Credit repair vs. credit counseling: which do you need?

What credit repair does

Reviews your three reports, identifies items that are wrong, unverifiable, or past the reporting window, and disputes them with the bureaus and furnishers under the Fair Credit Reporting Act. It also includes negotiation (pay-for-delete, settlements) and coaching on building positive history. It does not reduce what you owe, consolidate payments, or stop collection calls on valid debts.

What credit counseling does

A nonprofit credit counselor reviews your income and debts, builds a budget, and may enroll you in a debt management plan (DMP): one monthly payment to the agency, which distributes it to your creditors, often with reduced interest rates and waived fees. A DMP typically runs three to five years and closes the enrolled cards. It does not remove anything from your credit report, and enrollment may be noted on the accounts.

How to tell which you need

• You pay your bills but your score is low because of old collections, a charge-off from years ago, errors, or thin history: repair.
• You can’t keep up with minimum payments and balances are growing: counseling, then repair once the bleeding stops.
• You’re current but drowning in interest on multiple cards: counseling (a DMP) or a consolidation loan, not repair. There’s nothing to dispute.
• You’ve got both, say, past-due accounts you can’t catch up on and old errors from a divorce: counseling first to stabilize, repair second.

Don’t confuse either with debt settlement

Debt settlement companies tell you to stop paying creditors, hold your money in an account, and negotiate lump-sum settlements once accounts are badly delinquent. It damages your credit severely, racks up fees, and exposes you to lawsuits during the stop-paying period. It’s a last resort before bankruptcy, not an alternative to counseling or repair.

What to look for in each

A legitimate credit repair organization follows the Credit Repair Organizations Act: written contract, no charges before work is performed, three-day cancellation right, no guarantees of results. A legitimate credit counselor is a nonprofit, usually NFCC- or FCAA-affiliated, with a free initial session and a DMP fee that’s modest and disclosed. Both should tell you plainly when you don’t need them.

What we do at The Credit Firm

Credit repair and credit building. We don’t run debt management plans. If your situation calls for counseling first, we’ll say so in the free consultation and point you to a nonprofit agency. We’d rather see you back in six months with a stable budget than enroll you in something that can’t help yet.