You Can Repair Your Credit Yourself—and Save Hundreds or Even Thousands of Dollars

You’ve probably seen ads for companies that claim they can fix your credit, qualify you for a loan, or get you a credit card. Their pitches are tempting, especially if your credit is bad and you desperately want to buy a new car or house.

You should avoid most of these outfits, however. Many of their practices are illegal. Some have been caught stealing the credit files or Social Security numbers of people who are under 18, have died or live in out-of-the-way places like Guam or the U.S. Virgin Islands, and substituting these for the files of people with poor credit histories. Others have been identified as breaking into credit bureau computers and changing or erasing a bad credit file.

But even assuming that the credit repair company is legitimate, the company can’t do anything for you that you can’t do yourself. What the company will do, however, is charge you between $250 and $5,000 for their unnecessary services.

What Credit Repair Companies Claim to Do

Here’s what credit repair companies claim they can do—and how to do it yourself:

Remove incorrect information from your credit file. You can do that yourself under the Fair Credit Reporting Act.

Remove correct, but negative, information from your credit file.  Negative items in your credit file can legally stay there for 7-10 years (depending on the type of information), as long as they are correct. No one can wave a wand and make them go away.

One tactic of credit repair services is to try and take advantage of the law requiring credit bureaus to verify information if the customer disputes it. Credit repair clinics do this by challenging every item in a credit file—negative, positive or neutral—with the hope of overwhelming the credit bureau into removing information without verifying it. Credit bureaus are aware of this tactic and often dismiss these challenges on the ground that they are frivolous, a right that credit bureaus have under the Fair Credit Reporting Act. You are better off getting your file and selectively challenging the outdated, incorrect and ambiguous items.

Even if the credit bureau removes information that a credit bureau had the right to include in your file, it’s no doubt only a temporary removal. Most correct information reappears after 30-60 days, because the creditor that first reported the information to the credit bureaus will re-report it.

Get outstanding debt balances and court judgments removed from your credit file. Credit repair clinics often advise debtors to pay outstanding debts if the creditor agrees to remove the negative information from your credit file. This is certainly a negotiation tactic you want to consider, but you don’t need to pay a credit repair clinic for this advice.

Advise you to get a major credit card. Credit repair clinics can give you a list of banks that offer secured credit cards—credit cards that require you to put down a deposit in order to use it. (This is the first step to getting a major credit card if you have bad credit.) While this information is helpful in rebuilding credit, it’s not worth hundreds or thousands of dollars—you can find this information yourself for little or nothing.

For-Profit vs. Nonprofit Credit Repair Companies

Many states and the federal government regulate for-profit credit repair clinics, or even prohibit them from doing business. Some dubious credit repair clinics have tried to get around these regulations by setting themselves up as nonprofits, but they still take your money and provide poor results. Before using any organization that claims to be a nonprofit, carefully check the company’s fees, claims of what it can do, and its reputation. Call the Better Business Bureau or ask for the names of satisfied customers.

^{Reprinted with permission from the publisher, Nolo, Copyright 2008,  www.nolo.com}