So your credit is in the pooper and you need to repair it, likely ASAP.
You are not alone. A few years ago Experian reported that 30 percent of scorable people in the United States, or 68 million, have bad or poor credit scores lower than 601.
To improve or repair a bad credit report long-term, there are two things to keep in mind:
1.Remove errors from your current report
2. Adopt good credit habits long-term. This includes:
- Improve your credit ratio, by paying down your debt, and asking your credit card company to increase the maximum
- Pay all your bills on time — or early!
- Get a co-signer and / or become an authorized user on the card of someone with a good credit history
With that in mind, let's take a deeper look at this issue:
- When do you need credit repair?
- How do you repair bad credit?
- How credit repair companies work
- Do credit repair companies really help?
- What are some things to look out for with credit repair companies?
- What are the laws about credit reporting and credit repair companies?
- Should I hire a credit repair company?
- How much do credit repair companies cost, and how long does it take?
- How to find a legit credit repair company
When do you need credit repair?
You need to repair your credit when your score is below 600, and/or you have pulled your credit report and see that there are errors. Common credit report errors include:
- Basic information like the spelling of your name, birthdate, address or other information is incorrect
- Your credit history includes duplicate accounts
- There are late payments or other delinquencies that are wrong
- There are lines of credit or other loans that are not yours — or belong to someone with the same name
- Delinquencies that should have aged off the report still appear
- Debts that were allocated to someone else in a divorce agreement or other legal proceeding appear on your history
Try The Credit People to clean up your credit report >>
How do you repair bad credit?
There are two ways to repair errors, redundancies and mistakes on your credit report: Do it yourself, or hire a credit repair company. First, let’s explore DIY credit repair:
DIY credit repair:
Many people chose to tackle credit repair themselves — and do so successfully. This takes time and diligence, and educating yourself on credit law.
Pros of DIY credit repair include:
- It’s free
- You will learn a lot about consumer credit laws, and how credit scores work
- It may inspire you to improve your money management habits long-term
Cons of DIY credit repair:
- It is tedious, and most people don’t enjoy it
- Like doing your taxes and fixing your car – sometimes it makes sense to pay an expert to do this, because they are inherently better at it than you
- If money management is not your strong-suit, then credit repair probably is not within your core competency
How credit repair companies work
Credit repair companies comb through your credit reports, find errors and try to get them removed, potentially bump up your credit score.
Credit repair companies hunt for things like accounts and legal actions that aren’t yours, incorrect dates, debts that are too old to be on the report, debts that can’t be verified and even misspellings that could have a negative impact on your score.
These companies find these discrepancies on your behalf and then dispute with creditors so you don’t have to.
Credit repair companies usually charge monthly during the credit repair process.
Credit repair companies serve as a middleman between you and your creditors.
In general, credit repair companies work like this:
- Credit repair services get your credit report from each of the three big credit bureaus — Experian, Equifax, and TransUnion
- They go through your credit reports, applying a laser focus to anything that looks out of the ordinary or that could be disputed.
- They go ahead and file disputes for you. That means writing dispute letters — and while you can do this on your own, keep in mind that the pros have more experience.
- They’ll negotiate back and forth if needed with your creditor. That includes responding promptly — something that can be difficult for the average person whose full-time job is not dealing with credit bureaus.
- They will also follow up with your creditors directly.
- Importantly, a good credit repair company will do this month after month, as long as it takes to determine whether all the debts in your report can be validated.
- Another hallmark of a good credit repair company is that, while they can’t promise to build your credit score (that’s something only you can do), they can offer you some tips. For example, Lexington Law credit repair, one of the most trusted companies in the business, offers a personalized credit score improvement analysis every month and offers access to paralegals who can provide coaching.
- Since this is a process that takes months, good credit repair companies will also keep monitoring to keep an eye out for any other disputable items.
If paying for credit repair is not your jam, consider a credit-builder loan. Self Lender is a low-fee alternative to credit repair companies and secured credit cards, in that you don't have to put up any deposit. Instead, you set up a loan to repay yourself. This helps you build and repair credit, while also building a savings account.
