Should you pay for credit repair?
Credit repair removes information that shouldn鈥檛 be on your credit reports so it will stop dragging down your credit scores.
However, it can鈥檛聽remove negative marks聽if the information is accurate, timely and verifiable.
You can hire a credit-repair service聽鈥斅爁or as much as $100 a month聽鈥斅爐o handle these tasks. But聽everything a service does, you can also do on your own.
How聽credit repair improves credit scores
A Federal Trade Commission study found about 5% of consumers had errors on their credit reports that could significantly lower their聽, which are calculated from information in those聽reports. Lower credit scores could mean you are聽denied credit or must pay higher interest rates to get it, so it pays to check and fix your credit reports.
You are protected from unfair practices by the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. Those laws say, among other things, that your聽聽should not contain聽inaccurate entries; outdated information;聽or聽multiple entries for the same debt, which聽can happen when debts are sold to collection agencies.
Information聽鈥斅爀ven聽if it鈥檚聽accurate 鈥斅爐hat can鈥檛 be substantiated also has to be removed, although it may聽be reinstated if it鈥檚 verified later. An example might be a debt to a retailer that is now out of business (unless it sold the debt to a collection agency that can show ownership). As聽one credit repair company says, 鈥淚f they can鈥檛 prove it, they must remove it.鈥�
Among the errors that can be addressed:
- Accounts that do not belong to you.
- Bankruptcy or other legal actions that were not yours.
- Misspellings, which may mix in negative entries that belong to someone with a similar name 鈥斅爋r may mean positive entries aren鈥檛 showing up when they should.
- Incorrect dates.
- Debts that should have aged off the report.
- Unverifiable debts.
Legitimate credit repair companies check your reports for information that shouldn鈥檛 be there and dispute it on your behalf. Many of them also check to be sure the information does not reappear.
You pay a monthly fee, typically between $60 and $100, and the process may take several months to a year. You may pay a setup fee to begin, as well.聽Some companies argue聽you may save as聽much as repair costs 鈥� or聽more 鈥� because of the lower interest rates you鈥檒l qualify for with higher credit scores.
It is true that lower rates go to borrowers with higher scores.聽But it is also true that you can.
How to choose reputable credit repair
Hiring a credit repair service is not quite as simple as outsourcing a job like mowing the lawn.聽Although there are some legitimate companies, the credit repair business is rife with scams.
鈥淵ou have to be able to put in the work to research the company and make sure you鈥檙e getting one that won鈥檛 rip you off,鈥� says NerdWallet columnist Liz Weston. 鈥淎nd if you鈥檙e able to do that kind of research, then you can certainly figure out credit repair and do it yourself.鈥�
A credit repair company does not have any rights that you don鈥檛 in disputing information on your credit reports. The FTC warns against agencies that guarantee they can remove聽that鈥檚 accurate or help you establish a new identity.
Just as laws protect you from unfair reporting and collections, there are laws to protect you from credit repair companies that mislead.聽聽requires companies to give you a three-day right to cancel without charge, a firm total on costs and an estimate of how long it will take to get results.
A reputable company should also coach you on how to handle your existing聽credit accounts in order to avoid further damage. If, for example, your cards are nearly maxed out, it聽should advise聽you聽to pay those balances down.
Whether you鈥檙e repairing your own credit or paying someone to do it for you, having a plan for properly聽聽from now on should be part of it.
Bev O鈥橲hea is a staff writer at NerdWallet, a personal finance website. Email:boshea@nerdwallet.com聽聽Twitter:聽.
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