When you're in a desperate situation looking to improve your credit, it can be tempting to turn to the many credit repair companies that have sprung up. But do they work? The answer is yes and no.
Credit repair services will help you get on the right track with some of your bad debt by negotiating lower monthly payments or lowering interest rates. They may also settle accounts for less than what's owed if an account has gone delinquent.
However, all of this takes time and effort on your part - something not everyone has when their finances are already strained. In this article, we will cover everything you need to know about credit repair companies.
So whenever you're ready to dive deep into this important topic, keep reading.
What Is A Credit Repair Company?
A credit repair company is a company that helps you improve your credit score. They do this by negotiating with the creditors and collectors to remove negative items or account for information inaccuracies on your reports.
A credit repair company will help you negotiate lower monthly payments, pay off debts in full when possible. They help settle the unpaid debt for less than what's owed if an account has gone delinquent.
These companies are successful because they take little time to work through various offers from creditors. And time is something people can't afford during financial hardship!
No one should use these services without conducting thorough research into whether it is worth it for them individually. Everybody's situation is different, so there isn't a clear-cut answer!
What Does It Do?
A good way of thinking about how these services work is: if someone were late on their rent each month for six months, would their landlord give them another chance after those six months or kick them out?
Credit cards are similar - lenders will forgive some debt but not all of it unless there's been a significant change.
Credit card delinquencies happen when people need money so badly that they start spending again even though they know they'll soon be slamming into more debt payments yet don't care because, at least for now, the cash is flowing.
A credit repair service will work with your creditors to negotiate a lower monthly payment or interest rate. They will settle debts for less than what's owed. They will provide other advice on how you can avoid future situations like this in the first place.
They likely won't wipe out all of your debt - only some of it if they're successful. The key takeaway here? If you want assistance but don't have time to do it yourself, then turning to a company may be worth considering.
But only as long as that help doesn't come at too high of a cost. For instance, not being able to get another loan later on down the line because you've already been deemed "high risk."
Watch Out for These Scams
There is a myriad of credit card scams, so it's only natural that there are credit repair scams as well. When considering a repair service, proceed with wariness.
Avoid credit repair companies that charge a fee upfront, promise to work miracles in an unreasonably short period of time, ask for your personal information or give guarantees.
The only credit repair company that we can recommend is one you find through referrals from friends and family who have used them successfully - these usually charge no fees upfront, so there should be less incentive to run away with your money!
Common credit repair scams are:
- charging a fee upfront
- promising to work miracles in an unreasonably short period of time
- asking for personal information upfront (credit card, social security number, etc.)
- giving guarantees that they'll get you anything less than perfect credit.
Avoid these scams by working with reputable and trusted companies with track histories of success. You can do so by finding review websites and assessing the consensus. You can also find the best companies by vetting them out personally via calls and emails.
Start By Repairing Credit On Your Own
The best way to fix your credit is by working with a reputable company on your own. This will ensure you get the personalized attention that you need and deserve.
However, before you do that, it's probably best that you begin the repair process on your own.
This is because credit repair companies will have a greater deal of success if you already put in the work necessary to show that you are a deserving credit holder.
If you had attempted to improve your credit in the recent past, the company would have an easier time showing credit institutions and banks that you deserve better treatment. Consequently, this presents itself in better credit scores and rates.
Dispute False Information
The first step in the process of correcting faulty credit is to dispute any inaccurate information you find on your reports.
A good rule of thumb when considering whether or not to file a dispute with one's lender would be: if it doesn't affect your ability to repay, then there isn't anything worth fighting over!
This means that disputes about incorrect balances, late payments, and high-interest rates can all be left alone because they don't have an impact on what you owe - just how much you'll pay for it.
However, this doesn't mean that every item will need to be disputed. Go through each report from top-to-bottom and identify either wrong or questionable items. Do this before deciding whether these need to be corrected.
