- Credit repair companies can cost between $15 to $150 monthly in addition to a setup fee.
- Credit repair companies cannot charge for services before they have been completed.
- Steer clear of a credit repair company that doesn't offer refunds.
What is credit repair?
Credit repair is the process of improving your credit score by identifying and rectifying errors, negotiating with creditors, and building a more favorable credit history. "Think of it like housekeeping, but for your financial history," says Mark Stewart, Certified Public Accountant for Step By Step Business. "You're getting rid of the cobwebs and making the place shine."
While you can repair your credit on your own, many people find the process of repairing credit overwhelming and want to enlist help from a credit repair company. Understanding how the process works can help you get the most bang for your buck.
How much does professional credit repair cost?
The cost to repair credit varies widely, ranging from no-cost DIY options to services that can charge hundreds of dollars. While each situation is unique, usually "consumers don't need to pay a credit repair company hundreds of dollars to repair their credit," says Erik Beguin, Founder and CEO of Austin Capital Bank.
There are three main ways credit repair companies approach repairing credit and charges vary for each.
One-time setup fees and other charges
Most credit repair companies charge a flat fee per month. This charging method usually also comes with an initial, nonrefundable setup fee, also known as a first-work fee, which can often eclipse the cost of the monthly fee. The monthly fees for services included in our guide to the best credit repair companies range from $24.99 to $99 monthly, while setup fees range from $119 to $299.
Under this model, credit repair companies will continue to charge monthly as long as services are ongoing, says Stewart. "Usually, the more you pay per month, the more the credit repair agency will tackle simultaneously," says Joe Camberato, CEO of NationalBusinessCapital.com. So if you want a credit repair agency to dispute five or six items on your credit report in a month, you'll have to pay more than if you just wanted one or two items disputed.
Paying for more disputes may yield faster results, but a credit repair company cannot guarantee how fast they can fix your credit or any score increases.
Performance-based billing
Less commonly, credit repair companies charge for each challenge to your credit report. This is called called performance-based billing. According to Stewart, credit repair companies typically charge between $25 and $100 for each challenge. Consumers pay regardless of whether the challenge is successful. While a performance-based model may seem attractive if you only have one or two items to correct, these charges can still add up quickly. "There are three credit bureaus, and if a negative item shows up on all of them, you might end up paying for its removal three times," Camberato explains.
Credit sweeps
Finally, some credit repair companies offer a service called a credit sweep. "A credit sweep is an attempt to remove all negative accounts from your credit report, thereby 'sweeping' your credit report clean," Beguin says. As appealing as this may sound, Stewart cautions that credit sweeps are illegal and "can attract criminal charges, civil penalties, lawsuits, and restitution."
Because of this risk involved, credit sweeps are expensive. Consumers can expect to pay between 0.10% and 1.00% of the swept funds in fees, Stewart says. However, Beguin advises against attempting a credit sweep at any price. Many credit repair companies that offer this illegal service attempt to sweep credit reports "by falsely reporting that you are the victim of identity theft" and claiming "that the accounts on your credit report are not yours." Beguin emphasizes that this is a crime, and could lead to more immediate problems than a low credit score.
When can a credit repair company charge you?
When a credit repair company can charge you hinges on whether they engage in telemarketing. Under no circumstances can a credit repair company charge upfront for services, although Camberato says that some credit repair agencies collect a setup fee to cover administrative expenses.
Under the Credit Repair Organizations Act, credit repair companies that don't engage in telemarketing cannot charge their clients until after services have been rendered. Stewart explains that this law was put into effect "to protect people who are desperately looking to change their credit situation from scams."
However, this doesn't mean that credit repair agencies need to produce results to charge for their services. Even if the credit repair company is not successful in having negative information removed from a credit report, they can still charge for their services. For example, a credit repair company can charge a client for writing a letter to a credit bureau on their behalf, even if the letter doesn't get any results.
