Have you ever wondered about those ads you see from companies and law firms which offer to fix your credit for a low monthly fee? People with credit problems often ask me when it comes to improving their credit score whether they should hire a credit repair company or do it themselves? Unfortunately, there is no simple or universal answer to this question. However, I will shed some light on the subject if you're in need of a little enlightenment.

According to the Federal Trade Commission (FTC) "Everything a credit repair clinic can do for you legally you can do for yourself at little or no cost". While I agree with the FTC I also understand some consumers do not have the time, patience (or knowledge) to do the work themselves and the thought of "drive-thru-we-do-it-all-for- you-credit-repair" becomes very appealing. After all, everything a mobile oil change service can do for me I can also do myself at little or no cost (but you won't find me changing the oil in my car this weekend!).

Although some things are better done yourself, only you can determine if doing your own credit restoration work will be one of them. This is why understanding both the advantages and limitations of a credit repair company and the structure from which it operates are VERY important.

REFERENCES: Any legitimate company or individual doing credit restoration work for consumers will be able to provide you with at least half a dozen references. If the company or person is local you should be able to call these references. This is without question the most important point of consideration when hiring a professional to do the work for you.

If possible, I suggest you ask friends, family, relatives and professional contacts if they know of someone who does credit restoration work as a side business. By far the highest percentage of successful stories I hear from consumers are those which come from those who found a credit consultant via personal referral. I cannot stress this enough. It's the difference between going on a vacation with a close friend instead of a stranger.

CONTRACT: Unlike painting a house or putting in a driveway, credit restoration work (and results) are extremely broad. Therefore, the use of a contract is imperative. Most likely your credit challenges didn't occur overnight and they won't be improved overnight either. A good contract protects you as well as the service provider. The contract should be easy to understand without an Attorney and spell out the actual services which will be rendered as well as the service providers' limitations (i.e. they cannot guarantee the removal of any one particular item but can guarantee an overall increase in score overtime).

MONTHLY FEE: One of the most critical elements which affects "how" a credit restoration company operates is determined by its' payment structure. One of the most common payment structures of large companies or law firms doing credit restoration is that of the monthly "auto-debit" fee. In this structure the consumer usually pays $49 to $99 up front and then a monthly fee of $39 to $49 per month. While there is an advantage to this method (affordability) with it comes many disadvantages.

1.) The first disadvantage this structure creates is that it gives the company absolutely no incentive to work quickly or aggressively on behalf of the consumer. In fact, the opposite is true. The longer they take the longer they will continue to collect their monthly fee! In most cases this structure leads to slow results over a very long period of time. Looking at it logically, this shouldn't come as a surprise.

2.) The other challenge within this structure is the actual amount of time, effort and resources which a company or law firm can reasonably allocate on a consumer's behalf. Remember, any large business has a tremendous amount of overhead which quickly chews up most of that monthly fee. Out of that $39 to $49 there are monthly expenses including but not limited to: Advertising, Office Rent and Utilities, Employee Payroll and Taxes, Health Insurance, Phone Service, Office Supplies, Refunds, Computer Maintenance and Programming, Website Administration, Office Supplies and let's not forget postage for mailing letters to creditors, collection agencies and credit bureaus. A much simpler way to think of this is by imagining if you had a client paying you $39 a month; how much work would you be willing to do?

3.) One of the biggest challenges credit repair companies charging low monthly fees run into is being forced to rely on the use of Automated "Boiler Plate" Dispute and Correspondence Letters. Boiler Plate Letters are simple form letters which are used for ALL consumers (one format fits all). Once set up in a computer program with the consumers' information they are "shot out" automatically based on the consumers needs (i.e. late pay, charge-off, judgment etc).

The problem here is that when a credit repair company has thousands of clients they are shooting these form letters out for, the creditors, collection agencies and credit bureaus can take notice of these letters being used over and over and discover your correspondence is coming from a third party (i.e. credit repair company or law firm) and in some cases ignore it or (worse yet) mark the dispute frivolous and flag your credit report. I spoke with a man recently who was on the inside of a large credit repair company who informed me they had an archive of over 10,000 boiler plate letters on file to avoid this problem. Of course, they charged customers by the month.