If you're looking to boost your credit score and clean up your credit report, various “credit repair” organizations might offer to help—for a fee. But using a for-profit company that claims it can repair your credit is almost always a bad idea. These companies claim they can fix your credit, but many charge high prices to legally do only what you can easily do yourself, and other companies are outright scams.
No matter how persuasive and attractive a credit repair company’s services seem, in almost all cases, you’ll be better off avoiding these outfits. Here’s why.
Even if a credit repair company isn't a scammer operation, it can't do anything for you that you can't do yourself. Credit repair companies usually promise to remove incorrect information from your credit history, but you can easily handle correcting any errors on your own. Credit repair clinics also often advise debtors to pay outstanding debts if the creditor agrees to remove the negative information from your credit file. While this negotiation tactic is something you might want to consider, you don't need to pay a credit repair clinic for this advice.
Credit repair companies are often more interested in getting paid than in actually assisting you—sometimes taking your money and disappearing—leaving your credit history no better, or perhaps worse, than before. Even assuming that a credit repair company isn't a total rip off, it can’t do anything for you that you can’t do yourself. What they will do, though, is charge you hundreds or thousands of dollars for their unnecessary services.
Credit repair organizations sometimes make assurances that they can remove correct, though negative, information from your credit report. But negative items in your credit history can legally stay there for seven or ten years if they’re accurate. No one can magically make them go away.
Even if the credit bureau removes information that it had the right to include in your file, it's no doubt only a temporary removal. Most correct information reappears after 30 to 60 days because the creditor that first reported the information to the credit bureaus will report it again.
Credit repair clinics can give you a list of banks that offer secured credit cards—credit cards used against a balance you deposit in a bank account. (This is often the first step to getting a major credit card if you have bad credit.) While this information can be helpful, it's not worth paying for—you can find this information yourself for little or nothing.
Credit repair organizations typically try to take advantage of the law requiring credit reporting agencies to verify information if a consumer disputes it. In some cases, the credit repair company might challenge most or every item in a credit file—negative, positive, or neutral—to try to overwhelm the credit reporting agency into removing information without verifying it. Or they dispute the same item over and over again.
Credit reporting agencies are well aware of these tactics and can legally disregard these challenges on the ground that they're frivolous. And creditors that furnish your credit information to the reporting agencies don’t have to investigate your dispute if they reasonably believe that the dispute is submitted by, prepared by, or is submitted on a form that a credit repair organization supplied. (12 C.F.R. § 1022.43).
You're better off getting copies of your credit reports from the three major credit reporting agencies—Equifax, Experian, and TransUnion—and selectively challenging items that are incomplete or inaccurate on your own.
Credit repair organizations sometimes use fraudulent, deceptive, and even illegal tactics. In a scam is called “credit file segregation” or “file segregation," some companies suggest that you create a new identity by applying for an IRS Employer Identification Number (EIN), a nine-digit number that resembles a Social Security number, and use it instead of your Social Security number when you apply for credit. (An EIN is used by a business to report information to the IRS.) This practice is illegal. It’s a federal crime to make false statements on an application for a loan or credit, and to misrepresent your Social Security number and get an EIN from the IRS under false pretenses.
Other companies have been caught stealing the credit files or Social Security numbers of people who are under 18 or have died and substituting these for the files of people with poor credit histories.
If you’re still tempted to use a credit repair organization even after reading about all the downsides associated with using this type of company, you should understand the difference between for-profit and nonprofit organizations. In almost all cases, for-profit organizations should be avoided entirely, but you need to be wary of some nonprofit ones as well.
You can verify nonprofit status through the Internal Revenue Service, but just because the company is a nonprofit doesn't mean it's legitimate. The federal Credit Repair Organizations Act prohibits companies that offer credit repair services from making untrue or misleading representations and requires certain disclosures. Many states regulate credit repair clinics, as well. Some dubious credit repair clinics try to get around these regulations by setting themselves up as nonprofits.
Before using any organization that claims to be a nonprofit, carefully check the company's fees, claims about its services, and reputation. Check with your local Better Business Bureau and consumer protection agency to see if either has complaints on file about the company. If there are complaints against the credit repair organization, that’s a red flag. But a business with no complaints still might be untrustworthy. Businesses can change names or defraud a lot of people before complaints catch up to them.
You can also ask whether the company is bonded, as some states require. A company that is bonded has posted money to, for example, protect consumers from fraudulent practices or in case the company goes out of business (or goes bankrupt) and dissatisfied consumers seek a refund. A legitimate company should be willing to give you the name of its bonding company. Call the bonding company to verify the bond and find out the amount. But even a bond is no guarantee against poor service or legal difficulties because of something a credit repair company recommended you do. The bond might be too little to protect most of the companies’ customers, and getting the bonding company to pay up might require you to file a lawsuit.
If you need help or advice about how to fix your credit, instead of dealing with a credit repair organization, consider talking to a reputable lawyer or an accredited nonprofit credit counseling agency. The National Foundation for Credit Counseling website is a good place to start looking for one. For comprehensive information on how to repair your credit, get Credit Repair, by Amy Loftsgordon and Cara O'Neill (Nolo).