Pros and cons of credit repair: What to know before you start

It’s hard to overstate the power of a positive credit score. From securing low-interest loans to obtaining favorable insurance premiums, a strong credit rating opens up a world of financial opportunities.

“A good credit score can help you buy a home, get a business loan or finance an education,” explains Andrew Smith, director of the Federal Trade Commission’s Bureau of Consumer Protection. But if you’ve faced financial challenges, your credit score could be dragging you down.

You may have considered credit repair as a possible solution. But is it all it’s cracked up to be? Before you make a decision, let’s take a look at the potential benefits and drawbacks, as well as a few key things you need to know.

What is credit repair?

Credit repair is the process of improving your credit score by addressing negative items, also known as derogatory marks, on your credit report. Derogatory marks can include errors, inaccuracies or legitimate negative items like late payments, bankruptcies or collections.

The goal of credit repair is to boost your creditworthiness and increase your access to favorable financial products and terms.

Of course, you can repair your credit yourself, but there are also options for professional help. Credit counseling agencies, specialized attorneys and credit repair companies can offer expert guidance. They might offer services such as reviewing and analyzing your credit report, disputing errors, negotiating debt or creating a personalized strategy to improve your score.

Does credit repair work?

Yes, credit repair can be effective, but its success depends on your financial situation and the steps you choose to take. Addressing errors, inaccuracies and outdated information can positively impact your credit score. However, remember that credit repair isn’t a magic solution — accurate and verifiable negative items on your report are there to stay for up to 10 years.

Legitimate credit repair companies are skilled at spotting and disputing errors that may be lowering your score, and they provide advice on financial habits that can lead to long-term improvements, However, you should approach credit repair with realistic expectations, as there’s no guarantee of specific results.

Recently, a study by Consumer Reports found that 44 percent of people who checked their credit reports found at least one error. If you fall into this category, credit repair may be a good option. However, keep in mind that ultimately, credit repair success depends on several factors. This includes the accuracy of the information being disputed, whether credit bureaus and creditors are cooperative, and how much effort you make to improve your financial behavior.

The pros of credit repair services

Working with a credit repair company may lighten some of your financial burden. Turning the task over to a professional can save you time and give you access to expert insights about your situation. If the company is successful, you may also see a boost in your credit score. Let’s explore these benefits in more detail.

A credit repair company can deliver quick results

Engaging a reputable credit repair company can expedite the process compared to navigating it on your own. Professional expertise allows for efficient identification and resolution of credit issues, potentially saving you time and hassle.

If things go quickly, you may also want to research rapid rescoring, a process that helps quickly get your most recent information onto your credit score.

You’ll get an expert credit report analysis

Credit professionals possess the knowledge and experience to thoroughly review your credit reports and identify the factors that contribute to a lower score. This insight is invaluable in understanding the root causes of credit challenges.

There’s potential for credit score improvement

When combined with strategies to improve your credit habits, credit repair can lead to a boost in your credit score over time. A clean credit report opens doors to better financial opportunities and lower interest rates.

This process will also likely help you understand your credit score better so you can keep making decisions that boost it.

The cons of credit repair services

As with all financial offers, credit repair services come with a set of potential downsides. Consider these carefully before engaging with a credit repair company. 

No guaranteed results

It’s essential to recognize that credit repair doesn’t guarantee a specific outcome. While improvements are possible, there’s no assurance that your credit score will increase substantially or meet your desired level.

If you currently have a bad credit score, you’re unlikely to jump all the way up to an excellent credit score. Depending on your situation, you might not make smaller progress either.

It costs money

Engaging a credit repair company involves various fees, which can vary widely depending on the company and the breadth of services they provide. Here’s a breakdown of typical charges:

• Initial setup fee: Federal law prohibits credit repair companies from charging upfront fees. However, many charge an “initial setup fee,” which may range from $19 to $200.
• Monthly subscription: For ongoing services, credit repair companies typically charge between $50 and $150 per month. 

The amount you pay will vary depending on the services you purchase. These may include:

• An initial setup fee
• A monthly subscription
• Ongoing credit monitoring
• Identity theft protection
• Dark web monitoring

There is a risk of scams

Not all credit repair companies operate ethically, and some may engage in deceptive practices. It’s crucial to research and vet any company thoroughly to avoid falling victim to scams or fraudulent schemes. Make sure you know how to protect yourself from debt relief and credit scams.

Alternative ways to repair your credit

While credit repair companies offer one approach to improving your credit, several alternative strategies can also yield positive results. Here are a few potential options to consider.

1. Self-dispute derogatory marks for free

You can review your credit reports regularly and dispute any errors or inaccuracies directly with the credit bureaus. Currently, you have access to weekly reports from each of the three credit bureaus from AnnualCreditReport.com. Review your reports for inaccuracies, then dispute the errors with the bureau(s) to which they were reported or address them with the creditor.

2. Enroll in credit counseling

Seeking guidance from credit counseling agencies can provide valuable insights into managing your finances and improving your credit habits.

Credit counseling agencies are nonprofit organizations that offer financial education, budgeting assistance, debt management plans and credit counseling services to help individuals manage their finances effectively. They provide personalized guidance to help clients develop strategies for debt repayment, budgeting and improving credit health.

Some credit counseling may suggest debt relief programs or other ways to get your finances under control.

3. Make a debt repayment plan

In certain cases, you may need to prioritize debt repayment and implement a structured plan to pay down outstanding balances. When your credit utilization is high, paying down your balances can positively impact your credit and overall financial health.

The most common debt repayment strategies are the debt snowball and debt avalanche.

The debt snowball strategy provides motivation by quickly eliminating your smaller debts but may result in paying more interest in the long run. Meanwhile, the debt avalanche strategy saves you money by minimizing what you pay toward long-term interest. However, it requires discipline and patience because it can take longer to see results.

Debt consolidation is another option and can be a good fit if you have a lot of high-interest debt. In some cases, you may be able to get a debt consolidation loan, even with bad credit. If you own a house, you may be able to tap into your home’s equity for a low-interest way to consolidate your debts.

The bottom line

Improving your credit is a practical decision that can have long-lasting benefits. Before you decide how to move forward, you consider the pros and cons of working with a credit repair company and explore alternative approaches. This can help you make an informed decision.

While credit repair services can provide assistance, it comes at a cost and they can’t promise measurable results. Ultimately, aim to choose the solution that best aligns with your financial goals.

Frequently asked questions

• Is credit repair worth it?

  Determining whether credit repair is worth pursuing depends on your particular circumstances and goals. Consider factors such as the severity of negative items on your credit report, the potential cost of credit repair services and your ability to address credit issues independently.
  

• How long does credit repair take?

  The duration of credit repair varies depending on the complexity of your credit issues and the effectiveness of the chosen approach. While some improvements may be seen within a few months, significant credit score improvements can take time.
  

• Can credit repair remove accurate information from my credit report?

  The law doesn’t permit the removal of legitimate and verifiable information from your credit report via credit repair. However, it can address errors, inaccuracies or outdated items that may negatively impact your score.