You know it’s tough walking around with poor credit. And credit repair companies know your pain, too. That’s why you’ll spot storefront signs with messages promising to “Repair Bad Credit — $299!” in low-income neighborhoods — they know many Americans are desperate for an affordable, easy solution to their financial problems.
You may find yourself wondering: Are credit repair companies worth it? Will they actually find a way to boost my score hundreds of points? Or is it just a waste of my hard-earned cash?
All credit repair companies claim that they work to remove negative items from your credit report. In other words, they’ll work on your behalf to try to take out anything that counts against your credit score, including late payments, credit inquiries, collection items, and bankruptcy.
But the manner in which credit companies achieve this goal — if they do it at all — is subject to scrutiny.
While some of these companies have your best interest at heart, many may try to rip you off. As such, there are a number of steps you can take to ensure your credit info finds itself in capable, well-intentioned hands.
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How to Fix Your Credit Score
To fix your credit score, you first need to know what that score is. You can get a free FICO score from AnnualCreditReport.com once a year by law.
If your score is low due to issues like missed payments, large amounts of debt, identity theft, or multiple credit inquiries in a short period of time, you’ll have to correct those actions and be patient while your score improves.
Your FICO score, which is the figure used by over 90 percent of lenders, is derived from five distinct components. Here are some tips to help you start rebuilding your score:
1. Payment History (35 percent)
Eliminate whatever debt or late payments you can. Then make timely arrangements to pay off any remaining loans.
2. Amounts Owed (30 percent)
Keep balances low and accelerate debt-repayment efforts. Ensure that your credit utilization — the percentage amount of your credit limit currently in use — stays as low as you can possibly make it, or request a higher credit limit so that the amount currently in use becomes a lesser percentage.
3. Length of Credit History (15 percent)
Don’t close idle accounts (unless a hefty dormancy fee applies). If you’re over 18, also try to become an authorized user on an older account that a responsible spender (such as a family friend or relative) is using.
4. Account Mix (10 percent)
Apply for a small loan, and pay it back in set amounts over a period of time. You should consider applying for a secured credit card, as well.
5. New Credit (10 percent)
Apply for credit only as needed in the coming months.
These are all things that you can do on your own without the assistance of a credit repair company. Make a budget, stick to it, pay off debt, and make your payments on time. While it won’t happen overnight, your credit score will steadily begin to rise if you continually address FICO’s five criteria.
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When Are Credit Repair Companies Worth It?
While it isn’t absolutely necessary to hire a credit repair company, you may want to do so in some cases.
For example, victims of identity theft may want to pay a company to deal with complex issues for them. That said, you can still do this on your own — government websites such as IdentityTheft.gov offer a step-by-step guide to resolving identity theft issues.
However, it takes time, effort, and patience to resolve such issues, especially if there’s been an abundance of fraud in your account.
For cases where fraudsters have run amok with your personal financial information, outsourcing the headache to a credit repair company may be worthwhile.
Dealing With Complex Problems
You may also want to employ credit repair services if you have complicated reporting errors. When collection agents buy and sell your debt, they update records on your credit report. Changes to the data can lead to duplicate entries, where the same debt or loan appears twice, in addition to other reporting problems. In these instances, getting professional help can ensure the more complex issues are addressed properly — and save you the headache of doing it yourself.
Kortney Khan — a millennial mom from Manhattan, Kansas — hired a credit repair company to help her improve her credit score so that she could qualify for a mortgage.
“Credit repair companies go by a tiered payment system,” Khan says. “It took two years for my credit to come up 200 points.” Khan’s score went from about 440 to 660 after having several errors corrected on her report.
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Issues of Timing
A credit repair company may not be worth it if you don’t really need your credit score fixed within the year. However, if you need to boost your credit score quickly to qualify for a mortgage or car loan, a credit repair company may be the way to go.
“In the end, credit repair services are worth it in some scenarios, but not all,” Dayan says.
“If you don’t have the time to dispute errors yourself, they are a good option. They also work better for people who are in debt to lenders that don’t mind working with credit repair agencies.”
How Should I Evaluate a Credit Repair Company?
