You’ve probably heard the term “credit repair” at least once or twice in your life. And, if you’re one of the 68 million score-able Americans with a bad or poor credit score (lower than 601), you’ve probably wondered if it can help your standing. But what is credit repair exactly? Let’s break it down.   

What Is Credit Repair?

Technically, credit repair can involve fixing your bad credit in any way, shape or form, but when most people use the term, they’re referring to the process of disputing errors on credit reports. You can go through this dispute process for free with each of the credit bureaus on your own. This involves filing a formal dispute with the credit bureau(s) in question either online or via snail mail. That formal dispute should provide a detailed explanation of the error and you’ll want to include any supporting documentation you have along with it. (You can learn more about disputing errors on your credit report here.)

Many people, however, don’t have the time or don’t understand how to make their case, so they look into hiring a credit repair company to dispute errors on their behalf. These companies can charge a fee for their legwork (more on how that works in a minute), but there are times when the extra help can certainly be welcome. (Say you have multiple errors across credit reports or you’ve been the victim of widespread identity theft.) We’ll delve deeper into both types of credit repair, starting with credit repair businesses, since there’s a good chance that’s what someone is referring to when they use the term.

How Does the Credit Repair Business Work?

To get to the heart of what credit repair is and how credit repair companies operate, we went to Randy Padawer, Consumer Education Specialist with Credit.com partner Lexington Law, which represents consumers who want to repair their credit.

“Credit repair leverages your legal right to three standards: Credit reports must be 100% accurate, entirely fair, and fully substantiated,” Padawer said. “Too many lesser credit repair companies skip over those last two standards — which involve communicating with your creditors — in favor of depending upon simple credit bureau disputes by themselves.”

Here’s a good example of when a reputable credit repair service can help you do something you may not be able to accomplish yourself. If you have a collection account that’s been sold to a few different debt collectors, it may appear on your credit report multiple times. That information is accurate, but having that one debt dinging your credit score multiple times may not meet the “fair” standard Padawer mentioned.

If you have items on your credit report that don’t meet the three standards Padawer mentioned, then you may want to consider credit repair — either DIY or via hiring a professional. (Errors are more common than you may think: a Federal Trade Commission study found that 1-in-5 consumers have an error on at least one of their credit reports. You can check your credit reports for errors by pulling them for free every 12 months at AnnualCreditReport.com, You can also view your free credit report summary, updated every 30 days, on Credit.com.  This free tool breaks down your credit score into five major factors and gives you a grade for each. You can even get an action plan with tips on how to improve the credit factors that are pulling down your score. Checking your own credit reports and scores does not hurt your credit score in any way.)

What Do Credit Repair Companies Do?

A good credit repair company will also first pull your credit reports from each of the three major credit reporting agencies to pinpoint your credit issues. Why all three? Because each credit reporting agency has its own “data furnishers” (aka lenders, credit card companies, debt collectors, etc.) who report your credit information to them. And there may be errors that appear on one of your credit reports, but don’t appear on the others.

Once those errors have been identified, you’ll then give a credit repair company any supporting documentation you might have or need. For example, if there’s a bill on your credit report that your husband or wife was actually responsible for under your divorce decree, you can use that document to prove it shouldn’t be impacting you.

In some cases it might be difficult to determine what to include as far as supporting documentation goes — that’s another way a credit repair company can help you. For example, if you’re a victim of identity theft and a fraudulent account is appearing on your credit report, it can be tough to prove it isn’t yours since you naturally don’t have any documents relating to the account.

When the bureaus and data furnishers receive the dispute and supporting information, they will then work with the credit repair company to determine if the item should be removed from your credit report. The major law dictating your rights when it comes to credit reporting is the Fair Credit Reporting Act, but it isn’t the only law on your side when it comes to credit repair.

“A good credit repair company will scrub questionable credit report items against other laws — like the Fair Credit Billing Act, which regulates original creditors; the Fair Debt Collection Practices Act, which oversees collection agencies; and others that address medical illness, military service, student status and other life events,” Padawer said.

How Long Does Credit Repair Take?

