Are credit repair companies legitimate?

When looking for help with credit repair, it is important to choose a credit repair company that is transparent, is ethical and delivers on its promises.

However, it can be hard to search through the number of online companies that promise to solve all your credit problems and find one that can actually help you with your situation. There is no quick fix for credit, and if it sounds too good to be true, it probably is. Credit repair services can provide the help that you are looking for, but you should proceed with caution when it comes to choosing which company you decide to work with. Here’s what you should look for.

What we’ll cover:

1. What is a credit repair company?
2. How does a credit repair company work?
3. Four signs of a legitimate credit repair company
4. Five signs of a credit repair scam
5. DIY credit repair
6. Is it worth it to hire a credit repair company?

A credit repair company is an organization that helps you work to remove inaccurate or damaging items on your credit reports. They may assist with analyzing your credit reports to look for errors or inaccurately reported items, sending letters and challenges on your behalf to dispute negative items and helping you monitor your credit in the ongoing future. Although you have the ability to perform the same tasks that a credit repair company does on your behalf, you may find it easier to offload the work to a dedicated company.

Credit repair companies work with you to help fix your credit and to ensure your credit reports are as accurate as possible. With a legitimate company, the process usually involves four main steps:

1. Conducting a credit report analysis: They review your credit reports from the three main credit bureaus: Experian, Equifax and TransUnion. They watch for negative items that may be affecting your credit score and provide you with options for how you can improve your score.
2. Disputing negative items:The credit repair company corresponds with creditors and credit bureaus to potentially have errors and unsubstantiated negative information removed from your reports.
3. Managing escalating disputes:If an inaccurate negative item requires more care, the company will manage additional correspondence.
4. Providing mentoring: Fixing your credit does not happen overnight. A good credit repair company analyzes your credit score and coaches you toward better credit actions.

The credit repair process takes time—on average, people tend to work with repair companies for around six months. Challenging negative items on your credit report requires communication with multiple parties, such as the credit bureaus that manage your reports or the creditor that furnishes the data. Additionally, it takes anywhere from 30 to 45 days for your credit report to update after any changes have been made.

Disputing each error on each report takes diligence and follow-up. The cost of credit repair depends entirely on the company.

While this may seem like a large expense, investing in credit repair could save you money in the long run. For instance, over the course of a few years, an improved credit standing could save you thousands of dollars on mortgage, car loan and credit card payments by lowering your interest rates.

Many credit repair companies are legitimate and provide services that are completely legal. Unfortunately, there are bad actors in the space, so it’s helpful to do your due diligence before choosing to spend your money on working with one of these companies.

One sign of a credit repair scam is if a company offers credit privacy number (CPN) services. A CPN is sold as a service that provides you with a new identity as a way to rebuild or repair your credit. CPNs are often stolen, and the Department of Justice states that being caught and charged can carry a sentence of up to 30 years. There are legal ways to improve your credit, but this is not one of them.

Legitimate credit repair companies use legal methods to help you fix your credit. This is done by challenging errors on your credit report with the three major credit bureaus as well as providing you with helpful advice and tools to repair your credit. These are completely legal methods that anyone can use. Although these methods take time, this is the key to legitimately improving your credit.

There are legitimate, ethical and honest credit repair companies to turn to when you need help. Here’s how to spot them:

1. They only charge for services after they are provided: You’ll only pay a trustworthy credit repair company after they’ve completed a service. The company should make this clear to a client by stating this on their website or in their agreement.
2. They inform you of your right to repair your credit yourself: A legitimate company will make you aware of this up front in a written statement titled “Consumer Credit File Rights Under State and Federal Law.” Providing this statement is a legal requirement of any credit repair company. Companies who don’t do this risk being shut down, which could put you in a larger bind if you’ve already paid them.
3. They never promise to delete accurate information from your credit reports: A credit repair company should work with you to determine the best course of action on your negative items that are inaccurate or unsubstantiated.
4. They understand the law: Because there are many laws surrounding credit repair services, a legitimate company is well versed in credit legal matters. Not only do they follow the law, but they also know your rights under the law to work on your behalf.

Some credit repair companies engage in questionable practices that are unethical. Here are some red flags as identified by the Federal Trade Commission (FTC):

1. They request payment in advance: Credit repair companies should not request payment before services are rendered. Under the CROA (Credit Repair Organizations Act), companies cannot collect payment until they have begun providing services.
2. They suggest that you cannot do credit repair on your own: Legitimate credit repair companies will inform you that you have a right to free credit reports each year from the three credit bureaus, and that you’re independently able to challenge inaccurate and questionable items. If a company does not alert you of this, specifically in the form of a CROA-required written disclosure titled “Consumer Credit File Rights Under State and Federal Law,” it could be one of many credit repair scams. Credit repair companies can do the work on your behalf, but you can also do it yourself.
3. They suggest that you create a new identity: If a credit repair company advises you to create a new credit identity by using a credit privacy number (CPN) in place of your Social Security number, this is a serious crime. If a credit repair company suggests this as an option, they are not safe or ethical.
4. They lie about their services: Beware of credit repair companies that guarantee to remove negative items—such as bankruptcies and foreclosures—from your credit history. Doing so is outside the company’s control, because it’s ultimately up to creditors and credit bureaus to remove any negative items. In the same way, you should be wary if a company promises they can remove something within a certain amount of time. Again, that’s up to the creditors and credit bureaus.
5. They fail to provide you with a written contract: Credit repair companies must provide a written contract before they can perform services. The contract should include terms and conditions, a description of services and your right to cancel without penalty within three business days. Keep a copy of the contract in your files. If you don’t see a contract of any sort, then chances are the company is one to stay away from.

According to the Fair Credit Reporting Act (FCRA), you are entitled to a fair, accurate and substantiated credit report. This also means that you are entitled to a free copy of your credit reports, as well as the right to dispute any inaccurately reported items.

For those who want to be more involved in the process, do-it-yourself credit repair is possible. If you have a simple case and are confident in your knowledge of credit law, you may wish to dispute inaccurate credit report items on your own. Again, it is your legal right as a consumer to dispute unfair, inaccurate or unverified items.

However, this is often easier said than done. The credit reporting system is not always intuitive and reaching a favorable result requires extensive research and diligent follow-up.

Credit repair is a complex, lengthy process that can feel overwhelming at times. Because of this, many people appreciate the help they can get from credit repair services, such as Lexington Law.