Credit Repair Companies: How They Work, Pros & Cons and Alternatives

Disclaimer: There are affiliate links in this post. At no cost to you, I get commissions for purchases made through links in this post.

Maintaining a healthy credit score is a lifelong endeavor that often gets overlooked until it’s too late. Poor financial habits and financial hardships can negatively impact one’s credit score, making it challenging to secure financing or even buy a home.


When trying to repair your credit, it’s important to look at all available options. Here’s everything you need to know about credit repair companies and alternative options to consider.


What Are Credit Repair Companies?


As the name implies, credit repair companies are a service that seeks to improve your credit score. They accomplish this task by contesting items on your credit report that should be removed. 


Negative items— like late payments or collections— stay on your account for years after they happen, even if you’ve paid the money back. While the statute of limitations varies from one negative item to another and from state to state, the issue is that one mistake can impact your credit score for a long time. 


Credit repair companies look at your credit report and dispute items to have them removed so that your credit score will improve faster.


How Do Credit Repair Companies Work?


Credit repair companies work by managing communications with creditors to have negative items removed. The first step after reviewing your detailed credit report is reaching out for data validation. Sometimes creditors sell your debt to other credit agencies, which results in a loss of information. The credit repair company essentially asks the creditor to show proof that the debt belongs to you. If the creditor doesn’t respond accordingly, they can request removal.


When removal is secured, the credit repair service will then address your negative items with the credit bureaus to ensure the changes are reflected on your credit report.


Credit repair companies can’t legally collect payment from you until they do some work, which is often presented as a free consultation or review. Then, they’ll either charge a flat rate per renewal or a monthly subscription rate. 


Pros of Credit Repair Companies


There are a few overarching benefits to working with a credit repair company. Navigating communications with creditors is nuanced and must be completed through traditional mail. Knowing what to say, how to address the issue, and tracking progress is a big undertaking. Credit repair companies know how to navigate this process based on experience.


While you can manage the process yourself, it’s quite time-consuming. For many people, outsourcing the efforts to a professional service helps mitigate the stress and ensures everything happens quickly and efficiently.


Cons of Credit Repair Companies


Working with a credit repair service isn’t for everyone. If you’re already experiencing financial struggles, adding another bill isn’t always the best choice. 


It’s also important to understand that disputing a negative item doesn’t mean that item will be removed. If you missed two credit card payments last year and the creditor provides data validation, that’s staying on your report. Challenging negative items is more for fraudulent items or things that should have been removed ages ago. 


Finally, while there are many dedicated credit repair companies out there, there’s no special training or requirements to start this type of business. Checking reviews and ensuring compliance with federal regulations is a must before sharing personal information.

Alternatives to Credit Repair Companies


If you determine that working with a credit repair service isn’t right for you, there are other options.


You don’t need any licensing or special skills to dispute negative items on your credit report. You can manage it yourself or invest in an affordable software option to guide you through the process. The software that many credit repair companies use is readily available to consumers. 


If you continue to have financial struggles, your energy would be better focused on creating a debt payment strategy. Committing to making payments on time and improving your debt ratio will positively impact your credit score. 


If you’re still struggling, seek financial counseling to help you improve your financial literacy and make strategic changes to your current situation. There are many organizations and non-profits that offer free financial counseling and resources.


Final Thoughts


Improving your credit score takes time and commitment. While a credit repair service can help you, it’s just a small part of the bigger picture. It’s worth looking into a credit repair service, but ensure that you’re also working on developing better financial habits.


error: Content is DMCA protected !