What Is Credit Repair?: 7 Facts You Need To Know

Nobody is perfect. We all make mistakes that can impact our credit score. A missed payment or two, having an unpaid bill go to collections, maxing out credit cards, or otherwise overextending our finances; most of us have been there.

You just have to live with some of these mistakes until they no longer appear on your credit report. Others you can do something about. That's where the idea of credit repair comes in. Credit repair, at its most basic level, just means working to fix errors on your credit report with the aim of improving your score. You can repair your credit yourself for free, but you can also hire professional help through a credit repair agency.

Here are seven facts about credit repair to help you understand more about what it is — and what it isn't.

What is credit repair?

Credit repair is nothing more or less than removing inaccurate or outdated information from your credit reports with any of the major credit bureaus. These items can negatively impact your credit score, and if they don't belong on your reports, you have the right to have them removed.

Examples of credit errors include:

• Duplicate accounts
• Incorrect payment histories or payment dates
• Incorrect balances
• Inaccurate credit limits
• Debts you've repaid
• Incorrect personal information such as addresses or names
• Accounts opened by someone other than yourself (which can point to identity theft)

You can repair your credit on your own, which we recommend, or hire a company to help you through the process.

We often see people enrolling in credit repair when they feel they're in a desperate situation and need a way out. Most creditors use your credit score when making lending decisions, and it's common for them to deny credit applications if you have bad credit. You might pursue credit repair if you've had something similar happen or even if you've got a big financial move coming up, like a loan or mortgage you want to take out, and want to improve your approval odds and rates.

What it isn't

Credit repair is not getting negative, but accurate, information removed from your credit report. There's a common misconception that credit repair can make bad things disappear from your credit file, and some illegitimate credit repair agencies will even make promises or guarantees about improving your credit no matter what (this is illegal).

But there is no such thing as erasing delinquencies and other negative marks from your credit if they're supposed to be there.

Credit repair focuses simply on correcting your credit report to make sure it's accurate and complete, and you should follow it up with other steps to improve your credit for the best results.

How credit repair can help your credit

Fixing inaccurate credit report information may boost your credit score in a few different ways, depending on the information you're removing or correcting.

For example, if one of your loan balances is incorrect and doesn't reflect your recent payments, disputing this and resolving it could lower your overall debt-to-income ratio, likely boosting your score and credit approval odds. Similarly, having a collections account you've already paid off removed could improve your credit.

Correcting incorrect information can also lower your credit utilization ratio if it decreases the overall debt reflected in your credit report with respect to your credit limit. (The amount you owe makes up a whopping 30% of your FICO credit score.) For instance, if you have a spending limit of $10,000 on one of your credit cards, but an error in your report makes it look like you've used 70% of that when you've really only used 25%, you could see an uptick to your score by fixing this.

Why it's worth doing

Improving your credit can increase your approval odds when you apply for loans and new credit, help you qualify for better interest rates when you borrow money, and more.

While going through the credit repair process isn't guaranteed to uncover any inaccuracies or even to improve your credit score if you do find them, we recommend trying it yourself if only to make sure your credit score is fair. Combing through your report and history can also help you spot issues bigger than credit problems, like identity theft.

1. You can do all your own credit repair (for free)

Anything a credit repair company can do, you can do yourself. Though this process may take longer to produce results and requires much more action from you, going it on your own is also free.

Start with requesting a free credit report from all three credit reporting agencies: Experian, Equifax, and TransUnion. Then, review your credit report for items that are old or inaccurate. These can include hard inquiries made without your permission, collections that have already been resolved, multiple listings for the same thing, late payments that were actually made on time, accounts you've closed that still show a balance, etc.

When you find something negative you want to dispute, contact the credit bureau to file a dispute in writing. You can do this either online (each bureau has an online dispute center) or through certified mail (the Federal Trade Commission has a sample dispute letter you can use).

Credit bureaus have to investigate every dispute and contact the creditors to determine if the information is inaccurate. The creditor must update all three credit agencies with accurate information if it is, notifying you in writing about the results of your dispute.

2. Credit repair can take a long time

Credit scores don't change overnight, and the process of identifying and disputing entries on your credit reports takes time. You could see results within a few months, but other times, you might need to wait a year or more for progress.

Start by requesting credit reports from all three credit bureaus. You can make this request and get your reports for free at AnnualCreditReport.com to save time.

If you find information on your reports that's inaccurate or should have been removed, you'll need to contact either the bureau or creditor to dispute the item. There will be an investigation, and if it's determined that the information should indeed be removed, processing that will take more time. A debt validation may also need to be provided, which involves contacting a debt collector in writing and asking for proof of what you owe and your liability for that debt.