If you choose to hire a credit repair company, you should use a reputable one with an “A” or “A+” rating from the Better Business Bureau. While this doesn’t necessarily mean that the company has a spotless record, you’ll at least have peace of mind that, should you have an issue with their services, the company will make an effort to resolve these issues in a timely, satisfactory manner.
Also take the time to read the fine print before you hire a company, specifically as it relates to their timetable in resolving credit issues.
If you have many errors, it can be a long, hard road to get your credit repaired.
You may need to file a separate dispute with the credit company for each error, which can take 30 to 45 days to be resolved.
Finally, when assessing a number of different companies, use our rubric to grade each repair site to ensure you get the service you need that works for your budget.
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How to Spot a Scam
Unfortunately, not all credit repair companies are squeaky-clean. Some will make unrealistic promises about how they can increase your score by “100 points immediately” or something similar.
No one can legally remove accurate and timely negative information from a credit report, according to the Federal Trade Commission (FTC). But scores of aggressive and borderline shady credit repair companies have done a tremendous job of convincing innocent, often desperate consumers otherwise.
Just think about all the ridiculous ads on television or billboards. They say things like, “We can erase your bad credit – 100 percent guaranteed” and “Credit problems? No problem!” If it were that easy, wouldn’t everyone have perfect credit?
- The company recommends that you don’t contact any credit reporting agencies.
- It guarantees that it can remove accurate negative credit information.
- It plans to dispute all information in your credit report.
- The company promises to help you “create a new credit identity.”
- It asks for payment up-front before services are rendered
- It guarantees your credit will be improved if you use their services
“If a credit repair organization claims to be able to get legitimate, negative information removed from your report, or guarantees that your credit will be improved after using their services, it’s a red flag and you should avoid them,” says financial fraud and safety expert Justin Lavelle, chief communications officer of the online background check platform BeenVerified.
Scammers will dispute every bit of negative information on your credit report at once.
They flood the credit reporting agencies with requests to investigate your credit. The credit reporting agencies then temporarily remove the negative information while they investigate.
Unfortunately, this “fix” doesn’t work in the long term. All the negative information will return to your report after a few weeks. By that time, your credit repair company will have your money and you’ll still have bad credit.
What a Legitimate Company Will Do
On the other hand, legitimate credit repair companies focus on removing information that is false, unfair, or misleading.
A representative from a good credit repair company will work with you and for you. You should expect the company to create an individualized plan. During an initial consultation, the company will explain how it intends to fix your credit. This typically involves sending dispute letters to the credit bureaus or creditors. As you go through the process, you will understand that working with some credit repair companies are really worth it.
“Having partners to walk you through your credit repair journey is critical to your success,” Lavelle adds. “It’s often hard to know what to do and when to start, but credit repair companies can create a plan to dispute any errors on your behalf, and negotiate with creditors to have those items removed from your report.”
Contrary to what fraudulent credit repair companies may lead you to believe, there’s no way to undo the past. But if you find yourself sinking and saddled by credit account activity that seems insurmountable, a good credit repair company can point you in the right direction.
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What Rights Do I Have in This Process?
Many people forget that the world of credit isn’t some Wild West where any city slicker can sell you a bottle of snake oil without repercussion. The Credit Repair Organizations Act makes it illegal for credit repair companies to lie about what they can do for you.
Under this act, credit repair companies are prohibited from charging you before services are rendered.
Plus, you retain the right to cancel any credit repair contract within three days of signing it, should you feel uncomfortable with a company’s practices. The company must provide a written copy of your Consumer Credit File Rights before providing a contract, as well.
If you discover that your rights have been violated, you can file a formal complaint with your State Attorney General’s office. You can do so via the FTC website or by calling 877-FTC-HELP.
Spotting Red Flags
Of course, the best defense is a good offense.
“If you begin the credit repair process and things don’t line up with your credit rights, don’t click send on the payment screen. Stop and report your concerns to the company and authorities if necessary,” Lavelle says.
“At the start of the process, any reputable company will provide you with a rights and responsibilities declaration.”
Maintaining Good Records
Keep records of the names and numbers of everyone you speak with at the company in case you need to take additional legal action. Keep in mind that you have the right to sue any credit repair organization that violates your rights.
