If you have bad credit, you know how hard life can be. Something as mundane as getting a cell phone is near impossible, since most places will require a credit check before they give you a $500 cell phone on the promise you'll keep paying the monthly fee for two years.
If you have bad credit, good luck trying to rent an apartment. Or buy a house. It's like a financial death sentence.
If you have bad credit, you might be tempted to look at credit repair companies. Maybe they have the answers you don't. Maybe they have a way to rebuild your credit. Maybe there's some secret sauce you can pay for and get your credit back on track.
When you've heard “No” so many times and been turned away so many times, you'll do anything to get to a “yes.”
Sometimes that means turning to a credit repair company. Let's see what they do, if they work, and how to avoid the scams.
What does a Credit Repair Company do?
Credit repair companies are doing something that you can do yourself and I'm going to explain exactly how to do it.
- They will request your credit report from each of the three bureaus – Equifax, Experian, and TransUnion.
- They will identify negative items on your credit report that can be disputed. If successful, it will increase your creditworthiness.
- They will use a variety of strategies to try to get those negative items removed. This includes disputing the items on the report as well as negotiating with creditors to get them removed
These are all things you can do yourself at zero financial cost… if you know how. That's the rub.
And it takes time. If you make a dispute, the credit bureau will wait as long as 30 days before rendering a decision. This gives them time to ask the creditor for proof, review it, and make a decision. Big companies have large systems that take a lot of time so it makes sense that it could take 30 days to process.
That also works out well for credit repair companies, which charge you on a monthly basis.
I'm going to go through the list of services Lexington Law offers, they're one of the most well known in the space, and explain exactly what I think the service describes:
- Bureau Challenges – They go through your entire report and challenge the inaccurate records.
- Creditor Interventions – They negotiate with creditors to ensure that the records are accurate.
- InquiryAssist – They confirm whether all hard inquiries are accurate, removing those that aren't.
- Cease & Desist Letters – uses C&D letters to get debt collectors to follow the law and stop hounding you.
Score Analysis, ReportWatch, and TransUnion alerts – all listed as services included in PremierPlus and Concord Premier (but not the base level Concord Standard), can help you improve your score but don't fall under services I consider credit repair. They can be pro-actively good for your credit but I don't consider them repairs.
How Much Does Credit Repair Cost?
If a company is legitimate and can give you results, the cost is actually quite reasonable. It can cost anywhere from $50 to $100 a month with no long term commitments.
For example, Lexington Law has packages starting at $79.95 a month all the way up to $119.95. You start with a free consultation so they can review your report and then pick a package based on what they can go after.
The more expensive the package, the more they go after. For example, the lowest tier gives you Bureau Challenges and Creditor Interventions (which alone may be good enough to improve your score significantly if it works). The highest, includes services such as Cease & Desist letters to debt collectors (plus a whole host of other services, like ID theft protection).
If you are the type of person to change your car's oil, credit repair services aren't for you. You can do the research and do it yourself for less. You may not do it as well as the professionals but it won't cost you a penny, so the return on your investment is astronomical!
What Credit Repair Can't Do
Credit repair involves removing negative items from your credit report. If you have no credit, there's nothing to repair. If you have no history, there's nothing to repair.
If you have no credit, you need to establish a credit history. You don't need credit repair.
If you have no negative items, there's not much a credit repair company can do to help. The most powerful arrow in their quiver is unavailable.
Also, if you need credit repair services, you will also need to take the steps listed in my article on establishing a credit history at the same time. You'll need to do things like get a secured credit card that will start building credit while you remove negative items.
How to Avoid Credit Repair Scams
It's very important to do your homework because it's very easy to pay a monthly fee and get nothing in return. Sometimes it's not the company's fault – they couldn't get anything removed.
Sometimes they're bad at what they do. Sometimes they do it slowly because they know you're paying on a monthly basis. The best way to find out is to do a ton of research, reading online reviews and stories from folks who have used them and had good results. Their results won't be your results, and you will probably have to wade through fake positive reviews (nature of the world we live in) but that's the only way to be sure.
If a company promises you results, run! No one can promise you a positive result in a specific period of time. No one can get results faster than the credit bureaus say they will move. Don't believe any guarantees (unless it's a money back guarantee and you pay with a credit card).
It's important to note that credit repair is not the same as debt consolidation or anything having to do with your debts. It's strictly using legal methods to cleaning up your credit report. It involves paperwork, requests, and submissions — these are the various tools in the toolkit of a repair company. Debt are a separate matter.