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How Credit Repair Fees Work: Cost, Payment Structures, and the Law

July 11th, 2017 · No Comments · Credit Repair

by Kristy Welsh

(Last Updated On: February 19, 2018)

How Credit Repair Fees Work: Cost, Payment Structures, and the LawIf you are thinking about hiring a credit repair company, make sure you know how credit repair fees work. There’s a range of prices to expect in exchange for their services, and a right and wrong way of charging you for them.

What does the law say about fees charged by credit repair companies?

By law, credit repair companies can only charge you fees for credit repair services that have already been provided. As stated in the Credit Repair Organizations Act:

“No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.”

In other words, you should avoid any credit repair company that asks you to pay “advance” or “upfront” fees before they have completed the work that you are paying for.

Note, advance fees are not the same as initial signup fees (also known as first work fees, initial audit fees, or discovery fees):

  • Illegal advance fees are collected for services that have not been provided yet
  • Initial signup fees are collected after a credit repair company has completed some initial work for you, so you are not paying for services that have not been provided yet

What do you get in exchange for credit repair fees?

All credit repair companies are not created equal, but, in general, you should expect a credit repair company to:

  • Educate you about credit repair. Some companies are better at this than others. At the very least, they should explain to you the methods they use to repair credit, as well as your right to repair your credit yourself.
  • Analyze your credit reports. Credit repair companies cannot do anything to improve your credit until they know what’s hurting it. They learn this by looking through your credit reports to identify negative listings. Expect them to consult with you about these listings so as to identify any errors that can be disputed with the credit bureaus.
  • Ask you for supporting documentation. If errors are, in fact, identified on your credit reports, it helps to send proof with the credit disputes. For instance, if a credit report listing states that you paid late on an account that you know you paid on time, supporting documentation would be a copy of your bank statement showing that the payment was made by the due date.
  • Send credit dispute letters to the credit bureaus, if applicable. Upon receipt of these letters, the credit bureaus are required to pass the dispute information on to the data furnisher. It is then the data furnisher’s responsibility to verify the listing that is being disputed. If the data furnisher cannot verify the accuracy, then the item must be corrected or removed entirely.
  • Intervene with data furnishers, as appropriate. For instance, if you receive notice from a collection agency trying to collect on a debt, the credit repair company can request debt validation. If the collector does not provide validation, you are not required to pay the debt and the corresponding listing must be removed from your credit reports.

What you do NOT get in exchange for credit repair fees is any guarantee that negative listings will be removed from your credit reports or that your credit score will increase by any specific amount. If a credit repair company claims otherwise, go elsewhere.

How do credit repair companies charge these fees?

There are two types of payment formats used in the credit repair industry.

1) Monthly subscription service

Under this structure, you pay a set monthly fee for as long as it takes to repair your credit. That said, this is not a process that should go on indefinitely. Credit expert John Ulzheimer says you should expect it to take anywhere from 3 to 7 months. “Anything longer than that,” says Ulzheimer “may require attorney intervention or the filing [of] a complaint with the CFPB.”

Since credit repair companies are prohibited from charging upfront fees for work that has yet to be performed, the fee charged to you each month will be for work completed the month prior.

Just remember not to confuse the monthly fee with the initial sign-up fee.

As already discussed, most credit repair companies will charge an initial fee for work they perform at the beginning stages of your credit repair process. You should expect to be charged the initial fee a week or so after you sign up for service – a length of time long enough for the credit repair company to send dispute letters to the credit bureaus. Thirty days from then, you should expect your first monthly charge (for services provided after the initial work, which you already paid for).

Ulzheimer further explains that “to comply with the advance fee payment provision of the CROA, the credit repair company must first disclose to their customer in writing what they’re receiving for the monthly payment and, second, be able to demonstrate the services were fully provided during that previous month.”

2) Pay for performance

Under this payment structure, you only pay when the credit repair company is successful with credit repair efforts that can be quantified (i.e., the removal or correction of inaccurate listings). As good as that might sound, Ulzheimer warns that companies make up for it another way:

“For example, say you have a collection on your credit reports, all three of them. If the credit repair company is successful in deleting the collection, they may charge as much as $50 per credit bureau, or up to $150 total. That’s $150 for one collection item that was removed from all three credit reports.

“Now consider when the company is successful getting 10 unique items removed from each credit report — not an unrealistic scenario, especially for consumers who have very poor credit. That could cost the consumer $1,500 or more.”

Pay for performance is also referred to as Pay for Delete or PPD. However, this should not be confused with the pay-for-delete process you can use when negotiating debt settlement with creditors.

Pay for delete through a credit repair company means you only pay them when they remove (or correct) a listing on your credit report. Pay for delete through creditors means when you pay a debt as agreed, they will remove the corresponding negative listing from your credit report.

