Credit repair companies offer to help you repair your credit score for a fee—typically about $100 a month. Many of these companies provide legitimate credit repair services, but unfortunately, many more are essentially a scam.

Your credit score impacts whether or not you qualify for a credit card, apartment rental or loan, so if you’re looking for help to rebuild your credit, it’s essential to select a reputable and trustworthy credit repair company that will deliver on its promises.

How to tell if a credit repair company is a scam or legitimate

One of the easiest ways to identify a scam credit repair company is if they violate Credit Repair Organizations Act (CROA) statutes. CROA is a federal law that aims to protect consumers against scams by setting guidelines for what credit repair services can and can’t do.

You’ll know a credit repair service is in violation of CROA if the company:

  • Asks for payment before performing any work on your behalf
  • Promises or guarantees to remove negative data on your credit report, even when it is accurate
  • Asks or advises you to mislead credit reporting companies about one or more of your accounts
  • Tells you not to contact credit reporting agencies directly
  • Suggests or implies that you change or alter your identity to modify your credit history
  • Advises you to enter false information on credit or loan applications
  • Doesn’t provide you with a written contract detailing the services it promises to deliver and the terms and conditions of payment.

If you encounter a credit repair service exhibiting any of the above red flags, you should probably look for a more reputable company or consider repairing your credit yourself. It’s important to note, even if you’ve already signed a contract, CROA provides you three days to cancel without charge.

You can also vet a credit repair service by searching the Consumer Financial Protection Bureau’s (CFPBs) database for complaints and reading company reviews on the Better Business Bureau website.

Do credit repair companies really work?

The best credit repair companies can often succeed in identifying and fixing factual inaccuracies and errors in your credit file. But no matter how many disputes a company files on your behalf, it’s unlikely that the credit bureaus will remove information your lenders accurately report.

It’s worth pointing out that even the most reputable and trustworthy credit repair services can’t legally do anything you couldn’t do yourself. Remember, you can file disputes with the three major credit bureaus (Equifax, Experian and TransUnion) for free.

When you file disputes with these agencies, they must investigate the accuracy of your report’s negative items. If your creditor can’t prove the information is correct, the bureau can remove the information from your credit file.

Whether you repair your credit yourself or pay a service to do it for you, having a plan for repairing and maintaining your credit is essential.

How to repair your credit yourself

If you have the time and inclination to repair your credit yourself, here’s how to do it:

  1. Get current copies of your credit reports

The first step to repairing your credit is knowing what needs fixing. Your credit report contains all the positive and negative information impacting your credit score. Review your report to identify the negative items which may be hurting your score.

The law entitles you to a free credit report annually from each of the three credit bureaus. The most popular way to obtain your free credit report is through AnnualCreditReport.com, a joint service from Experian, Equifax and TransUnion.

The law entitles you to free credit reports from each of the three credit bureaus each year.

  1. Dispute errors on your credit report

Review each of your credit reports for mistakes, including:

  • Inaccurate personal data, such as aliases not attributable to you
  • Incorrect dates or balance amounts
  • Accounts that aren’t yours or duplicate accounts
  • On-time payments wrongly reported as missing or late
  • Collection accounts that don’t belong to you

Dispute any errors you find directly with the three major credit bureaus. These agencies offer an online process to file disputes, which is often the fastest option to resolve an issue.

When you file a dispute with a bureau, they must address the issue in 30 days or less.

  1. Make payment arrangements if necessary

Start your credit repair process by bringing your past-due balances current. The longer payments remain late, the worse the impact on your credit score.

Devise a plan that allows you to pay at least the minimum payment for all your accounts. You may need to work out a payment arrangement with your creditors to make it work, but there are no penalties for working out arrangements with your creditors.

  1. Improve your credit history

Your payment history accounts for about 35 percent of your FICO credit score. Even one late or missed payment may cause your score to drop. If you have delinquent accounts, bring them current as soon as you can and continue to make your payments on time each month. Making regular payments before their due date is one of the most common ways to impact your credit scores positively.

  1. Reduce your credit utilization ratio

The ratio of your outstanding credit card balances to your credit card limits is known as your credit utilization ratio. It measures how much of your available credit you are using. If the total of your credit card limits is $10,000 and your outstanding balances equal $2,500, your credit utilization ratio is 25 percent.

The lower your credit utilization ratio, the better your score should be. While credit experts generally recommend keeping your credit utilization ratio under 30 percent, FICO score high achievers tend to use less than 10 percent of their total available credit limit, according to FICO.

  1. Seek credit counseling

If you’re struggling to pay off debt, consider getting help from a nonprofit credit counseling service. A reputable credit counselor can review your goals and help you devise a realistic plan to achieve them and restore your financial health.

Visit the Department of Justice website for a list of approved credit counseling agencies in your area.

How to repair your business credit

Just like with personal credit, you can pay for a credit repair company to clean up your business credit, or you can do it yourself. Although business credit scores are different from personal credit scores, the best practices to repair your business credit are basically the same as the steps to improve your personal credit, with a few exceptions:

  1. Pay attention to notifications

Business credit agencies often send you warning notifications when a derogatory mark is about to be added to your credit report. These notifications give the business owner time to become current on the delinquent account and prevent a negative mark from damaging your credit report.

  1. Repair business credit with debt validation letters

Dun and Bradstreet, Equifax and Experian are the three major credit agencies that keep reports on your business credit. If you wish to challenge inaccurate information on your report, you’ll need to create a debt validation letter, which is similar to a credit dispute letter. Send the letter to your creditor and credit bureaus since some creditors don’t report information to the credit agencies.

  1. Request removal of debt settlements from your report

Unlike a personal credit report, if you reach an agreement with a creditor to settle a debt for less than the outstanding balance, you can have it removed from your business credit report. To initiate the deletion from your report, contact the business credit agency with the proper documentation that proves you paid the debt.

The bottom line

The credit repair industry is known for scams, so it’s buyer beware for anyone looking to outsource their credit repair. Look for red flags of a scam, such as when companies ask for money upfront or if they promise to remove accurate information from your credit report.

You may find legitimate credit repair services that comply with CROA standards. But whether they are legitimate or not, no company can legally do any work for you that you couldn’t do yourself for free. Filing disputes with the credit bureaus and exercising good credit habits are the best ways to repair your credit.

If you want third-party help to address your credit issues, consider working with a nonprofit credit counseling service, which will likely provide more value than a credit repair company.