Credit Repair Companies And Should You Consider It?

credit repair companies work to improve the credit score of their clients in several ways such as disputing the errors in the credit reports
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: January 1, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: January 1, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Key Takeaways

  • As the name suggests, credit repair companies work to improve the credit score of their clients in several ways. This includes addressing and disputing the errors in the credit reports of their clients.
  • It is important to remember that credit repair companies can only remove errors. They cannot remove late or missing payments if those take place.
  • Some credit repair companies also help you to plan how to improve your credit score as well as your financial condition in general.
  • The actual fees charged by credit repair companies vary, but generally speaking, their services will cost around $500 to $1,000 per year.

A good credit score and report is increasingly becoming an essential part of life. Banks and financial institutions use that information to extend credit to you, and employers, landlords, and even cell phone providers look at your credit report.

A poor credit report can make it challenging to get credit, rent a home, or even get a cell phone. For individuals who have poor credit or who suspect items on their report are wrong, or who have been victims of identity theft, there are several credit repair companies promising to be able to repair your credit.

What is a Credit Repair Company?

A credit repair company is a business that offers to improve a consumer's credit report and credit score for a fee. These companies typically promise to remove negative information from credit reports, negotiate with creditors and debt collectors, or dispute errors with credit bureaus.

However, many of these services can be done by the consumer for free, and some credit repair companies engage in practices that are illegal or unethical, such as creating false credit information or requesting the removal of accurate negative information. 

Credit repair can also include disputing mistakes on the credit report, disputing accounts that the borrower did not open, or disputing instances of identity theft. Many credit repair companies will even help individuals focus on budgeting and other financial issues to help get them on sound financial footing.

It's important to be cautious when working with a credit repair company and to thoroughly research the company before paying any fees.

Can Credit Repair Companies Remove Late Payments/Bankruptcies/Hard Inquiries?

Credit repair companies can only remove items resulting from inaccurate information,  fraud, or identity theft. They cannot remove late payments or hard inquiries. Keep in mind though, that all of these things will drop off your credit report within a few months or years, depending on what the situation is.

Anything accurate, even bankruptcy, cannot be removed from a credit card report. If the company offers to remove things on your report that is true, do not use them and find another company.

What Are Credit Repair Companies And Should You Consider It
Credit repair companies can't remove items, as long as it's not an error ot fraud

Is it Legal to Use a Credit Repair Service?

Some credit card repair companies can be fraudulent or not offer all the services that they say they do.

Even though credit card repair companies might seem sketchy sometimes, they are legal in all 50 states. It’s a federally protected right, so no one can tell you that you can’t use a credit card repair company. Federal law also states how credit car repair companies should provide services to consumers.

On the state level, there are many laws the regular the credit repair companies and the industry as well as the services they provide to customers.

How Long It Takes?

Disputes also take time. Once the agency disputes a charge, it can take up to 30 days for a response from the bureau. By law, credit bureaus must make a decision on a disputed account or charge your report within 30 days.

It takes some time for the credit agency to craft a dispute and process it themselves before they send it to the credit reporting agency, so it can take more than 30 days in some cases for items to be removed. It can be worth the wait – removing inaccurate information is one of the quickest ways to improve your credit score.

Credit Repair Cost And Fees

It takes time and money when using a credit repair specialist. The cost for many of these services varies. Some companies charge a monthly fee which usually takes anywhere from 4 to 12 months to increase your credit score.

Those monthly fees may range from $60 to over $100. It usually takes between $500 and $1,000 to complete the process. In rare cases, it can cost more. Other credit repair specialists charge per item you would like to change on your credit report.

What Do Credit Repair Companies Do?

Repairing one's credit takes time and effort and if you're looking to hire an

expert help it will cost money. Credit repair usually involves the below steps:

  • Pull your reports – When you hire a credit repair company they will pull your credit from all three major credit bureaus: Equifax, TransUnion, and Experian. It is important to have them review all three because some creditors and collection agencies do not report to every bureau. Therefore there could be one bureau that shows major issues on their report while the other two may be okay.
  • Analyze – The credit repair company will then analyze your reports and give you an outline of what items they believe they can help with to improve your credit.
  • Dispute – Once you have a game plan, the credit repair agency will start to dispute items on your credit reports. The great thing about having the credit agency do this is that they are already familiar with the processes and procedures required to remove items from your reports.
  • Settle – The credit repair company will also attempt to settle any collections or charge-offs that you need to address on your credit report. Many agencies will also write cease and desist letters on your behalf to your debt collectors.
  • Repeat and plan – The credit repair agency will then repeat the process with all the items that are in dispute with each of the bureaus. Some credit repair companies will help you plan to improve your financial footing and improve your credit score generally, even if it has nothing to do with errors on your report.
how Credit Repair Companies work
Credit Repair Companies pull your reports, analyze them and file a dispute for you

How Do Credit Repair Companies Get Items Removed?

Credit repair companies will file disputes on your behalf with credit card bureaus. This saves you the hassle of having to find all the information you need and argue with the people on the other side.

Credit repair companies will gather all the evidence they need and file everything. They will also do negotiations. If the credit card bureau agrees with their findings, the bureau will then remove it from the credit card report themselves.

Can You Repair Your Credit On Your Own?

