Credit repair removes information that shouldn’t be on your credit reports so it will stop dragging down your credit scores.
However, it can’t remove negative marks if the information is accurate, timely and verifiable.
You can hire a credit-repair service — for as much as $100 a month — to handle these tasks. But everything a service does, you can also do on your own.
How credit repair improves credit scores
A Federal Trade Commission study found about 5% of consumers had errors on their credit reports that could significantly lower their credit scores, which are calculated from information in those reports. Lower credit scores could mean you are denied credit or must pay higher interest rates to get it, so it pays to check and fix your credit reports.
You are protected from unfair practices by the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. Those laws say, among other things, that your credit reports should not contain inaccurate entries; outdated information; or multiple entries for the same debt, which can happen when debts are sold to collection agencies.
Information — even if it’s accurate — that can’t be substantiated also has to be removed, although it may be reinstated if it’s verified later. An example might be a debt to a retailer that is now out of business (unless it sold the debt to a collection agency that can show ownership). As one credit repair company says, “If they can’t prove it, they must remove it.”
Among the errors that can be addressed:
- Accounts that do not belong to you.
- Bankruptcy or other legal actions that were not yours.
- Misspellings, which may mix in negative entries that belong to someone with a similar name — or may mean positive entries aren’t showing up when they should.
- Incorrect dates.
- Debts that should have aged off the report.
- Debts that can’t be validated and verified.
Legitimate credit repair companies check your reports for information that shouldn’t be there and dispute it on your behalf. Many of them also check to be sure the information does not reappear.
You pay a monthly fee, typically between $60 and $100, and the process may take several months to a year. You may pay a setup fee to begin, as well. Some companies argue you may save as much as repair costs — or more — because of the lower interest rates you’ll qualify for with higher credit scores.
It is true that lower rates go to borrowers with higher scores. But it is also true that you can repair your credit yourself.
How to choose reputable credit repair
Hiring a credit repair service is not quite as simple as outsourcing a job like mowing the lawn. Although there are some legitimate companies, the credit repair business is rife with scams.
“You have to be able to put in the work to research the company and make sure you’re getting one that won’t rip you off,” says NerdWallet columnist Liz Weston. “And if you’re able to do that kind of research, then you can certainly figure out credit repair and do it yourself.”
A credit repair company does not have any rights that you don’t in disputing information on your credit reports. The FTC warns against agencies that guarantee they can remove negative information that’s accurate or help you establish a new identity.
Just as laws protect you from unfair reporting and collections, there are laws to protect you from credit repair companies that mislead. The Credit Repair Organizations Act requires companies to give you a three-day right to cancel without charge, a firm total on costs and an estimate of how long it will take to get results.
A reputable company should also coach you on how to handle your existing credit accounts in order to avoid further damage. If, for example, your cards are nearly maxed out, it should advise you to pay those balances down.
Whether you’re repairing your own credit or paying someone to do it for you, having a plan for properly building and maintaining credit from now on should be part of it.