Credit Repair Costs and Considerations
Understand that if you want to hire a legitimate credit repair company, it’s not going to be cheap. For example, many companies charge both an initial fee and a monthly fee of $79 and up until the issues are resolved. So if you’re serious about using a credit repair company, just know that you’ll be paying for the service.
“Many credit repair services will run around $100 per month, and will help you remove costly errors from your official credit report,” says finance and tax expert Jacob Dayan, CEO of financial startups FinancePal and CommunityTax.
“The timetable for credit repair varies from case to case depending on severity, but it can take anywhere from four to 12 months.”
If you’re looking to cut costs, you may want to consider using a nonprofit credit counseling organization instead of a for-profit company. While a credit counselor will provide actionable advice on how to repair your credit score, much of the legwork, as it relates to filing disputes with credit bureaus for false account activity, is left to you. What differentiates nonprofit counseling from credit repair is that the latter will take steps on your behalf to repair credit, whereas a counselor provides only advice and direction.
That said, any of the credit counseling organizations listed on the National Foundation for Credit Counseling’s website can provide services for free or at a cost lower than that of a commercial, for-profit company.
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Can I Do It Myself?
If you can’t afford a credit repair company, or if after looking at your credit report you think you could better address your financial issues yourself, there are steps you can take to build positive credit that will drown out negative credit history. The following two actions are key:
- Pay all current accounts on time, every month.
- Eliminate credit card debt.
These tasks aren’t sexy, but they’re effective.
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Even if you have debt in collections, your top priority should still pay your bills on time and work on eliminating debt. Once an account is in collections, the damage is done. Settling debt in collections will not improve your credit score, as it relates to the on-time payment history component of your FICO rating, which as we know, informs 35 percent of your total score.
“Use the repayment: Pay the minimum payment on all of your debts to avoid being late or missing a payment,” says credit industry analyst Greg Mahnken. “Then allocate all your extra money toward the debt with the highest interest rate, and repeat this process until the first debt is paid off, then move on to the next one.”
“As you knock out more debts, you’ll free up more money to address other minimum payments and can use the money to pay off debt faster over time,” Mahnken adds.
If collection agents are breathing down your neck, the Consumer Financial Protection Bureau gives the tools and resources you need to assert your right to live without being harassed. By doing so, you give yourself the time to put your financial house in order.
Once you’re ready to deal with collection agents, you can negotiate a settlement offer. Since collection agencies buy your debt for pennies on the dollar, you can usually resolve your debt for 20 to 30 percent of the outstanding balance.
When dealing with a collection agency, get any offers in writing before you send them money. You’ll also want to send your payment via certified mail. Don’t sign up for electronic payments, and don’t write a personal check. Instead, use a money order or a certified check to pay collection agents.
“Money orders are far less expensive than money transfers, but also make it harder to prove you’ve paid,” Mahnken notes.
“Conversely, bank ACH transfers and checks can be cheap or free, and they are easy to prove you’ve made a payment, but you’ll need to expose your banking information to the creditor. Though, if the company is legitimate, this shouldn’t be a big concern.”
In a few cases, you may also need to remove errors from your credit report. Detecting and disputing errors is more complex, but doing so can drastically improve your credit’s health. To cut costs and begin removing errors from your report take the following actions:
- Draft up a letter to one of the three credit bureaus using this template from the Federal Trade Commission, highlighting any inaccuracies you have found on your report, and provide evidence of veracity in the form of receipts or other relevant financial documents
- Send the letter to notify the creditor of your dispute.
- Await a response. If the credit bureaus rule in your favor, you will receive a free copy of your updated report and a written notice of correction. Upon request, written notices of request can also be sent to those who have received your credit report in the past six months.
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Are Credit Repair Companies Worth It? The Bottom Line
Assessing the state of your individualized credit, and whether you want to handle it yourself, will help you decide whether it’s time to call in the big guns and hire a credit repair company.
If there are a few incorrect items deflating your credit score, you may be able to dispute them yourself. But if you’ve been subject to fraud, or if you find your credit score is littered with incorrect items, using professional resources can help address these issues in a timely and efficient manner.
Examine your credit report thoroughly, and make the call that works best for you and your wallet.
Additional reporting by Connor Beckett McInerney.