This article is from the Credit cards and Consumer Credit FAQ, by firstname.lastname@example.org (Steve Adams) with numerous contributions by others.
Most of them operate within the law but don't do anything for you
that you can't do for yourself, at less expense. (Someone posted a
quoted price of $395 in early November 1991; you can do the same
thing for well under $50.) Before paying them any money, be sure
you have in writing exactly what they intend to do, and any
guarantees they make. Think seriously about saving the money and
doing the work yourself.
A typical credit-repair agency requests a copy of your credit report
and then disputes any unfavorable items on it, whether true or not.
(The agency doesn't have to give reasons. Just a mechanical "I
dispute this" starts the process.) The credit bureau then follows
the procedure above ("What exactly will the credit bureau do with my
The credit repair feature depends on most credit grantors either no
longer having their records or simply failing to respond within the
credit bureau's time limit. Presto! the unconfirmed item is gone.
If the credit grantor does confirm the item, it stays in your
record. (You can send the bureau a 100-word explanation of the
item, to be included in the report.)
Can you do exactly the same thing? Yes, if you want to. A "credit
repair" agency has no more clout than you do. See section 8,
"Getting and reading your credit report," as well as the earlier Qs
in this section. Remember that there are three separate national
bureaus. If you clean up only your TRW report, that doesn't help if
a credit grantor pulls a Trans Union report when you apply.
Is this legal? Strictly speaking, yes. Is it honest? In my
opinion, not when an accurate item is disputed. If you make
deliberately false statements it may be illegal (I'm no lawyer).