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Are Credit Repair Companies Worth It?

Credit repair companies often promise improbable outcomes to their clients while collecting a fee for their service. While tempting to turn to so-called experts to improve your credit score, it makes you wonder, Are Credit Repair Companies Worth It?

Before we can answer that, we need to explore what credit repair is, who it is intended for, and whether or not credit repair companies are worth the money.

money and coins on a white table with a sign that says "credit score"

What Is Credit Repair?

Credit repair is the process of disputing negative or inaccurate information from a credit report. The dispute process can result in an updating of information or deletion of an account or information that is outdated, reported inaccurately, or a violation of state and/or federal laws.

Why Is Having A Good Credit Score Important?

Have a good credit score is important because many opportunities in life are presented to those with a good credit score. Everything from being able to purchase a car or home to opening a bank account and even some jobs require future employees to have a good credit score. Overall, lenders and companies see that if a person has a good credit score, they are typically responsible with their finances and pay their bills on time.

Unfortunately, in a study, the Federal Trade Commission (FTC) reported that about 20 percent of consumers have an error on their credit report that could be lowering their score. This lower score results in higher interest rates, lower loan approval rates and even being denied of job placement opportunities.

What Can Lead To A Bad Credit Score?

While there are different factors that impact your credit score, in most cases poor credit scores are the result of late and missed payments on things like student loans, medical bills and credit card bills.

In some cases, errors contribute to a lower credit score, such as inaccurate or invalid account information. These errors can be as small as a misspelling of your name or an incorrect address, but may lead to much larger impacts if issues like bankruptcies or liens are misattributed to you.

Figuring out where negative impacts are coming from can be an overwhelming process which is where hiring a credit repair specialist may help.

What Do Credit Repair Companies Do?

While not all credit repair agencies are created equal, any professional and well educated credit repair company would provide the following:

  • View your current credit report – A credit repair professional will pull a copy of your current credit report with all 3 bureaus (Experian, Equifax and TransUnion) to see what information is reporting on your credit report.
  • Find inaccuracies – Once a credit professional has a copy of your report, they will analyze and review it to look for any inaccuracies, unverifiable or outdated information.
  • File Disputes – Once inaccuracies have been found, a credit specialist will draft up a letter to file disputes via mail to the major credit bureaus and to the creditor that is reporting the inaccurate information. The bureaus and creditors then have 45 days to provide a response to the letter or the item must be deleted/removed from your credit profile.
  • Provide on-going credit education – While disputes take 30-45 days per round, in the meantime, credit professionals can educate you on how to better your credit profile, work on your utilization rate (percentage of debt), monitor your credit report regularly, provide ideas for raising your credit score and provide you with the skills you need to continue maintaining and raising your credit score once you graduate from their credit repair program.

One of the biggest reasons most people decide to hire a credit repair agency is a lack of time and knowledge. If you are wanting to fix your credit but lack the time, hiring a reputable credit repair agency is a good route to choose.

How Much Do Credit Repair Companies Charge?

Typically, a company in this industry will charge a monthly fee while they are working on your case, which can take several months to resolve. These charges can vary from company to company, and run anywhere from $20 – $150 a month. The charges are justified in that an improved credit score may save a person money in the long run through lower interest rates, insurance premiums, and so on.

Avoiding Scams

When you’re dealing with financial matters, there’s always the possibility that someone you look to for help may try to take advantage of you. In the case of credit repair services, there are a number of red flags to look for when choosing a reputable provider. First, avoid companies that promise unreasonable outcomes, such as promising to be able to remove any and all negative marks on your credit report, not just errors or inaccuracies. Second, know your rights as a customer: credit repair companies may not request payment before they provide service. Make sure you request a written contract of the deliverables they will fulfill before remitting payment. Finally, all consumers have the right to cancel within three days.

Are Credit Repair Companies Worth It?

In conclusion, credit repair companies can be worth it for someone who lacks the knowledge to fix their credit, lacks time and has the money to hire a professional. The key is finding a reputable, legitimate and ethical credit repair company. After all, you will be trusting them with all of your personal information so do your research, avoid any possible scams and avoid anyone that makes promises that seem to good to be true.

Alternatives to Hiring A Credit Repair Company

Should you choose to avoid hiring a credit repair company, there are a few alternatives to help get your credit score soaring and credit profile in tip top shape. These include:

Credit Counseling

Credit repair services are not affordable to everyone. Thankfully, low-cost and free resources exist for people who need to improve their credit score but don’t have the funds to pay for that service. This is usually referred to as credit counseling, which differs from credit repair in that it’s a no-cost service often provided by non-profit financial education institutions or consumer agencies.

Credit counselors can review your credit report and overall financial situation while empowering you with the knowledge you need to manage your own finances in the future. As an alternative to the quick-fix marketing of credit repair services which may not do much in the long run, credit counseling can empower you to make better financial decisions and secure a more stable credit score in the future.

Taking Matters Into Your Own Hands

Ultimately, because it is possible to access the same information and resources as a credit repair company and dispute any findings on your own, you can repair your credit yourself for free. The online resources available to the public through credit bureaus make the process less time consuming, so unless your situation is particularly complicated and fraught with errors, you’re likely better off taking matters into your own hands with or without the guidance of a credit counselor. Improving your credit score will not happen overnight, and the biggest factor in success is your own action.

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