You should also know that it will take an average of 30-60 days for a lender to respond to your dispute. Make sure you have backup documentation while waiting. If the debt is yours and there's no proof or if the account has been closed, then provide this information with additional disputes found.
If all else fails and creditors still refuse to remove incorrect items from one's credit reports, consider a lawyer. They should specialize in consumer rights litigation - keep in mind that not every attorney offers this service!
Keep Old Credit Open
If you're trying to figure out why your credit score is so low, there's a good chance that the answer lies in how many old accounts one has closed.
A recent study by TransUnion shows that closing an account can potentially lower a person's credit rating by as much as 100 points (although it may not be worth losing sleep over).
This makes sense because keeping those older cards open helps develop better payment habits - even if they don't necessarily reflect on one's current financial situation.
For instance, people who have had their card for five years are more likely to pay off debt than individuals who became delinquent after just two months of using their card!
This doesn't mean we should keep all of our plastic active, though. Instead, one should opt to keep only the oldest accounts open while closing newer ones - this will ensure that their credit score is not tarnished.
It's also important to develop a good on-time payment history. A lender wants to know that they're going to get their money back in full.
This means upholding one's end of the bargain by paying off loans according to contract terms. Even if these are difficult or unfavorable!
This is why it's so critical for individuals looking into credit repair services, especially those who have already been deemed "high risk" because not being able to get another loan later on down the line because you've already been deemed "high risk."
It should also go without saying that one should avoid anything outside of standard debt consolidation loans, personal lines of credit, and home equity loans at all costs.
No matter your situation or how dire things may seem, there is hope for those who are serious about credit repair.
It takes more than just a few visits to the mall - it's going to take some time and effort, but in the end, it will be worth it! Don't hesitate to take your time. There's no rush.
Pay Off Balances
If you're looking to improve your credit utilization ratio, the first step would be paying off balances. This will not only help those who are trying to get out of debt but also it can benefit individuals who have had a few missed payments in their past.
This is because delinquency is reported on one's account as "zero" (or sometimes even $0). This has implications for how lenders calculate risk and decide what a person needs.
Instead of using all available funds to pay down debts with low-interest rates, try transferring these over to higher balance loans instead. For example: if someone owes $12k at 12% APR and another loan comes into play where there is $15k owed at 18%, then it may not be a good idea to go with the lower APR.
The reason for this is that those who have high balances owe more money and are going to face higher interest rates in addition. And if one can't afford these payments, then they're not going to get better!
It's probably best (and wiser) for them to consolidate their debts, pay off the balance of whichever account has less debt before moving on to another loan.
It's also important to get a copy of one's credit report so that they can see what information is on it. This will not only allow people to read about the information that lenders are using when calculating their risk.
This includes inquiries, whether or not they have been delinquent in terms of payments, and more. But this will also show them any mistakes made by creditors which may be preventing them from obtaining loans and other types of credit!
For example: if someone has had an account erroneously reported as being "delinquent," then there need to be steps taken so that these errors do not continue.
Otherwise, future applications for loans could end up getting denied, too - even though one met repayment arrangements!
It may take some time between sending in a dispute, waiting for it to be processed, and then having it changed on their credit report, but the result will most likely be worth it.
People must take these steps to see whether or not this may impact them in the future - because if so, there are certain ways of dealing with them!
As mentioned before: errors don't just disappear by themselves; one must take active measures to correct them.
If you're looking into credit repair services, ensure that your application does not have any mistakes on it first (something which could happen when applying online).
Credit Repair Done Right
You don't have to be a victim of your bad credit situation. You can do plenty of things to improve it and get out from under the seemingly endless debt cycle that so many find themselves in!
Credit repair services may seem like an easy fix, but there's more than meets the eye when it comes to these companies. Now you already know what you need to know.
Your credit score is only as good as its weakest link. Always make sure that you're checking all points which might affect it. Even those with zero delinquency.
If you're interested in full-scale credit repair services with a track history of success, get in touch with us, and we will happily accommodate your needs.