Important facts you need to know about credit repair services
If your application for a credit card or loan has been rejected before, you probably know how frustrating bad credit can be when you are in dire need of financial aid.
Many people after discovering that their credit scores do not qualify them for mortgages, auto loans, and other personal loans turn to credit repair companies to help them fix their credit.
While these companies can offer the credit repair services that they need, there is nothing they can do that you cannot do.
In this guide, we will discuss what credit repair services entail, the self-credit repair process, the benefits and disadvantages, and what to look for before hiring a specialist.
What are credit repair services?
This happens when a credit repair company acts on your behalf and checks your credit reports from the three reporting bureaus, reviews the negative items on your credit file and looks for errors.
If there are errors in your credit reports, the company then goes ahead and files a dispute to have the mistakes removed. They also negotiate with your creditors in case they made negative remarks that would negatively impact your credit.
While repairing your credit isn’t as hard as it’s believed to be, so many people still feel it’s frustrating, time-consuming, and they don’t want to go through the hassle of negotiating with creditors.
Are credit repair services legit?
The answer is yes. These services are 100% legal as long as the credit repair companies act within the guidelines set in the credit repair organization act.
Before the law, many people were scammed by companies promising to give them a particular credit score, change their credit history, or even negotiate with creditors to cancel their debts. They only realized later when they had lost their money, and their bad credit remain unfixed.
In a bid to protect consumers, the credit repair organization act was established to help regulate the industry. Many companies were charged and penalized for taking advantage of vulnerable customers.
What does the credit organization act say?
The law states that:
- The credit repair company will not charge its clients an upfront fee. Customers should only pay for services rendered.
- Credit repair companies should not fraudulently claim to do what they cannot do.
- There should be a written contract between the client and credit repair company with rights given to the customer to cancel the contract at no charge within three days.
- Credit repair companies should clearly state the services they offer and how long it takes.
- They should also indicate the cost of their services.
- Clients should be honest about their credit history and not suggest to the repair companies to change their identities and give them a new credit rating.
How much do credit repair services cost?
The cost depends on how numerous or complicated your errors are.
Credit repair services may be convenient, but remember they are quite costly.
You are likely to part with $79-$99 per month. Multiply that with the number of months it’ll take to fix your credit. You’ll realize how expensive it is.
It’s impossible to fix your credit overnight, and therefore, you may end up spending up to $500-$600 at the end of the credit repair process.
On average, the credit repair process may take longer than 6 months because these companies are never in a hurry and want to make money from you.
Additionally, the paid credit repair specialists do not teach you how to budget your money, get out of debt, and rebuild your credit. All they do is to remove the negative information on your credit reports. This is something anyone can do.
What the self-credit repair process entails
While self-credit repair remains the most viable and cost-effective means of fixing credit, many people still shy off and feel more comfortable with a specialist handling the process on their behalf.
According to the consumer financial protection bureau, errors and mistakes in your credit reports are a common thing.
You can fix these mistakes individually by disputing the negative information that’s not true, derogatory remarks from creditors that are not 100% true and raising doubtful accounts that you are not aware of because someone could be using your name to access credit without your knowledge.
Below is a step by step process of repairing your credit
- Download and analyze your credit reports
This is usually the first step.
All you need to do is download free copies of your credit reports annually from these three reporting bureaus Equifax, Experian, Transunion. It’s important to check out reports from all these bureaus because the information is usually not similar.
Critically examine these reports and look out for errors, mistakes, derogatory remarks that are inaccurate, and missed payments. Such anomalies can occur especially if your account is confused with someone with the same name as yours. You should also check out for accounts that don’t belong to you.
If there are indeed errors in your credit reports, you can raise a dispute with these bureaus. Before disputing the negative items on your reports, it’s necessary that you have documentation that can prove your claims. Paid invoices that were recorded as missed payments, a paid loan that still reads unpaid, or a derogatory remark that states you were 90 days late to pay rent when you were 40 days late.
