If you’re struggling with the effects of bad credit reports and bad credit scores, you may have thought about hiring a credit repair service to help you. Credit repair services or, more commonly, credit repair organizations or “CROs” help consumers dispute negative information on their credit reports to have it removed.
Despite what you may have heard, credit repair is perfectly legal as long as the CRO follows both federal and state credit repair laws. And while credit repair services are demonstrably effective, their services may not be the best choice for everyone.
Before you choose to hire a credit repair company, it’s a good idea to review the benefits and potential drawbacks of working with this type of organization. Once you know the pros and cons, you’ll be better equipped to decide whether professional credit repair is the right path for you or if the do-it-yourself credit repair approach is a better fit.
How Credit Repair Works
A credit repair company can help you dispute errors on your Experian, TransUnion, and Equifax credit reports. These are referred to in the credit industry as indirect disputes.
CROs can also reach out directly to the data furnishers and file disputes on your behalf. Furnishers is an industry term used to describe the roughly 11,000 creditors and debt collectors that report accounts to the credit bureaus each month.
Some of the potential errors with which a credit repair company may be able to help are as follows:
- Incorrect account balances
- Incorrect derogatory information
- Accounts that don’t belong to you
- Credit files that are mixed with another consumer’s data
- Outdated negative information
- Inaccurate personal information
- Unverifiable accounts
If a credit repair company is successful, you will see the deletion of negative, incorrect items from your credit reports. These deletions could potentially help you improve your credit scores and allow you to enjoy the benefits of better credit in the future.
However, credit repair companies do not have any secret or insider influence over your credit reports. Everyone has the right to dispute items on their credit reports, thanks to the Fair Credit Reporting Act (FCRA).
Credit repair companies charge for their services, and you don’t have to pay someone to send disputes to the credit bureaus unless you choose to do so. This has been the constant criticism of credit repair companies for decades. “You can do what they do, for free.”
I understand this criticism, but credit repair certainly isn’t the only service consumers can choose to hire instead of doing it themselves for free. Landscaping, hair care, car washes, house cleaning, tax filing, grocery shopping are all examples of services people choose to hire someone to do instead of doing it themselves. Credit repair is no different in that respect.
The Credit Repair Organizations Act
Reputable and legally compliant credit repair companies have to follow the law. Specifically, CROs must comply with a federal statute called the Credit Repair Organizations Act or “CROA” (pronounced CROW-UH).
Congress passed CROA in 1996 to protect consumers and regulate how credit repair organizations operate.
According to CROA, a credit repair company cannot:
- Guarantee the removal of information from your credit report.
- Advise you to make false statements to the credit reporting agencies.
- Charge you in advance for its services.
- Misrepresent your identity or advise you to do the same.
Thanks to CROA, a credit repair service must also clearly explain your rights in writing. These written form disclosures must include the fact that you have the right to dispute information on your own credit reports for free and that you have the right to sue the credit repair company if it violates CROA.
If you are thinking about working with a credit repair service, find a company that complies with CROA. Otherwise, you may wind up handing your hard-earned money over to a dishonest organization that is not complying with federal law.
Credit Repair Pros
Even though you can work on your own credit restoration for free, some people prefer to hire a company to work on their behalf. If you’re considering working with a credit repair professional, here are some of the benefits you can expect.
- Someone else will manage your disputes. If you think you’re too busy to send your own disputes to the credit bureaus, or if the idea overwhelms you, you may prefer to pay someone to perform these services for you. The concept isn’t all that different from hiring someone to file your tax return or perform lawn care services, as I mentioned above. As long as you can comfortably afford the fee, there shouldn’t be any harm in outsourcing the dispute process to a credit repair organization that follows the rules.
- You may receive helpful advice. In addition to disputing items on your credit reports, a good credit repair organization will take the time to educate you about how credit works. The company you hire may also review your credit reports with you and show you potential opportunities to improve your credit rating. Many of them call this a credit review or audit.
- You could gain an accountability partner. If you’re guilty of making poor credit decisions in the past, paying someone to work on your credit may motivate you to manage your credit better. Just be sure to choose your credit repair organization wisely.
Credit Repair Cons
There are also several reasons you may want to avoid hiring a credit repair service. Below are a few signs that you may be better off repairing your own credit reports.
- Professional credit repair can be expensive. Credit repair isn’t free. Credit repair companies frequently charge about $59-$129 per month for their services, depending on the company and level of service chosen. You may also find companies that charge you according to the number of items they help you get deleted from your credit reports. If your budget is tight, committing to another monthly bill may not be the best move for you right now.
- There’s no guarantee it will work. Any honest and legally compliant credit repair company must inform you that their services aren’t guaranteed to improve your credit. So you may want to look for one that offers a money-back warranty if you don’t see results after a certain period of time.
- You may fall victim to a scam artist. Despite the bad reputation often associated with the credit repair industry, many honest companies work in the space. That being said, and as with any industry, scam artists pose as reputable credit repair companies and take advantage of vulnerable consumers. Before you hire any credit repair service, make sure it complies with CROA, has a long track record in the business, and has few or no BBB complaints. You may also want to research the company’s reputation online or try to get a referral from someone you trust.
- New credit management mistakes could set back your progress. Even honest credit repair companies can only do so much to help you. If you make new late payments, run up your credit utilization ratio, or have new derogatory items show up on your credit reports while you’re working with a credit repair service, the condition of your credit may decline instead of improving.
Should You Hire a Credit Repair Service?
Only you can decide whether you want to hire a professional credit repair service to work on your behalf. If you have the extra money and take the time to find an honest organization, you may benefit from working with someone on your credit restoration.
However, many people are successful at improving their credit on their own after taking the time to learn more about how credit reporting and credit scoring works.
Whatever you decide, one thing is certain. It’s important to make your credit reports and scores a priority. Earning good credit has the potential to save you money in many ways, and it can help make your financial life a lot more enjoyable.
When you know that your credit is in great shape, you have the freedom to leverage it in the form of less expensive financing. Good credit can make it easier to qualify for premium rewards credit cards, mortgages, auto loans, and much more. The lifetime benefits of good credit can easily be worth hundreds of thousands of dollars.