Credit Repair Services Explained: Are They Worth It? | NerdWallet

Hi, I'm Sean, a finance nerd. And today you're going to learn about credit repair, how much it costs and whether you actually need their services. And I'm joined in this conversation by my co-host, Sarah Rathner and NerdWallet credit writer Amanda Barroso. So happy to have you on, Amanda. So let's first talk about what credit repair services actually offer. Can you give us a rundown? A credit repair service is a company that says they'll help fix your credit reports and build your credit score by disputing any of the negative information or wrong information found on those credit reports. So for a fee, they will monitor your credit reports and make sure that the errors are removed and that they don't come back and reappear the next month. Some of the companies might also just give you tips or recommendations for ways to boost your credit. The thing to note, though, is that credit repair services cannot remove negative items from your credit report that are accurate. So if you did miss that payment or the set of payments or your car was repossessed, like there's nothing a credit repair service is going to be able to do for you on that front. So how much are we talking? How much does this cost? Credit repair services can cost around $100 a month, and it's likely going to take several months. And I should know, like, there's no guarantee that the service will actually work. So the math is unclear, we should say, but around $100 a month. It's pretty expensive. Yeah, that's no joke. As far as like monthly expenses go, people can do the work of a credit repair company themselves for free. But it's overwhelming. And so we at NerdWallet, we understand that. But if you find that you really want to utilize a credit repair service to avoid like the hassle of dealing with the credit bureaus at NerdWallet, we urge you to be just super skeptical and cautious. And scams are really common kind of in this area. And a lot of these companies claims can be misleading. So remember, they can only help remove inaccurate or outdated information from your credit reports. They cannot remove something that is a mistake that you made or something that actually did happen. So that's a really important first thing to remember before you start your research. Credit repair services cannot remove what's called derogatory marks. And, you know, this is sort of like a fancy way to just say like a missed payment, a bankruptcy, a repossession, collections, student loan default or a foreclosure. So if they were not added erroneously or if they were not mistakes, these companies cannot remove those things from your credit report. In fact, these are some of the more serious marks against your credit, and they can stay on your credit reports for seven to 10 years. So you just have to be really wary of companies that are making promises to remove these things from your credit reports before that time is up. That's a red flag that it could be a scam. Yeah. And thinking about our listener here, they said that they took out a few loans and now as a result of that, their credit isn't in great condition. And so that might mean they may have missed a payment. We don't know exactly what's going on and why their credit isn't in great condition currently, but if it's something that's accurate, like a missed payment, a credit repair company is not going to be able to remove that. Right. Right. So I think that, you know, taking a real assessment of what's going on, why you feel like you're, you know, diagnosing your credit, taking taking a look and saying, OK, my credit score tanked around this time. Let's let's look and really see what was going on with my financial behavior and see is was was this a mistake, a true mistake? And we can take steps to dispute that and get that removed ourselves for free. Or was this just a financial misstep that we can recover from so long as we're being a little more mindful? So for anyone who's listening, who is thinking, I don't want to spend about $100 a month on this when I could do it myself. But the very idea of DIY and some of these financial tasks can be really, really intimidating, which is why so many of us do pay professional services to them for us. But for anybody who is thinking, you know what? I want to give this a try. I want to do this myself. What specific tasks are these credit repair companies doing on people's behalf? And how can people instead do those tasks themselves? I think the first thing that you can do is just getting your hands on a copy of your credit reports. At NerdWallet, we recommend using annualcreditreport.com. And the good news is that it's totally free to do this. So sit down one night, put the kids to bed. I don't know, make yourself a latte or whatever and sit down on the couch. And you want to go through line by line to see if you can find any errors there. You want to be on the lookout for names and accounts that you don't recognize or payments that are marked as missed when you know that they weren't. Inaccurate balances, anything like that, that can sort of be a red flag that there's a mistake going on. If you do find one of those errors and you have the proof that no, I actually did make that payment and here's my statement to prove it. Or I don't know this person whose name appears here. You're going to want to file a dispute directly with the credit bureaus. The three major credit bureaus are Equifax, Experian and TransUnion. And at NerdWallet, we have really detailed guidelines for how to file a dispute with each of those credit bureaus. You might find that the error appears only on one, you know, credit bureaus report. Great. That's less work for you sometimes. And probably more likely it might appear on all three. So you have to do your due diligence there. But you can dispute the issue online over the phone, by mail. Online is typically the fastest. And the bureaus are required to respond to your dispute within 30 days. So that's 100 bucks you save right there. Yeah. OK, great. So now let's talk about a few other ways that people can better their credit on their own, especially tips that do not require much effort, because if you are considering credit repair, chances are that you want an easy solution to your credit woes. So, Amanda, what do you think? You know, the credit world can feel a little bit like the man behind the curtain in The Wizard of Oz, but there are some really tried and true things that you can do and some best practices when it comes to building and maintaining a strong credit score. The first most important thing that we want to reiterate is paying your bills on time and in full if you can. That's huge. So payment history. I don't know if you knew this. Payment history is the biggest factor used in calculating your credit score. So, you know, if you can't pay in full, try to make at least the minimum payments. You can even make smaller payments throughout the month. You don't even have to wait until that due date. It's really also important to keep that utilization low. We call it your credit utilization. So we recommend using no more than 30% of that total credit available to you. But less than that is even better. So if you find yourself kind of creeping up to that threshold, take a step back, pause, pause that spending and focus on paying down debt to get back to that 30% or less. The cool thing is with this credit utilization, you can set balance alerts on some credit cards that will ping you if you're approaching that limit that you've set for yourself. So you can really stay on top of things. Well, that's all great advice, and it definitely sounds like something someone can do if they're motivated to save some money and start tackling this issue by themselves. So, Amanda, do you have any final words of credit wisdom for our listeners? I think, you know, if you find yourself feeling overwhelmed by some of these derogatory or negative marks that are showing up in your your credit reports and they're dragging down your score, consider looking into a credit counseling agency. And I say this, do not confuse these with the credit repair services, right? These are actually nonprofit organizations that have counselors who will work one on one with you, assess your situation and come up with like a unique, personalized financial plan. Some of these services are free, and you're going to want to find a credit counselor that's certified and accredited. Right. And there's a host of those that you could check into, like the National Foundation for Credit Counseling. That may be a good place to start to find somebody who you feel like could help make a great plan for you. Thanks for watching. I'm Sean Piles, host of NerdWallet's Smart Money podcast. If you learn something new today, hit like and subscribe and share with your friends. Also, listen to NerdWallet's Smart Money podcast wherever you get your podcasts.