Good credit is one of the keys to financial success. Many people suffer from some financial stress over the course of their lives. They may go through periods where debt gets the better of them, unable to pay bills on time or without sufficient income to meet minimum payments. One of the solutions available is a credit repair company, advertised heavily. Credit repair companies claim to be able to get a person’s credit back on track by raising scores. If you’re suffering from less than ideal credit, you may be tempted to hire a credit repair company. But there’s a cost associated with this service. Is this the right choice for you, or should you try other means?
What Does Credit Repair Involve?
Credit repair involves identifying and disputing errors on your credit report, negotiating with creditors and taking steps to improve your overall credit profile. Errors can include incorrect personal information, outdated accounts, duplicate accounts, and inaccurate account statuses (such as a payment reported as late when it was on time). Ultimately, improving your credit score may also involve developing better financial habits and ensuring that your credit report reflects your responsible behavior. You may be inspired to keep the momentum going by paying more attention to credit matters.
What Exactly Do Credit Repair Companies Do?
In general, credit repair companies are independent businesses that offer to help you improve your credit score by:
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Reviewing your credit reports from the major credit bureaus (Experian, Equifax, and TransUnion).
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Identifying errors or inaccuracies that may be negatively impacting your credit score.
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Disputing these errors with the credit bureaus on your behalf.
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Negotiating with creditors to remove negative items or settle debts.
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Providing advice and resources to help you build better credit habits.
Benefits of Hiring a Credit Repair Company
There are definite benefits to hiring a credit repair company. When deciding, you should weigh these benefits against the cost of hiring them.
Expertise and Experience
Credit repair companies typically have experience dealing with various credit issues. They understand the intricacies of credit reports and the dispute process, which can be beneficial if you're unfamiliar with how to navigate these systems.
Time-Saving
Disputing errors on your credit report can be a time-consuming process. It involves writing dispute letters, keeping track of correspondence, and following up with credit bureaus and creditors. A credit repair company can handle these tasks, freeing up your time for other responsibilities.
Professional Negotiation
Credit repair companies often have established relationships with creditors and are skilled in negotiating the removal of negative items. Their expertise can sometimes result in more favorable outcomes than you might achieve on your own.
Tailored Strategies
A good credit repair company will develop a personalized plan based on your specific credit situation. They can offer targeted advice and strategies to help you achieve your credit goals more efficiently.
Reasons Not to Hire a Credit Repair Company
On the other hand, there are plenty of drawbacks to hiring a credit repair company. They include:
Cost
Credit repair services are not free, and they aren’t cheap. Companies typically charge an initial setup fee and a monthly fee thereafter. These costs can add up, especially if your credit issues are complex and require several months to resolve. You may be better off taking that money and putting it toward some of your credit card bills.
No Guarantees
While credit repair companies can help improve your credit, they cannot guarantee specific results. The success of their efforts depends on various factors, including the nature of the inaccuracies on your credit report and the willingness of creditors to negotiate. You won’t get a refund if they’re largely unsuccessful.
Potential for Scams
The credit repair industry is unfortunately rife with scams. Some companies make false promises, such as guaranteeing to remove all negative items or offering to create a new credit identity. It's essential to thoroughly research any credit repair company before signing up for their services. Even then, you could get the short end of the stick.
Alternative to Hiring a Credit Repair Company
You should know that a credit repair company has no more power than you do, although they have more experience and expertise, as mentioned above. You could do everything that a credit repair company can do. But it would require a great deal of reading, research and work on your part. If you decide to go it alone, here’s what’s involved:
Obtain Your Credit Reports - You’re entitled to a free copy of your credit report from each of the three major credit bureaus once a year through AnnualCreditReport.com.
Review for Errors - Carefully review your credit reports for any inaccuracies or outdated information.
Write Dispute Letters - Draft dispute letters for each error, explaining why the information is incorrect and providing supporting documentation.
Send Disputes - Send your dispute letters to the credit bureaus. They are required to investigate your claims within 30 days.
Follow Up - Monitor the status of your disputes and follow up as necessary. The credit bureaus will notify you of the results of their investigations within 30 days.
Another alternative to hiring a credit repair company is to wait it out. Negative credit drops off your report after seven years, automatically. This isn’t ideal, but it is an option. In the meantime, you could work on improving your credit worthiness score by paying bills on time, living within your means and avoiding getting into more debt.
Deciding whether to hire a credit repair company depends on your specific needs, budget, and comfort level with handling credit disputes yourself. While these companies can offer expertise and save you time, they come with costs and no guarantees. Alternatively, you can try DIY credit repair, credit counseling, or even financial coaching, all of which can help you achieve better results for your credit in the future. For more information about managing your money wisely, consult a CPA.
by Kate Supino