If a credit repair company engages in telemarketing, different rules apply. Under the Telemarketing Sales Rule, credit repair companies that engage in telemarketing cannot charge consumers until six months after the company achieves the results it promised. That means if a credit repair company successfully removes an incorrect report of a late payment on a credit report in January, they cannot require payment until the following June. If the credit repair company fails to achieve the promised results, they cannot charge at all.
How long does credit repair take?
Addressing simple issues, such as fixing a clear error on a credit report, usually takes a few months, according to Stewart. He explains that most people who use credit repair services don't have complex cases and that "four months is the average length of time most people pay for." However, Stewart says that "some issues, such as a mix of errors and late payments, take about six to 12 months to resolve, while significant debt and a history of financial issues take over a year to resolve," he says.
Although this may seem like a long time, Camberato explains that "credit repair is a process involving a series of letters sent to address each negative item on your report. These exchanges can take up to 30 days each, so things don't move at lightning speed."
How to choose a credit repair company
While you don't need to hire a credit repair company to fix your credit for you, it's important to know how to choose correctly if you decide against a DIY approach.
While we've already advised against using a company that performs a credit sweep, you should also think twice before you choose a credit repair company that makes you pay for disputes à la carte, especially one that doesn't offer a refund regardless of the outcome.
You'll also want to steer clear of any credit repair companies that have gotten into legal trouble for violating any of the laws we've mentioned. For example, the parent company behind credit repair companies Lexington Law and CreditRepair.com, two of the largest credit repair brands in the country, has declared bankruptcy after the CFPB sued it for violating the Telemarketing Sales Rule.
DIY credit repair: cost and steps
Even though a credit repair company may be more convenient, you can do everything they do at no cost. You can dispute inaccuracies on your credit report by filing a credit dispute with all three of the major credit bureaus yourself.
1. Obtain all three of your credit reports and review them for incorrect information. You can go to Annualcreditreport.com to get your credit reports for free.
2. File a dispute for each inaccuracy you find and repeat the process again and again. You will need to file disputes with each individual credit bureau.
3. Continue to monitor your credit reports for progress.
Remember, regardless of which route you take on your credit repair journey, it will take time, and there are no guarantees.
Is credit repair worth the cost?
Potential benefits of credit repair
Credit impacts everything you do in life, from getting an apartment or mortgage to securing employment and auto insurance. Credit matters. So credit repair can be beneficial if it successfully removes inaccuracies that may be lowering your score or giving you a negative payment history.
Risks of using credit repair services
It's very important to do your research into any credit repair company you are thinking about using. The last thing you want is to pay a credit repair company for several months to get no results and for them to take your money and stop answering the phone. The credit repair industry can be tricky. Be sure to check out customer reviews and Better Business Bureau complaints to ensure you are dealing with a reputable credit repair company.
Alternatives to credit repair
There are alternatives to credit repair. You may have high credit utilization, which could be lowering your score. If that is the case, then you might want to consider debt consolidation.
Debt consolidation combines multiple accounts into a single monthly payment. Use this method to consolidate revolving debt, such as credit cards, which could lower your credit utilization ratio. Your credit utilization accounts for 30% of your FICO score.
Credit counseling can also be an alternative. You will work with a trained credit counseling professional who will take a look at your current spending habits, debt load, and credit reports. Based on that review of your financial standing, you will receive steps to address your financial and credit issues.
Frequently asked questions about the cost of credit repair
Paying for credit repair is only worth it if there are significant errors on your credit report that need rectifying. If there's nothing inaccurate on your credit report, there's no need to pay for credit repair.
No, credit repair companies can't remove any accurate negative marks. They may only remove inaccurate information. A credit repair company can't promise to remove any negative marks.
How long it takes to see results from credit repair depends on the credit issues you are trying to resolve. If your issues are not complex, four months is the average length of time most people pay for. However, some issues, such as a mix of errors and late payments, can take about six to 12 months to resolve, while significant debt and a history of financial issues can take over a year to resolve.
Yes, you can repair your credit on your own for free — and should. Credit repair services are convenient if you want someone else to do the work for you. Still, they cannot offer you any guarantees of success, and credit repair will take the same amount of time whether they do it or you do it.
