Is Credit Repair a Scam, or Does It Really Work?

Collections--qmNothing polarizes credit industry players like the topic of credit repair. When you think of credit repair companies you might envision the sleazy business person bilking the uneducated consumer out of thousands of dollars while promising that they can magically clear off all negative marks from their credit reports. The question is…is that a fair representation of credit repair circa 2013?

I myself have personal knowledge of credit repair organizations thanks to my time in the credit industry.  I’ve personally witnessed credit repair representatives sell their services to seminar attendees from the real estate, dental, small business, and legal industries. Imagine a line of businessmen all holding their credit cards just waiting to sign on the dotted line ready to pay big bucks to clear their credit reports.  To them it was a worthwhile investment because small business owners fund their business operations with personally guaranteed credit lines, which require good personal credit reports and scores.

The seminar model is a very small fraction of the marketing efforts by credit repair companies. Many advertise online, some pay for leads from lead generation web sites, and many cultivate relationships with lenders in their area and garner consumer referrals as a result.

But isn’t credit repair illegal?

Nothing could be further from the truth.  Credit repair is perfectly legal, as long as they’re following the rules. And the rules in this case are set forth by the Credit Repair Organizations Act, or “CROA” for short. According to CROA, any company that provides services marketed as credit improvement (and all derivatives) and is paid for those services is a credit repair organization (or a “credit service organization”). So, for example, if I charged consumers $25 to review their credit reports and give them a detailed game plan on how they could improve their credit scores…that’s credit repair and I’d be a credit repair organization.

CROA requires that any credit repair organization not charge in advance for services, must provide certain disclosures to their customers, allow their customers to cancel at any time, and not make any guarantees regarding their abilities to get negative information removed from credit reports. If the company doesn’t follow those rules then they could become Federal Trade Commission road kill.

Does credit repair work?

The issue of effectiveness isn’t easily answered. There are no industry published statistics that quantify the amount of negative information removed from credit reports as a result of 3rd party credit repair efforts. According to Michael Citron, Chairman of the Board at, a software provider for credit repair businesses, “It’s clear that the Federal Trade Commission has identified that credit reports contain errors (referring to a study published by the FTC in January suggesting that 10-21% of credit reports contain errors) and credit repair services formally notify the credit bureaus of those errors so that they can be investigated and corrected.  You ask me if credit repair works and my answer is yes, it absolutely works.”

Credit repair perception

Credit repair organizations still have an uphill battle when it comes to perception.  According to one of the credit bureaus’ websites, “There is nothing any credit repair clinic can legally do for you — including removing inaccurate credit information — which you can’t do for yourself for free. Their fees can be substantial, ranging from hundreds to thousands of dollars.”

“Over the past five years we’ve seen a drastic change in the stigma surrounding credit repair and credit repair organizations”, according to Citron, who sits on the board of the National Association of Credit Service Organizations, a trade association for credit repair organizations. “For the first time in years credit repair has not been on the top of the complaint list to the BBB. This is a result of the quality of people providing the services.”

Equifax Suggestions…

If you do decide to hire a credit repair organization Equifax suggests caution if the company does any of the following:

“Asks for money before offering any services. If the company asks for money up front, just walk away.

Makes guarantees and promises that seem too good to be true. No one can correct inaccuracies on your credit report or make your debt disappear over night.

Tells you it can change information on your credit report. A credit-reporting company can help you remove inaccurate information from your credit report. But it cannot change the truth on your report, so be wary if a company says it can.

Requires payment of monthly service fees or of a substantial percentage of the money you save.

Tells you to pay the company instead of making direct payments to your creditors.

Asks you to apply for an employer identification number (EIN) to use instead of your Social Security number. You can’t invent a new credit identity. If the company asks you to do this, walk away.”

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at, the credit blogger for, founder of and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.

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