Kimberly Cox had found a fast-growing and controversial industry that charges Americans to assist them with relatively basic financial repair. (Russ Scalf/For The Washington Post)

By the time she made it to the American Bill Pay Web site, with its testimonials and its guarantee to solve credit woes, Kimberly Cox couldn’t afford another problem.

She was squeaking by on $720 per month in disability checks. Her credit score was a measly 530. She lived with her son, Logan, who moonlighted on weekends as a bullrider at amateur rodeos in western Arkansas. Neither had health insurance, and one rodeo night, a 2,000-pound bull bucked hard, knocking Logan to the ground.

There was a knee surgery, a long hospital stay, a $40,000 medical debt. And then a seeming helping hand. “REGISTER NOW,” the American Bill Pay site said, and it offered an enticing possibility: that Cox, for a fee, could ease her debts and improve her credit score with just a few easy steps. Cox borrowed $900 from her mother-in-law to pay for the service.

“We were in desperation mode,” Cox said.

Cox had found a fast-growing and controversial industry that charges Americans to assist them with relatively basic financial repair work. The Federal Trade Commission warns that the industry is vulnerable to rampant abuse, noting that among the thousands of credit repair companies, “many” make “highly questionable claims” about the results they can achieve. Other players are above-board and legal, trying to help Americans improve their financial standing — even if consumers could do by themselves most of what the companies charge hundreds of dollars to do on their behalf.

The industry has capitalized on the aftermath of a financial crash that has left many lower working-class people struggling to pay bills despite the broader economic recovery. Lenders have tightened standards since the Great Recession, increasing the importance of one’s credit score, a three-digit number that reflects a history of paying back bills on time over seven years. The problem? The past seven years have seen the highest level of late debt payments in generations.

Industry insiders say the number of credit repair firms now stands between 5,000 to 7,000, at least double the number before the financial crisis. Many of the new companies are small, started by former mortgage brokers or auto dealers who had familiarity with the power of credit scores and whose own industries had suffered major downturns.

The FTC has pursued more than 160 cases against credit repair companies over the past decade — only a small fraction of the 2,000 annual complaints the agency receives.

There was a husband-and-wife team in Texas that allegedly charged retainer fees of up to $2,000 and sent more than a million letters to credit bureaus, disputing some items they knew to be accurate. A California-based company, Successful Credit Service Corporation, allegedly claimed to have special connections with creditors and collection companies. A Florida-based company, RCA Credit Services, advertised, according to the FTC, that it could boost a credit score into the 700s “in as little as 30 days.” It required advanced payments and in some cases provided no services of any kind.

Many of the companies targeted, including those three, have agreed to pay financial penalties or faced court-imposed damages. In the case of Successful Credit Service Corporation, an $8.3 million judgment was suspended because of the defendant’s inability to pay.

While the industry doesn’t yet attract as much attention as debt collectors, for example, the FTC says many alleged credit repair scams go unreported. Most companies are small — just a few employees — and operate exclusively on the Internet.

“In our experience, credit repair complaints are way understated,” said C. Steven Baker, the FTC’s Midwest Region director, who oversees credit repair. “Some of it could be, consumers only know their own experiences,” and might assume others are being helped.

The companies span a wide spectrum. Some of the companies are alleged scams that require upfront fees, yield no clear benefit and sometimes charge for services they couldn’t possibly deliver (like instant debt relief), taking advantage of people’s desperation for a quick fix, experts say.

Some of the more established credit repair companies, such as Lexington Law, do help by leveraging what they describe as a full understanding of complex consumer protection laws, including ones that pertain to debt collection and student loans. Randy Padawer, a Lexington Law consumer advocate, said that credible credit repair isn’t about “disputing everything willy-nilly.”

A trade association representing credit repair companies says the firms have long protected consumers from “the potentially devastating consequences” of an inaccurate credit report. The service is legal if done properly.

Credit repair specialists know “how to work the system” and best go after credit report mistakes that are sometimes hard to decipher, said Donna Perkins, president of KC Credit Services and vice president of the National Association of Credit Services Organizations, the trade group.

“We are an industry — the only industry — that helps American people get back on their feet,” Perkins said.

Under federal laws created in 1996, no credit repair company is allowed to promise a certain credit score or the deletion of particular information on a credit report. They’re also banned from charging anything before they’ve performed their agreed-upon services. The ban is open to interpretation, and the FTC says that companies should not charge for incremental tasks, rather only for increases to a customer’s credit score. In practice, this rarely happens; companies charge for fulfilling a series of promised services, such as credit repair counseling and in-house credit report auditing.