Many of the major credit bureaus offer information about how to dispute items on your credit report. You can use this to educate yourself on how credit bureaus collect and process information. There is a plethora of information on removing items from your credit report.

Even Experian offers information on how you can improve your credit. It is possible to do the work that credit repair agencies do on your own, but it would require a great deal of time and effort. You can do it yourself, but it requires time and effort with a major learning curve.

The great thing about using credit repair agencies is that they have experience dealing with three large credit bureaus. They truly understand what it takes to improve your credit score. Many of them even have lawyers to work on your behalf if there are issues that require legal expertise.

If you have poor to okay credit, you may want to consider using a credit repair agency, especially if you're looking to make a big purchase in the near future. For example, if you plan to purchase a house, it might be worth it.

Example

For example, let's say you spend $600 over 6 months to improve your credit score. If your improved score knocks off one percentage point from your home mortgage, it is definitely worth the cost. A $200,000 mortgage over 30 years at 5% has an approximate payment of $1,070 a month and a lifetime cost of approximately $385,000.

However, if you improved your credit score and it knocked you down a tier to 4%, that mortgage will cost you approximately $950 a month and a lifetime cost of approximately $340,000. In this example, you start saving money in the seventh month by just improving your credit score enough to get you into a better interest rate on your home.

According to Experian data, the average credit score for United States residents was 714 across all age groups. In the table below you can see a breakdown per age:

 

How to Choose a Credit Repair Agency?

Many companies offer credit repair services. You should also be aware of various scams. Be careful about which company you decide to hire. The Federal Trade Commission (FTC) has guidelines on how to spot a scam.

By law, a credit repair agency needs to give you a detailed contract on what services they're providing and they should not request money upfront before services are rendered. You should also be able to cancel their services within three days without any penalty. Credit repair agencies generally review your rights with you. A big red flag is if a credit repair agency asks you to submit fraudulent information or claims to any credit bureaus.

Be wary of promises such as a guarantee to increase your credit score by 100 points. This is a promise that credit repair agencies cannot keep. As always, please review the Better Business Bureau as well to see the reviews of that credit repair agency. You can also find reviews on various websites on credit repair organizations.

Finally, request free information from the credit counseling agency about their services and what they offer. A reputable credit counseling agency should be willing to send you free information about itself and the services it offers without requiring any information about your situation.

If a service does not do this, consider it a red flag and seek assistance elsewhere.

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How to Spot a Credit Repair Scam?

According to the CFPB, companies that demand payment before providing services are red flags for credit repair scams.  The company may claim that it can guarantee a specific increase in your credit score or remove negative credit information from your credit report, even if the information is correct and up to date.

If you see advertisements or receive offers to repair or fix your credit, this could be a red flag if the company:

 Does the company require payment before providing any services?

“Don't pay upfront” is a simple rule to follow. If the company uses telemarketing and the federal Telemarketing Sales Rule applies, the credit repair company may not request or receive fees until it provides you with a credit report that shows the results generated more than six months after the promised results.

Credit repair companies cannot request or receive payment until they have completed the services they have promised, according to the federal Credit Repair Organizations Act. Some businesses will set up monthly payment plans in order to avoid this requirement.

You should be aware that any form of upfront payment before services are rendered is illegal.

If  the company claims it can remove negative credit information, even if it is accurate and up to date, it's a big red flag. No one is capable of doing so.

 The company does not inform you of your legal rights or what you can do for yourself for free. You have a free legal right to dispute errors in your credit reports under the Fair Credit Reporting Act; you do not need to pay a credit repair organization to do it for you.

Furthermore, if you have recently signed up for a credit repair service, you have the right to cancel your contract with any credit repair organization for any reason within three business days at no cost.

The company advises against contacting any of the national credit reporting companies directly.

How to Ensure That the Company you are Working with is Legit?

Using a credit company that is legit is very important because you don’t want to get stuck using someone that can’t be trusted. There are some things you should look for in a company before working with them.

Make sure they only ask for payment after they have done the services. This way you aren’t out any money. Every legit company will also inform you of the Consumer Credit File Rights Under State and Federal Law. They will have you acknowledge they gave it to you, and you will sign it.

They should not offer to take anything off your credit report that is accurate. They should also understand all the laws regarding credit card repair. 

FAQs

It will depend on how many disputes you have and how long the credit repair company takes to file them. In general, it will take about 3-6 months to solve all the disputes that the average consumer has. If you have more disputes than normal, it might take much longer than normal.

If you only have a few disputes, the credit card repair company might be able to do it in less time. Always ask in advance how long they think it will take and make sure you sign all the correct paperwork with the contract.

If you have inaccurate reports on your credit report, a credit repair company can help get them removed. If they are successful, you will be able to raise your credit score and not worry about being denied loans or other funding choices.

Credit repair companies can also help you to get fraudulent accounts deleted from your credit reports. This can also help to put your credit score back up to good or excellent. Whether a credit repair company will work or not though depends on if they are successful. You should choose a credit repair company with good reviews and approval ratings.

The Credit Repair Organizations Act ensures that credit card repair companies cannot ask for advance payment and that all contracts and repair work must be put in writing. It also gives the consumer the right to cancel the repair work at any time.

They also work to ensure that credit card repair companies cannot give you any untrue or misleading information regarding your credit report or their services. The act should guarantee that only honest work is done.

Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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