How Do Credit Repair Companies Get Paid?
The recession of 2008-2010 left a wide path of financial destruction for a lot of people, and many have turned to credit repair companies to help get themselves back on track and increase their credit score. A lot of these companies aren't doing much more than what anyone could do to repair credit on their own, but many people feel intimidated or overwhelmed when it comes to cleaning up their finances. What these companies offer to do is pretty straightforward: work with your creditors to save you money on what you owe, while helping to increase your damaged credit score so you can borrow more money.
As nice as it sounds to have a company looking to save consumers money, keep in mind this isn't charity and, with the exception of some nonprofit credit counselors, most of the credit repair industry is less about helping others than it is about making money. That money, it turns out, is coming from the very consumers using their credit repair services. But just how much are people paying to have someone else help them clean up their credit?
How Much Do Credit Repair Companies Charge?
Fees for credit repair services can seem all over the place and, to some extent, they are. Part of the reason is that there are a few different ways the companies operate, with the most common being:
- Flat fee
- Guided do-it-yourself
The majority of online credit repair services are subscription-based, with fees for reputable companies falling into the range of about $50-100 per month. While a common promise in the industry is to have your credit fixed in as little as 6 months, the average length of time users stick with a subscription credit repair company is tougher to gauge. Different sources have different numbers, with many saying it's somewhere between 8-18 months, meaning that a legitimate online service over that time might cost between $480-1800, plus any setup fees that could add another $100 or more.
The flat fee system, by contrast, is where a credit counselor assesses your overall situation up front and sets a fixed price to complete all the work for you. Since these companies get paid the same whether it takes 5 months or 15 months, you won't face recurring bills for much longer than you planned.
A newer alternative to subscription services and flat fees is the pay-per-deletion model which operates just like it sounds. Instead of paying monthly fees no matter how long it takes or committing to a price that might be too high for the amount of work required, pay-per-click only charges you when the credit repair company successfully removes the negative information from your credit report. There will likely be some kind of setup fee that's $100 or more, but getting each item removed may only cost about $25 for standard credit dings or up to a couple hundred for bankruptcies, judgments, or tax liens.
Guided, do-it-yourself programs are an even newer alternative. A flat fee of $200-400 gets you access to online training courses that claim to teach you everything you need to know about repairing your credit on your own. Of course, this system requires a lot more effort on your part, so the results will only be as good as you make them.
What Do Credit Repair Companies Actually Do for these Fees?
Realistically, the credit repair companies probably aren't doing anything you couldn't do on your own; they just have a better idea of what they're doing. Exact tactics are often industry secrets, but basic services usually include: fixing mistakes on your credit report, sending good faith letters to lenders to establish your credibility in the repayment process, and assessing your credit report for overlooked opportunities to improve your score, such as making sure the credit bureaus can verify all of the negative information.
The more established credit repair companies may also have good relationships with lenders that allow them to negotiate better settlements or reduced and more flexible repayments, though not all lenders are willing to accommodate such changes and others just don't like working with credit repair companies. Some of the more expensive services might include access to dedicated paralegals or other credit specialists who can offer more personalized care. Most of the online companies also have premium services available, such as fraud monitoring and identity protection, for additional fees.
Watch out for Scammers
Keep in mind that fees for online credit repair can vary a great deal, depending on the company. Some of the most predatory companies may advertise very low rates but offer no real value in their services. For example, a common credit repair scam is to file disputes with the various credit reporting agencies for all of someone's delinquent accounts. Since the credit bureaus are required to remove those accounts from credit reports while their validity is being investigated, the customer's credit score improves temporarily. Unfortunately, once the accounts are deemed valid again after a couple of months, the consumer's credit score drops right back down where it was and they're out the "low fee" they gave the scammers. Credit repair is definitely an area where if it looks too good to be true, it probably is.
The Bottom Line
Unless your situation is exceptionally complicated or really urgent, you might find that repairing your credit on your own is easier than you might think. If, however, you feel like it's just too much to deal with by yourself, a credit repair company can help, but that help comes at a price. Be sure to fully research a company, including news articles, consumer complaints, and the Better Business Bureau, before committing hundreds of dollars to their services. It's not cheap, but a good credit repair company might be able to help if you find yourself running into brick walls with the credit reporting bureaus. If you have additional questions or would like to know more about your legal options, you should consult with a credit repair attorney.