Credit repair companies charge for work you can do yourself for free, and some break the law while doing it. Here are the mistakes that cost people money and the rights that protect you.
Quick summary
- Federal law bars credit repair companies from charging you until they have completed the services they promised.
- No company can erase accurate, current negative information from your report, no matter what it promises.
- Before any work begins, the company must give you a written contract that spells out your rights, including a three-day right to cancel without charge.
- Disputing errors on your credit report is a free legal right under the Fair Credit Reporting Act.
- Everything a credit repair company charges for is something you can do yourself for little or no money.
Credit repair companies sell a simple pitch: pay them and they will clean up your credit report. Some do only what the law allows, which mostly amounts to disputing errors and giving advice you could act on yourself. Others cross lines that federal law draws clearly. Knowing where those lines sit helps you keep your money.
What They Charge and What They Actually Do
A credit repair company’s core service is sending dispute letters to the credit bureaus and, sometimes, to the businesses that reported the information. That is work you can do yourself for free under the Fair Credit Reporting Act.
What companies add is convenience, at prices that vary widely because contracts differ. The trade-off: you pay someone to handle paperwork that is free to file, in exchange for saved time and effort.
Mistake 1: Paying Before Any Work Is Done
Under the Credit Repair Organizations Act, a federal law, credit repair companies cannot request or receive payment until they have completed the services they promised. Monthly payment plans that some companies set up to sidestep this rule are also illegal.
The rules are even stricter for telemarketing. A company selling by phone cannot ask for a fee until after the date it said it would deliver the services, and it must give you a report showing the results, generated more than six months after those results were claimed.
If a company asks for a sign-up or activation fee before doing anything, walk away. In one FTC case, a network of related companies collected nearly $200 million through unlawful upfront and recurring charges. If a company breaks this law, you may have a right to sue.
Mistake 2: Believing Promises to Erase Accurate Information
No company can legally strip accurate, up-to-date items from your credit report. Both the FTC and the Consumer Financial Protection Bureau treat a promise of deletion as a warning sign.
Most negative entries remain on file for seven years, and bankruptcies for 10. There are limited exceptions. When you are up for a job with a salary above $75,000, or when a loan or insurance policy is worth more than $150,000, a bureau may show older negative details that would not surface otherwise.
A guaranteed score increase, or a claim that a company can erase repossessions, foreclosures, late payments or collections that are genuinely yours, is itself a warning sign. Our guide to charge-offs and collections explains how those items age off a report on their own.
Mistake 3: Skipping the Written Contract and Cancellation Right
Before doing any work, a company must give you a detailed written contract that spells out your legal rights, including the ability to cancel within three days and owe nothing, along with the full cost of the services.
If a company avoids putting terms in writing, pressures you to sign quickly or never mentions that you can cancel, stop. A company that refuses to explain what you could do yourself for free is another warning sign the FTC and CFPB describe.
Mistake 4: Disputing Everything on Your Report
Some companies dispute every item on a client’s report, including accurate ones, hoping the bureaus will fail to verify items in time and remove them. The CFPB lists this as a warning sign of a credit repair scam.
Blanket disputes bury genuine errors, the items worth disputing, under claims that cannot succeed. Dispute only what is actually wrong, and send each dispute to both the credit reporting company and the business that supplied the information. Both must investigate and correct mistakes, usually within 30 days, at no cost to you.
Mistake 5: Buying a “New” Credit Identity
Avoid companies that promise a “new” credit identity, offer to hide your bad credit history or bankruptcy, or tell you to file a false identity theft report, which is a crime that can bring a fine, imprisonment, or both.
Treat it as a red flag if a company tells you not to contact the credit bureaus directly or advises you to lie on applications for credit. Other scam warning signs include pressure to act fast and unusual payment methods such as gift cards or wire transfers.
Red flag: Never file an identity theft report over information that is actually yours. The FTC has alleged that some credit repair operations did this for clients, and doing so is a crime.
What You Can Do Yourself for Free
The FTC puts it plainly: everything a credit repair company does for you is something you can do on your own for little or no money.
- Get your reports. Equifax, Experian and TransUnion, the three nationwide bureaus, let everyone pull each report weekly at no cost through AnnualCreditReport.com.
- Fix mistakes. Dispute them with both the credit reporting company and the creditor that supplied the information. Our guide to late payments covers how long they last and what to check.
- Build good history. Pay bills on time, pay down debt and avoid new debt. Lowering balances helps quickly; our guide to credit utilization explains why.
If debt is the underlying problem, a nonprofit credit counseling program may help. A credit union, a university, or a military personal financial manager can often point you to one, and our guide to debt management plans explains how that process works.
Real improvement takes time because the record itself changes slowly. A company promising a fast fix is selling something the rules do not let anyone deliver.
Related guides
- Charge-offs and collections: how these items reach your report and how long they stay.
- Late payments on your credit report: what the damage looks like and how recovery happens over time.
- Credit utilization: the ratio that can move your score fastest as you pay balances down.
Reader questions
Q: Is it legal for a credit repair company to charge a fee before doing any work?
A: No. Under the Credit Repair Organizations Act, a company cannot request or receive payment until it has completed the services it promised. Monthly payment plans set up to get around this rule are illegal too.
Q: Can a credit repair company remove accurate negative information from my report?
A: No. No one can lawfully take accurate, current information off your report. Most negative items stay for seven years and bankruptcy items for 10, then they disappear on their own.
Q: What should a credit repair contract include?
A: Before doing any work, the company must give you a written contract that explains your legal rights and the total cost of its services, including your right to cancel within three days at no charge.
Q: What can I do instead of hiring a credit repair company?
A: Get your free credit reports, dispute errors with the credit bureaus and the businesses that reported the information, pay bills on time and pay down debt. A nonprofit credit counselor can also help; a credit union, university or military personal financial manager may be able to recommend one.
This article is general information, not financial or legal advice. Scoring models, lender policies and laws change, and state rules vary. Check official sources such as the Consumer Financial Protection Bureau and the Federal Trade Commission, and consider a nonprofit credit counselor for help with your own situation.