Even above-board companies can charge rates of up to $100 per month, and some consumers end up paying close to $1,000 for the fleet of services.

Consumers who seek credit repair tend to be “at the end of the rope financially, and they can’t afford to be ripped off again,” Baker said. Fees of “$500 or $1,000 for somebody teetering on the edge — it could be bad enough to push them over.”

Starting a credit repair firm

It’s simple to start a credit repair company. For one thing, the business model is straightforward: The company writes “dispute letters” on behalf of the consumer to credit bureaus, making the case that certain negative marks should be deleted because they’re wrong or unproven.

For another, little investment is needed. New companies don’t need a storefront; most customers prefer the anonymity of the Internet. The companies don’t even need to write the letters themselves. In a recent trend, they can outsource the process to one of several new firms that specialize in formulating and mailing dispute letters. One of those companies,, operates in Mayaguez, Puerto Rico, where an office of workers fires off letters on behalf of consumers whose names they receive from the “many small entrepreneurs” in credit repair, co-founder Joshua Carmona said.

“The barrier to entry — you might say there isn’t one,” said John Ulzheimer, the president of consumer education site “You have companies that will do almost the entire work for you. All you’re responsible for is trying to find customers.”

Credit repair companies find customers with print and radio advertising, by using lead generators, and by sometimes forming relationships with auto dealers and mortgage brokers. Some who get turned down for a home or auto loan will then be referred to a credit repair service.

According to the Consumer Financial Protection Bureau, the three major credit bureaus — Equifax, Trans Union and Experian — track consumer financial information on 220 million Americans and receive about 8 million disputes in a year. Somewhere between one-third and two-fifths of those come from credit repair companies, according to industry estimates.

On its Web site, the FTC displays a sample dispute letter — a template for anyone who wants to write one himself. But credit repair companies, and some consumers, say it’s reasonable for a consumer to pay for help, same as one might pay for a maid service or an oil change.

“Some things you can get done yourself, but in other cases you need a specialist,” said Derrick Hendrix, 59, of Cleveland, who recently used a credit repair company to clean up the last erroneous marks from an old bankruptcy. Hendrix is paying Cleveland-based Credit Repair Resources $79 per month for its services, he says. He says his credit score has risen about 35 points, to 638.

But even some industry insiders acknowledge the companies aren’t necessary. About one in 20 Americans has an error on his credit report large enough to hurt his ability to get loans. These errors, when properly challenged, are almost always corrected. Some consumer or religious groups, as well as university and military programs, help overwhelmed consumers dispute their credit reports at little or no cost, while also offering credit counseling.

“If people just had this knowledge they could do it themselves,” said Matt Nichols, who lost his job at a Honda dealership before the recession and in 2008 founded Superior Credit Repair, based in Birmingham, Ala. “It’s just a lot of repetitive work.”

Cracking down on scammers

In August, the U.S. District Court in the District of Columbia issued a temporary restraining order that shut down American Bill Pay, whose Web site Cox, in Booneville, Ark., had visited a year earlier, after her son’s rodeo injury.

The move, the FTC said in a court filing, marked an attempt to halt the “deceptive practices that take advantage of vulnerable consumers seeking debt relief and credit repair services.”

American Bill Pay, which began operating in or before January 2010, listed a Washington address and falsely trumpeted a government affiliation, according to the FTC court filings. Its Web site indicated that the debt relief program was funded by the 2009 Recovery Act, a federal program that aimed to stabilize the economy and create jobs. American Bill Pay said it used government grants to pay off up to $75,000 in consumers’ bills. A photograph of President Obama was used on the site, and a separate YouTube video concluded with an audio clip of the president saying, “I approve this message.”

According to the complaint filed by the FTC seeking a permanent injunction, American Bill Pay charged initial service fees of about $1,000. The operators remain unknown, have not responded to the court filings and could not be independently reached.

Cox now says she should have noticed the warning signs. How the financial turnaround seemed too good to be true. How American Bill Pay touted itself as a large company, but every time she called one of three people would pick up the phone.

“All the little red flags that pop up, I just flew right past them,” Cox said.

After she made her service fee payment, American Bill Pay stopped returning e-mails or answering phone calls. Cox reported them to the Better Business Bureau, then the FTC, but she didn’t know it had led to anything until a year later, when contacted by a reporter.

Cox, who doesn’t work and receives disability checks for rheumatoid arthritis, was never able to repay the money used for the initial fee to her mother-in-law. Her son, now recovered, recently went back to work, earning $15 per hour cleaning equipment used in oil fields. Cox said their income isn’t large enough to bring them above water.

“The debt,” she said, “it’s kind of just sitting there.”