How do credit repair companies work?

Written by: Kim Porter
• Updated •5 min read • Leer en español
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In a Nutshell

Credit repair companies often promise to help remove negative items from your credit reports, which could help improve your credit scores, in exchange for a fee. But you can take the same steps yourself without the fee.
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If you have poor credit, you may be struggling to qualify for a credit card, rent an apartment or even get a personal loan. To help make you a better applicant, credit repair companies often promise to improve your credit — in return for a fee.

These companies typically offer to review your credit reports and address any negative items that they can with the credit bureaus on your behalf.

“It’s not difficult to do most of these things on your own,” says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. “You have to weigh the cost benefit of paying someone else to do those things for you, versus doing those things on your own — and what your time is worth.”

Here’s how credit repair companies work and, if you’re thinking of using one, why you should consider a credit counseling organization first.

What is a credit repair company?

A credit repair company is an organization that offers to improve your credit in exchange for a fee.

The companies often promise to “handle all the heavy lifting” of working with the credit reporting agencies, says McClary.

Credit repair services are different from credit counseling agencies, which are typically a free resource from nonprofit financial education organizations that review your finances, debt and credit reports with the goal of teaching you to improve and manage your financial situation.

According to the Federal Trade Commission, the credit repair industry is fraught with scams. To help avoid scammers, it’s important to research any credit repair organization before agreeing to work with it.

How to verify a credit repair company

There are “all kinds of ways” to vet credit repair businesses, McClary says. Here’s somewhere to start.

Steer clear of companies that seem too good to be true. If the company says it can do any of the following, it’s a red flag and likely a sign of a scam:

  • Remove accurate negative information from your reports
  • Legally create a new credit identity for you
  • The company requests you pay before it provides services
  • Guarantee improved credit

Again, we recommend seeking out a credit counselor first. Credit counseling can help give you a better idea of what’s in your credit reports and how to improve your financial situation long-term.

How do credit repair companies work?

Many credit repair companies start by requesting a copy of your credit report from each of the three major consumer credit bureaus — Equifax, Experian and TransUnion.

The company will review your credit reports for derogatory marks, like …

Then, it will set a plan for disputing errors and negotiating with creditors to remove those items.

That plan may include sending …

The company may also recommend applying for new accounts to add positive information to your reports. Be cautious here. If you’ve had trouble managing credit in the past, a new account may not be the best option. Plus it’s not a great idea to take on more credit if you don’t need it.

How much does credit repair cost?

The amount you’ll pay and how it’s calculated will vary depending on the company, but there’s a rule they have to follow. Credit repair companies can’t request or receive payment until they deliver the promised results.

Depending on the company, you might pay a one-time flat fee, or pay for each derogatory mark the company removes from each of your reports. This may start around $35 per deletion and could range to $750 or more.

The company may also charge by the month, ranging from $50 to $130 or more. You might also pay setup fees or a fee for accessing your credit reports.

Think about how much work your reports need. If there are just one or two negative items, you’ll likely be better off applying any fees toward paying down debt and disputing any errors in your credit reports yourself.

Ways to improve your credit on your own

Here are some ways you can work on improving your credit on your own. First, review your credit reports for errors. This is also a good time for you to check your reports for suspicious activity, which might indicate identity theft. Fortunately, there are a few places you can get free credit reports, including on Credit Karma.

If you find any, dispute incorrect information on your TransUnion® credit report directly on Credit Karma with the Direct Dispute™ tool.

How to dispute an error on your credit report

You can also take steps to build your credit in the long term. Here are some things you can work on.

  • Make every effort to prevent late payments (and pay all that’s due).
  • Try not to get close to your credit limit.
  • To prevent unnecessary hard credit inquiries, avoid applying for new credit you don’t need.

How long does credit repair take?

The credit bureau usually has 30 days after receiving your dispute to investigate and verify information. Typically, the credit bureau will reach out to the company that provided the information and ask it to investigate. The credit bureau is required to send you the results of the investigation within five business days of the completion of the investigation.

But if the credit bureau determines the dispute is “frivolous” it can choose not to investigate as long as it communicates that to you within five days.

What to watch out for

Consumers should “exercise extreme caution” when considering working with a credit repair company, McClary says. According to a 2016 notice from the CFPB, more than half the complaints it received about credit repair involved alleged fraud or scams.

Even if you find a company you’re comfortable with, the services may not work for your situation. Plus you’d likely save money if you disputed any incorrect information in your credit reports yourself.

The Credit Repair Organizations Act, or CROA, makes it illegal for credit repair companies to lie about their services and results, and sets some additional rules. If you think you might be the victim of a credit repair scam, or if you’ve had other issues with a credit repair company, you can submit a complaint to the Consumer Financial Protection Bureau.

Credit reporting companies have a number of requirements under CROA, some of which include …

  • Giving you a written contract that explains your legal rights and the services they’ll provide
  • Allowing you to cancel within three days without charge
  • Fulfilling the promised service before charging you or receiving fees

If a credit repair company refuses to answer your questions, requests payment upfront or fails to put promises in writing, “that’s part of the ‘sniff test’ that tells you there’s something wrong there,” McClary says.

Bottom line

If you’re looking into a credit repair company, consider all the warning signs and be aware of potential scams. We recommend considering credit counseling first. Ultimately, you may be able to rebuild your credit yourself.

About the author: Kim Porter is a writer and editor who has written for AARP the Magazine, Credit Karma, Reviewed.com, U.S. News & World Report, and more. Her favorite topics include maximizing credit card rewards and budgeting. Wh… Read more.