Key takeaways

  • Credit repair is the process of improving your credit history by removing errors from your credit report.
  • There are reputable credit repair companies, but not every company offering credit repair services is legitimate.
  • Warning signs of a credit repair scam include demanding payment upfront or promising to remove accurate information.

Credit repair companies offer to fix your credit by removing inaccurate or negative items from your credit reports. These sales pitches are appealing, especially if you’re trying to get your finances back on track after charge-offs, bankruptcy, foreclosure or other setbacks.

Some credit repair offers are scams, but there are reputable credit repair companies that deliver on their promises. To avoid scams, know how legitimate credit repair companies work, how to spot credit repair scams and what to do if you think you’ve been scammed.

How legitimate credit repair companies work

The best credit repair companies can often find and fix the errors in your credit file.

These errors are not uncommon. In a recent Consumer Reports study, 44 percent of people had errors in their credit reports. About a quarter of those errors (27 percent) were serious enough to potentially harm their credit scores.

Legitimate companies start the credit repair process by requesting a copy of your credit report from the major credit bureaus (Equifax, Experian and Transunion). Then, the credit repair company checks the report for potential errors, such as an on-time payment wrongly reported as late or the same debt reported more than once. If there are errors, the company files disputes with the credit bureaus to get the information corrected.

Anything a reputable credit repair company can do, consumers are allowed to do on their own. You can get free copies of your credit reports from AnnualCreditReport.com to make sure everything is accurate. If you find errors, you can file disputes with the three major credit bureaus for free.

Common types of credit repair scams

While there are reputable credit repair companies, scammers also take advantage of people who want to improve their credit. Protect yourself by learning about some of the most common credit repair scams.

Credit washing

Credit washing is a type of fraud that involves hiding information on a credit report by filing false claims of identity theft. Predatory credit repair companies use this tactic to get accurate but negative items removed from a person’s credit file, at least temporarily.

This scam takes advantage of the consumer protections offered to real victims of identity theft. According to the Consumer Financial Protection Bureau, credit bureaus must block identity theft-related debts from consumers’ credit reports.

File segregation

File segregation is a scam that involves creating a fraudulent credit file to replace the consumer’s real credit file. The predatory company provides a Credit Privacy Number (CPN) for the consumer to use in place of their Social Security number, claiming it’s a way to “start fresh.”

Unfortunately, a CPN isn’t a legitimate way to fix credit problems. Using a CPN instead of an SSN on a credit application is illegal and considered fraud. It could also involve you in identity theft since the CPN may be someone else’s stolen SSN.

Tradeline renting

Tradeline renting, also known as credit piggybacking, means paying to become an authorized user on a stranger’s credit card account without access to their card. Some credit repair companies pitch this scheme as a way to benefit from another person’s good credit score.

The Federal Trade Commission has taken action against credit repair companies that engage in credit piggybacking.

How to spot a credit repair scam

Credit repair companies are required to follow the Credit Repair Organizations Act (CROA). The CROA is a federal consumer protection law that sets guidelines for credit repair companies and offers consumers certain rights. If a credit repair company isn’t following CROA rules, it may be fraudulent.

You’ll know a credit repair service is violating the CROA if the company:

  • Asks you not to contact the credit bureaus: You have a right to contact the credit bureaus directly.
  • Demands upfront payment: Credit repair organizations are not allowed to charge for any service that hasn’t been fully performed.
  • Doesn’t give you a contract: Under the CROA, credit repair companies can’t provide services unless you sign a written contract.
  • Doesn’t explain your rights: Reputable credit repair companies give you a written statement that outlines your credit repair rights under state and federal law.
  • Promises to remove negative but accurate information: As long as the facts are correct, the credit bureaus will continue reporting negative information until it falls off your credit report.
  • Recommends entering false information on applications: Entering false information, like a CPN, is considered fraud, and the CROA forbids companies from engaging in fraudulent activity.
  • Suggests that you alter your identity: Changing your identity as a way to modify your credit history is also considered fraud.
  • Tells you to mislead the credit bureaus: Misleading the credit bureaus could include actions like disputing accurate information or falsely claiming to be a victim of identity theft.

Other warning signs of a scam

Understanding the CROA rules is helpful, but you don’t necessarily need to know all the details to spot a scam credit repair agency.

You can assume a credit repair offer is a scam if the company:

  • Pressures you to act now: Reputable companies typically give you time to consider their offer rather than demanding an immediate decision.
  • Requests unusual forms of payment: Scammers may ask you to pay for credit repair services with retail gift cards, wire transfers or cryptocurrency.
  • Sounds too good to be true: Be suspicious of companies that claim they can wipe your credit history or get you an excellent credit score.

What to do if you encounter a scam

If you come across a credit repair service violating the CROA rules or showing other red flags for a scam, avoid it and choose a more reputable company. If you think you’ve been scammed, you can take steps to protect yourself and others.

Try to cancel the contract

If you’ve already signed a contract with a credit repair company and are worried it’s not legitimate, you may be able to back out of the deal. Under the CROA, consumers have certain cancellation rights.

Within three business days from the date you signed a contract, you have the right to cancel for any reason, with no penalty or obligation. Each credit repair contract must include a “Notice of Cancellation” form for customers who change their minds.

File a complaint with your state’s attorney general

Attorneys general are responsible for enforcing consumer protection laws in their state. If you’ve been scammed by a company offering credit repair services, consider filing a complaint with your state’s attorney general.

Attorney general offices have the authority to take action against predatory credit repair companies. That could include fining the company or even shutting it down.

Report the scam to the Federal Trade Commission

The Federal Trade Commission (FTC) is a government agency that works to protect Americans from unfair business practices, including scams and fraud. If you have problems with a predatory credit repair company, you can file a report with the FTC.

The FTC uses consumer reports to investigate fraud and scams and take action if a company has a pattern of potential law violations. That could include filing a lawsuit against the company.

Next steps

Reputable credit repair companies offer a useful service to people who need help removing errors from their credit reports. Unfortunately, some scammers try to take advantage of people who want to improve their credit. If you’re interested in credit repair, choose a company that follows the CROA rules. You can also vet a credit repair service by searching the Consumer Financial Protection Bureau’s (CFPB) database for complaints and reading company reviews.

Frequently asked questions

  • While it’s possible to repair your credit independently, hiring a credit repair company may be a good choice for some people. Getting professional help could make sense if you don’t have time to contact the credit bureaus or don’t feel confident taking a do-it-yourself approach.
  • Unfortunately, it’s not possible to reset your credit history.


    However, negative information doesn’t stay on your credit report forever, so it’s possible to rebuild your credit over time. Late payments, accounts in collections, foreclosures and Chapter 13 bankruptcies fall off your report after seven years. Chapter 7 bankruptcies stay on your report for 10 years.
  • Fees vary depending on the credit repair company you choose and how long it takes to repair your credit. The best credit repair companies typically charge a start-up fee ranging from around $20 to $195, followed by a monthly fee between $70 and $150. It’s possible to repair your credit on your own at little or no cost, though it can be time consuming.