Are Credit Repair Companies Too Good To Be True?

Many people hold household debt, with the Federal Reserve Bank of New York reporting that this number has reached $13.67 trillion in 2019. It's easy to end up in a situation where credit card debt and other obligations pile up and result in late or missed payments, defaulted accounts and other negative marks on a credit report. Bad credit scores can get in the way of you living your life. You may not be able to get a credit card or car loan, pay more for insurance and run into problems finding apartments or even jobs.

The opportunity cost of poor credit can be frustrating. Credit repair companies offer to fix this problem by cleaning up their clients' credit through various methods, with a fee associated for the service. The thought of improving your credit score without waiting seven years for negative items to fall off can sound too good to be true at times.

What Do Credit Repair Companies Do?

Credit repair companies look at the negative items on your report and handle the process of working with the creditor and the credit reporting agencies to correct inaccurate information, remove accounts that aren't yours, and provide guidance on improving your credit score going forward.

Are Credit Repair Companies Legitimate?

Much like other sectors that involve financial matters, there are a mix of legitimate businesses and scammers in this market. By understanding what credit repair companies can and can't do for you, and doing some research on the business, you can avoid many problematic organizations that just want to take your money without producing results.

Start by looking at their reviews online, as well as searching the company name +scam. You'll get a lot of useful information with this method. The Consumer Financial Protection Bureau has a complaint database that is another good source of discovering a business' reputation.

A credit repair company will go over your report and create a credit repair strategy. They will also make sure that you know there's a DIY option and what your rights are when it comes to disputing credit information and pulling credit reports. They're upfront about what they can and can't do and allow you to see the contract prior to signing it. If this contract lacks detail about what they actually do, then they're likely scammers.

Signs of Credit Repair Scams

Credit repair scammers have one or more red flags to look out for. A company that wants you to pay upfront is a cause for concern. Legitimate businesses only require payment when they produce results, and may request a flat fee for their services, a monthly payment, or a fee per the result.

Scammers may promise that they can get any negative mark removed or guarantee a credit score improvement. Credit repair companies remove inaccurate negative information and items that shouldn't be on the report due to their age or status. They can't guarantee results before looking at your credit report, as everyone has their own unique set of accounts, debt and derogatory items.

Is Credit Repair Worth It?

The answer comes down to the value of your time and the complexity of your credit report. If you have been battling with the credit reporting agencies and creditors over accounts that aren't yours, old collections that shouldn't show up, and inaccurate information, then you may be better off paying the service to do it for you.

You regain that free time and you can do other things than dealing with creditors and credit reporting agencies. The peace of mind of knowing that you have professional assistance in an oftentimes confusing area can make it worthwhile.

This method also makes sense if you don't have the time or ability to go through the repair process yourself. For example, if you're in the process of buying a house and you're trying to get the best rate, you may not want to wait for months until you get the time to go through the back-and-forth with creditors and credit reporting agencies.

Consider DIY Credit Repair

Ultimately, the credit repair company isn't doing anything that you can't do on your own. You can send out requests to get credit report information validated, dispute errors, and contact debt collectors with cease-and-desist letters yourself. It takes a lot of research to understand your rights and what you need to do during the credit repair process.

If you only have a couple of problems on your report, the DIY method makes a lot more sense than choosing to go with a credit repair service. It doesn't take too much time to work through these items, so you can easily send out disputes and letters once you get home from work or when you have a spare moment during the day.

Credit repair companies aren't all scams, but the legitimate ones are of varying usefulness. A DIY option can give you the same results, but you have to invest all of that time into learning about the process and then executing on your plan. A credit card repair company already has this knowledge available, as well as workflows that make it much quicker. Weigh the pros and cons for your unique credit repair situation before making a decision.