Are Credit Repair Companies Legit?

When you've got bad credit, you want to turn it around as quickly as possible. With credit repair companies promising a fast increase in score, it's tempting to contact them for help. It's smart to research ahead of time, though, because most will not be the instant solution that you're looking for. In fact, some are not legitimate at all.

Legitimate Companies

When you have bad credit due to mistakes in your credit report, a credit repair company can help make the necessary disputes. You can contact the credit reporting companies yourself to have these items removed, but the Bankrate website estimates that it can take you a total of four hours in order to dispute an error. A legitimate credit repair company can step in at this point and do the correct paperwork for you.

Credit Repair Scams

Signs of a credit repair scam include asking for upfront payments, promising to increase your score and suggesting that you can get rid of negative information on your report even if that information is accurate, according to the Federal Trade Commission. Another common scam is to suggest that you "open a new credit file" -- you cannot legally do this.

Credit Repair Myths

Most credit repair companies are more misleading than outright scams. A legitimate company cannot do anything for you that you cannot do yourself. Some companies may lead you to believe that only if you go through the company can you dispute the errors and improve your credit score, but this is not the case. If you'd rather spend your time than money, you can correct the errors yourself.

Current Creditors

When the negative marks on your credit report are from creditors that you still have an active relationship with or who have sent your debt into collections, some credit repair companies will act as an intermediary. They might negotiate more favorable terms with the creditor, allowing you to pay less to settle the debt and have the negative mark removed from your credit history. You pay the credit repair company and they'll pay the creditor. If you're going to enter this type of arrangement, though, check the company's rating with the Better Business Bureau or through online reviews. Some bad companies will take your money and never pay it to the creditor, putting you in a worse financial situation.