Using a Credit Repair Organization: Good or Bad Idea?

Avoid credit repair organizations that charge a fee to improve your credit.

If you're looking to boost your credit score and clean up your credit report, there are numerous “credit repair” organizations that will offer help—for a fee. But using a for-profit company that claims it can repair your credit is almost always a bad idea. Many credit repair companies charge high prices to do things you can easily do yourself. Other companies are outright scams. Read on to learn more about why you probably shouldn't use a credit repair organization.

Downsides to Using a Credit Repair Organization

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.

They Charge for Services You Can Perform 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. (Learn how to dispute incomplete and incorrect information in your credit report.)

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 is legitimate, 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.

They Make Unrealistic Promises

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. (Learn about what’s in a credit report.)

They File Frivolous Disputes With Credit Reporting Agencies

Credit repair organizations typically try to take advantage of the law requiring credit reporting agencies to verify information if a customer disputes it. In some cases, a credit repair company might challenge most or every item in a credit file—negative, positive, or neutral—with the goal of overwhelming 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 are frivolous. And creditors that furnish your credit information to the reporting agencies do not have to investigate your dispute if they reasonably believe that the dispute is submitted by, prepared by, or is submitted on a form supplied to the consumer by a credit repair organization.

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. (Learn the difference between a credit report and a credit score.)

They Are Often Sketchy or Outright Criminal

Credit repair organizations sometimes use fraudulent, deceptive, and even illegal tactics. For example, 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.

If You Decide to Use a Credit Repair Organization

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 do the following before hiring one:

  • 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.
  • Ask to see a copy of the contract before you sign. Carefully check the company’s fees, its claims about what it can do, and your right to a refund. Avoid any company that won’t give you a written agreement or the right to cancel if you change your mind.
  • Check with your local Better Business Bureau and your state consumer affairs office 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.
  • Ask for the names and contact information of satisfied customers. Be wary of any satisfied customers you speak to whose claims sound exactly like the claims of the company. These people are probably bogus—they've probably never used the company’s services and are simply paid to say good things about it.

Talk to an Attorney or an Accredited Nonprofit Credit Counseling Agency

If you need help or advice about how to repair 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.

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