A bad credit score hurts you in many ways. It makes it harder to get approved for a loan, rent an apartment, and get a job. You pay more interest on loans you do get. Insurance is pricier. It can put a strain on your relationships.
Not to mention it just feels crappy.
Whether your low credit score is due to misguided spending decisions or a catastrophic life event, the results are the same: your financial options are limited, your stress is high, and you’re eager to set things right ASAP.
Credit repair companies are one way to do this, but are they worth the cost? Let’s take a closer look.
Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don’t miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now
What Credit Repair Companies Can Do for You
Credit repair companies can’t work miracles. What they can do is:
1. Fix Errors on Your Credit Report
One in four credit reports contains errors. These include misspellings, incorrect balances, and paid-off accounts still showing as open. Credit repair companies can bring these items to the credit bureaus’ attention and get them fixed, boosting your credit score.
What You Should Know
You can fix errors on your credit report yourself.
2. Dispute Negative Items on Your Credit Report
Negative items like late payments, bankruptcies, and debts that are in collections hurt your credit score. Credit repair companies can dispute these items and get inaccurate ones removed.
What You Should Know
Credit bureaus have 30 days to verify a negative item on your credit report. Some credit repair companies use a “spray and pray” strategy, disputing every negative item on your report in the hopes bureaus won’t verify them in time and they’ll be removed (even if they’re correct).
This might work temporarily. But creditors have the right to re-verify negative items. If a negative item was correct, it could pop back up on your report in a few months, leaving you no better off than before.
3. Negotiate With Your Collectors
Sometimes, creditors will remove negative items from your credit report if you give them something in return. For instance, you pay a certain amount to have a collection removed (an arrangement known as “pay for delete”). Or, you ask the creditor to remove late payments from your report once you’ve paid the debt in full.
Credit repair companies can reach out to your creditors on your behalf to see if they’re willing to consider these actions. Reputable companies may know which creditors are open to these negotiations and on what terms.
What You Should Know
You can negotiate with your creditors yourself. Temporary measures like pay for delete might give your score a quick boost, but your better bet is to negotiate a payment arrangement to get your debts paid once and for all.
How Much Does Professional Credit Repair Cost?
Credit repair companies typically charge anywhere from $20 and $150 per month for their services. Since the credit repair process could take several months, the cost can add up quickly. You may also need to pay a startup fee.
So, Should You Pay for a Credit Repair Service?
Short Answer: Most likely not
Longer Answer: You can do everything a credit repair company can do on your own, free of charge. You don’t have to pay to have someone do it for you.
Yes, farming out the work saves you some hassle. But if you’re at the point where you need credit repair, spending unnecessary money each month isn’t the best idea. You’re better off rebuilding your credit yourself.
That said, the cost may be worth it if you feel help is the only way you’ll reasonably be able to repair your credit.
Maybe you’ve got a lot on your plate right now. Maybe you’re not good about keeping track of things, like which creditors you’ve reached out to and when. Maybe it just feels too daunting, and if you’re being honest with yourself, you know it’s more likely to get done if someone does it for you.
In these cases, springing for professional help is better than letting your bad credit score stay put, hurting you financially for years to come. But for most people, going the DIY route is a better idea.
Avoiding Credit Repair Scams
If you decide you want to hire a credit repair service, make sure you choose a reputable one. Scammers abound, but they’re pretty easy to spot.
Know your rights under the Credit Repair Organizations Act (CROA). The CROA dictates that credit repair companies:
- Cannot provide false or misleading information advertising, such as guaranteeing they can improve your score by a certain number of points
- Must provide plan details in writing, including the total cost you’ll pay and how long they estimate it will take to see results
- Cannot charge you in advance
- Must give you three business days to cancel without penalty
- Must disclose that you have the right to repair your credit yourself
If a credit repair company violates any of these rules, they’re not on the up and up. Other signs of a scam include:
- Encouraging you to lie or hide information from the credit bureaus
- Telling you not to contact the credit bureaus yourself
- Advising you to create a new identity
- Promising a quick fix
- Claiming they can permanently get rid of accurate negative items on your report
When considering credit repair companies, check out customer reviews online and search for the company on the Consumer Financial Protection Bureau’s complaint database. The U.S. Department of Justice also has a state-by-state list of approved credit counseling agencies.
Whether you choose to repair your credit yourself or pay someone to help you, it’s important to know how to avoid going into debt in the future. Pay your bills on time, never charge more than you can afford to pay off in full each month, and review your credit report regularly to make sure everything is accurate.
Use credit responsibly, and you can keep that brand-spanking-new score high for years to come.