Do credit repair companies really help?
Debt is a stress-inducing and crushing weight on your daily life, so you can imagine how relieving it can be when someone offers a helping hand. That’s where credit repair companies come in.
Unfortunately, not all credit repair companies have your best interest in mind.
There have been reported scams and even federal legal action against some companies offering credit repair services.
Because there are so many out there, it’s easy to be overwhelmed by services claiming to offer a solution to your credit problems.
However, there are some quality services — especially ones that have a clear record, easy-to-access customer support and a background in law.
One in particular with a great track record in credit repair is Lexington Law, which is owned and operated by lawyers who have a lot of credit repair knowledge. (Read: 3 tips from Lexington Law to get approved for a loan)
What are some things to look out for with credit repair companies?
Credit repair isn’t instant. It can take months — and sometimes more than a year.
That’s because people — consumers or credit repair companies — have to go back and forth with credit bureaus in order to straighten things out.
So, if a credit repair company is offering to get you results within a very specific time frame, that could be a bright red flag.
It’s also illegal for credit repair companies to ask for payment up front, so that’s another huge indicator that something’s not right.
Before hiring a credit repair company, you’ll want to do some digging on the company’s site — is it easy to connect with a real live person? Is it easy to learn about the company, or is their site full of vague promises?
If you do choose to go with a company instead of disputing your credit DIY-style, always go with a company that fully explains your legal rights when they’re describing their services.
Another thing: Credit repair only works if what’s being disputed is legitimately disputable. If the company is telling you to dispute something that you know is accurate, that’s a bad sign.
Also, no legit credit repair company would tell you not to directly contact credit reporting companies or advise you to give fake info on applications for credit.
What are the laws about credit reporting and credit repair companies?
Lots of states have their own laws that regulate credit repair companies, but there are also federal regulations.
This law also limits who exactly can run your credit report, sets a time limit on what shows up on your report and sets general rules for how credit bureaus handle consumer complaints, including responding in a timely manner — typically 30 days.
You should also know about the Fair Credit Billing Act, which forces creditors to bill correctly and completely, and the Fair Debt Collections Practices Act.
The Fair Debt Collections Practices Act sets behavioral standards for collections agencies, lets consumers request collections agencies cease and desist most communication, and outlines consumers’ rights to get more information about their debts.
There’s also the Credit Repair Organizations Act, which falls under the Consumer Credit Protection Act.
It forbids “untrue or misleading representations and requires certain affirmative disclosures in the offering or sale of ‘credit repair’ services,” according to the Federal Trade Commission, and it also prevents credit repair services from requiring payment up front, makes them provide written contracts, and gives consumers some rights to cancel contracts.
In short, there are a lot of laws that protect people like you and me from unfair and unethical credit reporting.
These laws also make it legal and accessible for everyone to repair
Should I hire a credit repair company?
Credit repair companies can be a great option for some people, but you can also tackle credit repair on your own — especially if you’re prepared to spend a lot of time and energy learning how and executing the necessary steps.
On the other hand, if you’ve got access to the internet and some time to study, you can be your own advocate rather effectively.
Another option here — and one the FTC actually advises — is seeking out a reputable nonprofit credit counseling organization.
Those can still cost you money, but it’s a good idea to find one that’s set up through universities, credit unions and other reputable institutions. In general, they can help you work out a plan to fix your finances.
Here are two scenarios in which hiring a credit repair company can make sense:
1. There are errors on your credit, you have no time, but extra money, and hate the idea of DIY.
Look: there is a reason why you work hard to earn money.
One of those reasons is so that you can hire other people to do things you can’t, or don’t want to do yourself.
Clean your house. Sew your own clothes.
Renovate the kitchen. Etc.
In the event there are incorrect or old dings to your credit history, you have lots of legal protection that allows you to take control of the situation and make steps to repair those errors, thanks to the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.
Those laws assert that your credit report should not contain inaccurate entries, out-of-date information, or duplicate reports the same debt (this happen when debts are sold to collection agencies or secondary lenders).
Also, all info on your credit report has to be proven.
