There's no doubt that credit fixing companies can help you clean up errors on your credit report, but it's important to know how they do so and whether they are actually worth the money. Many credit repair companies are scams, and if you work with one, you could damage your credit score even more or dig yourself into an unmanageable financial hole.

In most cases, credit repair companies work by identifying mistakes on your credit report and disputing those items with the credit bureaus. They may also contact creditors to try to resolve those errors and to improve your credit situation long-term. However, it's possible to perform these functions yourself for free. You can also seek credit counseling from a nonprofit to learn responsible financial habits and to create a plan for managing your finances, all of which may be more effective than hiring a credit repair company.

When you choose a credit repair company, it's important to review the services they offer and the upfront and monthly fees they charge. Look for a company that provides a free consultation and a clear breakdown of the costs associated with their services. Also, make sure the credit repair company is a member of the Credit Repair Organizations Act (CROA) and that they follow its guidelines when providing service to consumers.

Legitimate credit repair companies typically start by obtaining copies of your credit reports from Experian, Equifax and TransUnion and reviewing the information for inaccuracies, such as debts that don't belong to you, bankruptcies and foreclosures that do not match your records or inaccurate public records like liens, judgments, collections and inquiries. Once they find errors, they send a letter to the credit bureaus asking them to investigate and remove the inaccurate information from your report.

It can take between three and six months for credit repair companies to resolve errors on your report, depending on how many blemishes you have. During that time, it's vital to be patient and focus on paying down debt so you can see your credit score rise.

The best credit repair companies have a low startup fee, offer a monthly flat payment or are willing to work with customers who may be struggling financially. For example, Sky Blue offers a single credit-repair package that includes a detailed analysis of your report and customized dispute letters for just $79 per month. This is a lower cost than other companies and it allows you to cancel your subscription whenever you wish.

It's also important to avoid credit repair companies that guarantee a certain score increase, require payment upfront and advise you not to contact the credit bureaus directly, which is against the law. In addition, any company that claims to remove negative items from your credit report by creating a new "credit identity" for you is illegal. If you're considering a credit repair company, steer clear of those who offer these types of promises. You should also consider seeking out a credit counselor for advice and assistance before making any final decisions about which credit repair company to work with.