How do Credit Repair Companies Work?

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The concept of credit repair is often linked with credit repair companies. But contrary to some misinformation, credit repair companies don’t have a monopoly on credit restoration. 

At its core, credit repair can be carried out by anyone, including the individual in debt — for free.

Credit repair might help you if you are among the growing number of Americans who struggle with debt repayment. Data from the National Foundation for Credit Counseling (NFCC) show a 16% increase in U.S. households carrying credit card debt this year, and six in 10 Americans report struggling with managing overall debt. The impact of the COVID-19 financial crisis is only expected to exacerbate the situation. 

Credit repair companies often find ways to target individuals who are struggling with debt, offering promises of easy financial freedom. But the services offered by these companies come at a significant cost that can send those with existing financial problems even further into debt.

“Companies have definitely taken advantage of everyone’s downtime during the pandemic,” says financial journalist and author Jennifer Streaks. Streaks has noticed a recent pattern of credit repair companies leveraging the COVID-19 crisis in their advertisements, particularly on social media platforms like Instagram and Facebook. 

If you find yourself targeted by an ad for a credit repair company, use caution in taking their promises at face value. The truth is while credit repair companies offer a paid service, anything these companies do on your behalf can be done yourself for free. It takes a bit of knowledge and the right resources, though. 

What Is a Credit Repair Company?

Credit repair companies charge you a fee in exchange for reviewing your credit report and disputing negative items on your behalf. 

Many consumers have errors on their credit report that could lead to higher-than-necessary payments on loans or insurance policies, according to the Federal Trade Commission. But these errors can be identified and addressed through an established credit repair process. The Fair Credit Reporting Act (FCRA) gives consumers the right to dispute inaccurate information and get any wrong information removed or corrected. Credit bureaus have 30 days to respond to disputes with a completed investigation, according to the law.

Note that the intervention of a credit repair company isn’t mentioned. This can all be done for free on your own.

Some people occasionally confuse credit repair companies with credit counseling agencies. The two are very different. For one, credit repair companies are for-profit, while credit counseling agencies are typically nonprofit organizations. While the former offers a limited paid service, the latter takes a big-picture approach to your overall financial health. Credit counselors will usually perform a free audit of your finances and help guide you toward the best strategy from a list of options. This education-based approach tends to be more successful at getting consumers out of debt and helping them stay there.

What The Experts Say 

Credit repair companies typically set their fees in one of two ways, according to Experian. Either the company will charge a monthly subscription fee based on the amount of time you require their services, or they’ll work on commission and earn fees for each item they can remove from your credit report. Note that the second type of fee can be charged for each credit bureau separately; if the same erroneous item is removed from all three of your credit reports, you may be charged three times. 

It’s easy to see how these fees can snowball into the hundreds or thousands of dollars.

Aside from the question of whether credit repair company fees would be better spent paying down debts, there’s also the concern many experts have over whether credit repair companies even offer a service worth paying for. Credit repair companies don’t have priority access. Their service can be performed by the average consumer just the same. 

“There is no secret tool credit repair companies have that gives them the ability to do what consumers could otherwise accomplish on their own for free,” says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. “The only potential value presented by these offers is the fact that they are promising to do most of the leg work for you, but the value of that is even questionable based on how much they can accomplish.”

How to Repair Your Credit, For Free

We’ve mentioned consumers can perform all the steps of credit repair at no cost — but how exactly does this process work? There are many things you can do on your own to work towards credit restoration.

The first step should be requesting your credit reports from all three agencies — Experian, Transunion, and Equifax — and examining them for errors. Credit reports can typically be accessed for free once per year from, although reports are now available weekly through April 2021 in response to COVID-19.

Common issues with credit reports include incorrect information, such as your name or personal details, and errors, such as information that should have dropped off after a certain period of time but is still showing up. If you do identify what you believe to be an error on one or all of your reports, you should contact the credit agencies directly to initiate a dispute. Here is an email template to report errors. There’s no fee involved with disputing a credit reporting error when done directly through the credit bureaus.

As part of a credit restoration plan, you should also take steps to improve your credit score by implementing better financial habits. Making payments in full, on time, every single time is the best way to heal your credit score. You can also rebuild credit by keeping credit utilization rates low, asking for better terms from lenders, and refraining from taking on additional debt.

Pro Tip

Credit repair companies often charge hundreds or thousands of dollars in fees for services (with no guaranteed outcome) that consumers can do themselves for free.

Pitfalls to Watch Out For

If you do decide to reach out to a credit repair company, watch out for some of the common warning signs of credit repair scams. The Consumer Financial Protection Bureau lists several red flags, such as companies asking for payment up front, making promises sounding too good to be true, or not being able to provide complete and accurate information to all your questions. If you’re in doubt about the legitimacy of a particular company, it’s best to play things on the safe side and look elsewhere for help.

Streaks also advises to check if the company has complaints against it through the Better Business Bureau (BBB). 

The Credit Repair Organizations Act also entitles you to certain legal rights when dealing with credit repair companies. Companies are prohibited from collecting payment before services are rendered and must let consumers cancel for any reason within the first three business days. Terms of service must be outlined in a written contract, which has to include payment structures, an estimated time frame to complete the credit repair services, and any performance guarantees. The Credit Repair Organizations Act also forbids credit repair companies from using deceptive advertising practices, such as making false promises. 

Is It Worth It?

When you look at the services provided by credit repair companies and the fees they charge, most consumers find credit repair services simply aren’t worth the cost. In most cases, those funds would have a much bigger impact on paying down outstanding debt.

If the credit repair process feels too overwhelming to tackle on your own, don’t forget there are resources available to you. Credit counseling is a great free service for anyone struggling with debt who wants to know more about their options.

In light of COVID-19, the NFCC has joined forces with nationwide credit counseling agencies to create a new program geared towards emergency credit card help. Visit the NFCC website to learn more about this service.