Once you have disputed these facts, it’ll take the credit bureaus 30 days to go through your report and contact your creditors before they respond to your inquiry. There will be a lot of back and forth so, you’ll have to exercise patience throughout the process and work till you have the information corrected.
- Write down all your debts and know how much they cost
One of the things that are likely to affect your credit is missed payments, and having a lot of debts will cause you to miss payments when you get overwhelmed. This will consequently reduce your score.
It will also raise your debt utilization rate and make you a high risk to many lenders. Write down all the monthly repayments for each debt and put a plan in place on how to pay them bit by bit until you exhaust all of them.
- Have a budget
It helps to plan your monthly income so that you don’t overspend.
Check out how much you bring home annually versus your expenditure.
You can try to cut some unnecessary expenses from the budget so that you free some cash to meet your debt obligation. You will be happy that you made that sacrifice when you start seeing your credit scores rise.
You can also put aside some money in an emergency fund so that you don’t incur more debt when you find yourself in financial need.
- Change your spending habits
The whole process will be a waste of time if you don’t change your old habits and work to maintain your good credit.
Avoid taking on more debt than you can comfortably pay and live within your means.
If there are closed accounts that you have paid and are marked so, you can bring them back on your reports because they’ll help improve your credit scores.
Benefits of hiring a credit repair specialist
Credit repair comes with numerous benefits that include lowered interest rates, approval for loans with better borrowing terms, and that beautiful feeling of knowing that you have good credit.
Some of the advantages of using a credit repair expert are:
- It’ll save you time
Depending on how complicated the errors in your reports are, it may take you a long time to access all the documents required in supporting your claims.
Credit repair professionals have the machinery to get all the documentation required and can cut the time spent in looking for these documents.
Additionally, there’s usually no guarantee that the negative information will be removed from your credit reports immediately. Credit repair services, on the other hand, may have the job completed the first time.
- Negotiate with creditors on your behalf
While negotiating with creditors seems like an uphill task to many individuals, credit repair companies pride themselves for better negotiation skills.
These professionals can easily talk to your creditors to remove some negative remarks on your reports, come up with a repayment plan that’s comfortable, and work out options that’ll help raise your credit scores.
- A professional will handle the job
There’s always that peace of mind that comes with knowing that an expert is handling your credit repair.
Most of these professionals are good at what they do, and have the expertise to offer credit repair services perfectly from years of industry experience in handling numerous clients’ accounts.
- Credit repair companies work with your creditors
It’ll be easy for them to check your financial data and get a clear picture why you are in financial trouble.
They can also access information that’ll help support your claims when making a dispute.
Using credit repair services will, therefore, eliminate the time you’ll have spend moving from creditor to creditor looking for documentation.
- You lose control
To raise your scores, the credit repair service company will come up with measures that’ll help in raising your credit to make it acceptable.
They’ll suggest you change your spending habits, work extra hours to raise more income, and have a say on any additional loans that you intend to take.
This gives you no room to make any decisions concerning your finances, and chances are that should you need to repair your credit in future, you’ll be dependent on them.
- They are expensive
Truth is, you’ll have to part with a good sum to have your credit fixed.
This may not work in your favor because of the debt load on your head.
- Some credit repair companies are a scam
While many credit repair services are legit, there are still a few companies who are out to scam vulnerable individuals.
It’s important to be keen when choosing a company to help you fix your credit.
What to look out for before signing for credit repair services
Genuine credit repair companies:
- Have a proven record that you can get by reading reviews from past customers.
- They don’t ask for an upfront payment and adhere to the rules and guidelines in the credit repair organization act.
- Explain what your options are.
- Offers free consultation.
In a nutshell
Whether you decide to do a self credit repair or hire credit repair services, it’s important to note that credit repair comes with numerous benefits. It may tedious, frustrating or take longer than you anticipated, but you’ll be glad that you did it.