How much should you expect to spend on credit repair fees?

TopTenReviews.com has a super-detailed breakdown of the fees charged by 10 credit repair companies. Based on these reviews, you should expect to pay the following in fees:

  • Initial sign-up fee: $0-179
  • Monthly subscription fee: $49-99.95
  • Cost over 6 months’ time: $299-773

What do the best credit repair companies charge?

TopTenReviews.com’s top 10 credit repair companies looks like this:

  • Lexington Law
  • The Credit People
  • CreditRepair.com
  • Sky Blue Credit Repair
  • Ovation Credit Services
  • My Credit Group
  • Veracity Credit Consultants
  • MSI Credit Solutions
  • The Credit Pros
  • Credit Saint

Most of the above-mentioned credit repair companies made Consumer Affairs’ top 10 best-rated, too, just in a different order:

  • Lexington Law
  • CreditRepair.com
  • Ovation Credit Services
  • The Credit Pros
  • Sky Blue Credit Repair
  • Trinity Credit Services
  • My Credit Group
  • MSI Credit Solutions
  • The Credit People
  • RepairMyCreditNow.com

And SimpleThriftyLiving.com has a helpful set of reviews, featuring a best-rated top 5:

  • Lexington Law
  • Sky Blue Credit Repair
  • The Credit People
  • CreditRepair.com
  • Ovation Credit Services

As we have indicated in bold, there are five credit repair companies that appear in all three lists. So if you are, in fact, interested in hiring a credit repair company, choosing from one of these top-five is probably your best bet. Here’s how their fees break down.

Lexington Law

Fees:

  • Initial sign-up fee: $99.95-119.95
  • Monthly subscription fee: $79.95-119.95

Note, Lexington Law ranks number one on all three lists (no surprise to us as we have been recommending them for years).

The Credit People

Fees:

  • Initial sign-up fee: $19
  • Monthly subscription fee: $69
  • Flat-rate membership (optional): $299

CreditRepair.com

Fees:

  • Initial sign-up fee: $0
  • Monthly subscription fee: $99.95

Sky Blue Credit Repair

Fees:

  • Initial sign-up fee: $59
  • Monthly subscription fee: $59

Ovation Credit Services

Fees:

  • Initial sign-up fee: $89
  • Monthly subscription fee: $59-89

For all of these credit repair companies, you should also be prepared for the fee of pulling your credit reports, a cost that is not included in initial sign-up or monthly subscription fees.

Note, you may be able to offset some of these fees with a couple’s discount. If you and your spouse or partner both need credit repair, ask about it.

What if a credit repair company tries to charge up-front fees before services have been provided?

They are breaking the law and should be held accountable. If you encounter this illegal practice, 1) do not hire them and 2) submit a complaint to the Consumer Financial Protection Bureau (CFPB) and the FTC.

The CFPB and FTC both oversee the credit repair industry. So when they suspect a credit repair company is breaking the law, they take action. As we blogged just last week, the CFPB most recently took action against four California-based credit repair companies – and three associated individuals – for a number of alleged illegal activities, upfront fees among them.

What if you cannot afford credit repair services?

You can repair your credit yourself. Contrary to what you may have heard, there is nothing a credit repair company can do for you that you cannot do on your own. All it takes is time and know-how.

Start with our 20-Step Guide to the Credit Repair Process; the gist of it is this:

  • Go to AnnualCreditReport.com and request your reports from all three bureaus. If it’s been less than 12 months since you used AnnualCreditReport.com, there are plenty of other ways to see your credit reports for free.
  • Look through each credit report for negative listings that are likely dragging down your credit score. Check out our Guide to Credit Reports, which includes a detailed breakdown of the credit report formats used by each credit bureau.
  • Dispute errors with the credit bureaus (or data furnishers, need be). Learn everything you need to know about the credit dispute process. And, when you’re ready, refer to our sample dispute letters to send to the credit bureaus.
  • Send debt validation letters to debt collectors. If it’s been less than 30 days since a collection agency sent you its first notice of collection, you can request debt validation. If they fail to validate, the corresponding listing must be corrected or removed and you do not have to pay them a dime. That said, you still have options after the 30 days has passed – if you disagree with anything about the debt, you can dispute it.

There are lots of other things you can do to repair your credit, all of which are explained in the DIY guide – using goodwill letters, what to do about zombie debt, how to remove inquiries, adding personal statements to your credit reports, how to negotiate a pay-for-delete, how the statute of limitations affects your debt, record-keeping, monitoring your credit, building positive credit, and more.

Still considering a credit repair company?

Illegal upfront fees are only one red flag to watch out for. Learn more about what to look for in a credit repair company and what to avoid.

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