To clean up any mess requires understanding some of these laws, writing letters to the three individual credit bureaus, and keeping track of every step of the process.
It is entirely within your legal rights, as well as most people’s intellectual capacity to do this work.
However, credit repair requires a lot of information that most people don’t know, who then have to research it.
Plus, if you struggle with money management, the grind of credit repair is not likely within your scope of strengths.
Just keeping it real.
On the other hand, a reputable credit repair company like Lexington Law know all about them — plus all tools and resources that it takes to get erroneous, old and unprovable items off that report.
That is what they do all day, every day.
They are good at it, and it takes them less time and effort than it would take you.
Plus: You hate that kind of thing, so just outsource it already.
2. You need to boost your credit score ASAP (but have better things to do)
Here are some scenarios in which you really, really need to improve your credit score:
- You’re getting kicked out of your home and need to sign a lease / buy a new home within the next month or two
- Your car is on its last leg and you need to get a car loan
- You’re going through a divorce and need every single financial tool you can get your hands on
By removing errors from your credit report, you can boost your score by tens or even more than 100 points.
That can make a big difference in whether you qualify for a loan, as well as the interest rate on a mortgage, car note or credit card.
Remember, the higher your credit score, and the lower your interest rate, means the less you pay.
Also within this reason to hire out credit repair: You may have been aware of those errors for a long time, planned to take care of it yourself, but have procrastinated for months or even years.
It is like the hem on my fuchsia Diane Von Furstenberg dress that fell out: I kept swearing I’d repair the hem for more than six months, but instead, the frock sat in the back of the closet, unworn.
Finally, I took it to the dry cleaner across the street, paid the very nice and competent owner $12, and now have a new dress in circulation.
Whatever you do, it’s best to weigh your options carefully and do what’s right for your own financial health.
How much do credit repair companies cost, and how long does it take?
Credit repair services are typically charged by the month — and expect it to take a minimum of six months to see movement of 100 points or more on your credit score. Here are some reputable credit repair companies, and monthly fee:
The Credit People, $19 to try for 7 days, then $79 per month
Lexington Law, $89.95 per month and up
How to find a legit credit repair company
I am not going to lie: there are a lot of really shady credit repair companies out there.
However, there are some very reputable, ethical companies that help people improve their lives and financial security through credit repair. Some people opt to work with a local lawyer near them to repair their credit. However, there are some excellent national companies with easy-to-use online portals that can be more affordable, with better service, and many more clients who report good service.
Here is what to look for:
- Does not promise to remove credit history items that are not errors. If you legitimately did not pay your credit card bill, no one can remove that.
- Only charges you money after they have done the work. If a company asks for a fee up front, run.
- Does not promise a time frame in which errors will be removed, or how much your score will improve.
- Does have good customer service, including a phone number that will connect you with a human to help you choose the right services for you. This company should also coach you on how to manage your current accounts to best improve your credit score now, and moving forward.
- Does not promise free credit repair services. After all, credit repair is a long and tedious process — you get what you pay for!
These are all reputable companies that I endorse:
The Credit People, $19 to try for 7 days, then $79 per month
Lexington Law, $89.95 per month and up
Emma Johnson is a veteran money journalist, noted blogger, bestselling author and an host of the award-winning podcast, Like a Mother with Emma Johnson. A former Associated Press Financial Wire reporter and MSN Money columnist, Emma has written for the New York Times, Wall Street Journal, Forbes, Glamour, Oprah.com, U.S. News, Parenting, USA Today and others. Her #1 bestseller, The Kickass Single Mom (Penguin), was named to the New York Post's ‘Must Read” list.
Emma regularly comments on issues of modern families, gender equality, divorce, sex and motherhood for outlets like CNN, Headline News, New York Times, Wall Street Journal, Fox & Friends, CNBC, NPR, TIME, MONEY, O, The Oprah Magazine and The Doctors. She was named Parents magazine’s “Best of the Web,” “Top 15 Personal Finance Podcasts” by U.S. News, and a “Most Eligible New Yorker” by New York Observer.