Getting negative, inaccurate information off of your credit reports is one of the fastest ways to see an improvement in your scores. Since credit bureaus have to respond and resolve a dispute within 30 days (there are a few exceptions that may extend this to 45 days), it’s a short timeline that can help consumers who want to buy a house, get a new car or open up a new credit card soon and don’t have the time to wait to build good credit in other ways.

But that doesn’t mean a credit repair company can tell you exactly when your credit score will improve since some consumers’ credit issues are much more complex than others.

“Since every case and credit report is unique, no professional firm can ethically predict an exact outcome,” Padawer said. “When picking a credit repair company to fix your bad credit, don’t ask about the future, but instead ask about what real clients have seen in the past.”

How Much Do Credit Repair Companies Charge?

The price of credit repair can vary, depending on the company, the state you live in and what type of services you’re looking for. Before you sign a contract, be sure you understand what you’re signing up for, how much you will be expected to pay and when you will be charged. Something important to note that we will come back to later: Under the Credit Repair Organizations Act, credit repair companies are prohibited from demanding advance payment (meaning they can’t charge you before any work is completed.).   

When Should I DIY Credit Repair?

Fixing your own credit is absolutely an option and any ethical credit repair company will tell you that.

“If your situation is simple, and all you have are an obvious error or two, then you may just want to try a round of credit repair on your own,” Padawer said.

When trying to fix your credit, be clear and concise in your disputes with the bureaus and get your documentation in order. Again, you can mail a dispute letter (remember, you’ll need to dispute each error with each bureau; they won’t clean up your credit report with their competitors!) or you can submit it online at each of the credit reporting agencies’ respective websites. (You can find more about DIY credit repair.)

If you ultimately decide you want to hire a credit repair company or a law firm like Lexington Law to help repair your credit, you need to make sure you’re working with a reputable, ethical company.

Are There Trustworthy Credit Repair Companies?

You may have seen ads for companies that promise your credit score will see “a 100-point jump immediately!” Sounds fishy, right? That’s because it is. In fact, it’s illegal for a credit repair company to promise results like that and any company that does so is one you should steer clear of.

There are other red flags you should keep an eye out for when looking for a reputable credit repair company.

“The FTC prohibits credit repair companies from charging for credit repair before any work is complete,” Padawer said. “Run fast from anyone who asks for money upfront or who promises a new credit file overnight.”

Here are some of the things you should want from a credit repair company.

• They know your rights and want you to understand them, too. Before you sign any contract, a reputable credit repair company will explain your consumer credit rights to you and answer any of your questions regarding those rights.
• They want to know your story. It’s important for a credit repair company to understand why you want to dispute an item on your report so they can make sure those three standards Padawer mentioned — accuracy, fairness and full substantiation — are upheld by the data furnishers and the credit bureaus.
• They can explain, in detail, what they can do to represent you to the credit bureaus. Any good credit repair company knows what they can and can’t do for you and should be able to outline their services so you fully understand what you’re getting.

Beyond Credit Repair: How to Improve Your Score

Remember, there are lots of reasons why your credit may be in rough shape. Most are related to your spending habits. So, for instance, if you missed a few payments or your debt levels are too high (think over 30% of your total available credit limits), disputing errors won’t help your case — you’ll have to make some changes to improve your credit scores. And you may have to wait a bit to see an uptick. Most negative information can take up to seven years to age off of your credit report, though the effects on your score will lessen over time, so long as no new blemishes emerge.  

That shouldn’t dissuade you, however, from getting started. Remember, a bad credit score can cost you some serious cash. Over your lifetime, you can lose hundreds of thousands of dollars to a bad credit score. That’s a pretty shocking number, and it should be. Bad credit means higher loan interest rates and higher insurance premiums and that all adds up over the years. Bad credit can hold you back from achieving major life goals like buying a house, going back to school, taking a dream vacation or even retiring on schedule. Fortunately, you aren’t necessarily saddled with bad credit for life.

(Full disclosure: Credit.com and Lexington Law are partners.)

Jeanine Skowronski contributed to the reporting on this article, which has changed. Read the article here.