It can take even more time for your credit reports to get updated and more again for your credit scores to be affected. The bottom line is that credit repair is not an instant fix, but it is often worthwhile.

3. Not all negative information can just go away

There can be information on your credit report that is negative but accurate or cannot be removed. Disputing accurate information will end up being a wasted effort on your part. The dispute process isn't meant to remove all negative information, just inaccurate information. So, if the negative remarks are true, you will just have to wait for them to fade from your credit report. This can take up to 10 years.

Among such negative items are bankruptcies, foreclosures, and even some late payments and collections. If these resulted from your own actions, they are accurate and will likely not be removed after investigation. The good news is that the older the negative information on your credit report is, the less impact it has on your score.

4. Credit repair isn't guaranteed to improve your credit

Unfortunately, credit repair is about removing inaccurate information, not rewriting your credit history or debt settlement. If most of the negative information on your credit report is accurate, there may be nothing to repair.

Even if you're able to have some negative entries removed from your reports, you may only see a modest increase in your credit score. For each hard inquiry removed, you'll likely see a five- to 10-point increase in your credit score. When it comes to paid collections (a past due account sent to collections and then paid off), having them removed can increase your score by 10 to 50 points, on average.

But increases are often roughly proportional to decreases. So, if an error brought your score down by 20 points, you should see it go up by about 20 points by fixing it.

5. You can pay credit repair companies to do the work for you

Many companies offer credit repair services — some are reputable. Examples of reputable credit repair companies you may have heard of include Credit Saint and The Credit People. These companies can often do the work needed to dispute information that isn't correct on your credit reports on your behalf, but they will also charge you fees for their labor.

In general, we only suggest paying credit repair companies if you aren't willing or able to do the work of disputing issues with your credit report yourself. These services can cost upwards of $50 or $100 each month they work on your behalf, so you could save a bundle by trying to make progress yourself first.

Watch out for disreputable companies

Many companies claim they can erase your debts and remove valid negative items from your credit reports — which is untrue. The Credit Repair Organizations Act (CROA) was created to regulate credit repair companies to help prevent consumers from being scammed, but that doesn't mean there aren't still scammers out there.

The Consumer Financial Protection Bureau warns of the following red flags found with untrustworthy companies:

• Pressures you to pay upfront
• Promises to remove negative credit information
• Asks you to dispute accurate information
• Doesn't explain your rights under the CROA and Fair Credit Reporting Act
• Tells you not to contact the credit bureaus personally

6. Your credit score is always in your control

Credit repair alone will only raise your credit score so far. Focus on adopting healthy financial habits, such as making on-time payments and checking your reports regularly, to make a larger impact over time. This can help you avoid going through credit repair in the future and keep you on the path toward earning that great score you're after.

If you're not in need of paid credit repair services but would like to improve your credit score, check out our article on how to help raise your credit score.

7. It pairs well with credit counseling and debt consolidation

Credit repair is just one of many, many things you can do on your path to a better credit score and healthier financial life. If, while you're resolving disputes and errors in your report, you decide that just getting rid of errors won't cut it and you need more help, here are a few options we recommend exploring.

Debt consolidation

Debt consolidation is the process of turning many debts into one debt. People will often consolidate multiple debts from credit cards and loans into a new loan, which can be referred to as a debt consolidation loan, to potentially save on interest in the long term, make repayments easier on themselves to remember and budget for, and even pay off their balance faster.

We recommend debt consolidation if you have debt in multiple places and would benefit from organizing it (especially if you've improved your credit and can qualify for better rates than you pay on the debt you're consolidating).

Credit counseling

Credit counseling offers personalized support in many aspects of your credit, focusing on helping you create a concrete plan for repaying your debts and developing healthy, sustainable financial habits. This might involve setting up a debt management plan, but note that these often cost money.

In some cases, a credit counselor can help negotiate your balances down so you pay less than you owe, but this isn't guaranteed to work. To find a reputable credit counselor, choose an agency that's registered with and approved by the U.S. Department of Justice.

Read more: Best Credit Counseling Companies

Debt relief or forgiveness

If the information in your credit report is accurate, but you feel there's no way you'll be able to repay everything you owe, you might be a good candidate for certain debt relief programs. This entirely depends on your circumstances, and not everyone will be eligible to have their debts forgiven, but it's worth looking into your options.

Debt consolidation, credit counseling, and DMPs are all types of debt relief, as well as debt settlement or bankruptcy.