Are Credit Repair Companies Worth It? How to Know When You Need Help
You know it’s tough walking around with poor credit. And credit repair companies know your pain, too. That’s why you’ll spot signs screaming “Repair Bad Credit — $299!” in low-income neighborhoods.
The legitimate question many of you may have asked yourselves already: Are credit repair agencies worth it?
All credit repair companies claim that they work to remove negative items from your credit report. In other words, they’ll take out anything that counts against your credit score, including late payments, credit inquiries, collections items, and bankruptcy.
What negative items are hurting your credit score? You can check your credit report for free on AnnualCreditReport.com. You can also analyze your credit score by using free sites like Credit Sesame or Credit Karma.
Legitimate Credit Repair Vs Credit Repair Scam
If every credit repair company claims to remove negative items from your credit report, how can you spot a scam? The difference comes in how scammers remove that information from your credit report.
Might be a Scam
- The company recommends that you don’t contact any credit reporting agencies.
- It guarantees that it can remove accurate negative credit information.
- It plans to dispute all information in your credit report.
- It promises to help you “create a new credit identity.”
Scammers will dispute every bit of negative information on your credit report at once. They flood the credit reporting agencies with requests to investigate your credit. The credit reporting agencies then temporarily remove the negative information while they investigate.
Unfortunately, this “fix” doesn’t work in the long term. All the negative information will return to your report after a few weeks. By that time, your credit repair company will have your money, and you’ll still have bad credit.
On the other hand, legitimate credit repair companies focus on removing information that is false, unfair, or misleading.
A representative from a good credit repair company will work with you and for you. You should expect the company to create an individualized plan. During an initial consultation, the company will explain how it intends to fix your credit. This typically involves sending dispute letters to the credit bureaus or creditors. As you go through the process you will understand that working with some credit repair companies are really worth it.
DIY Credit Repair
Although there are legitimate credit repair companies out there, most people can do a better job repairing credit on their own. Why? You can proactively manage your credit.
Take steps to build positive credit that can drown out a negative credit history. The following two actions will help you repair your credit score:
- Pay all current accounts on time, every month.
- Eliminate credit card debt.
These tasks aren’t sexy, but they’re effective.
Even if you have debt in collections, your top priority should still pay your bills on-time and work on eliminating credit card debt. Once an account is in collections, the damage is done. Settling debt in collections will not improve your credit score. In fact, even damage from unpaid collections items will start to fade over time.
If collections agents are breathing down your neck, the Consumer Financial Protection Bureau gives the tools and resources you need to assert your right to live without being harassed. By doing so, you give yourself the time to put your financial house in order.
Once you’re ready to deal with collections agents, you can negotiate a settlement offer. Since collections agencies buy your debt for pennies on the dollar, you can usually resolve your debt for 20 to 30 percent of the outstanding balance.
When dealing with a collections agency, get any offers in writing before you send them money. You’ll also want to send your payment via certified mail. Don’t sign up for electronic payments, and don’t write a personal check. Instead, use a money order or a certified check to pay collections agents.
In a few cases, you may also need to remove errors from your credit report. Detecting and disputing errors is more complex, but this guide offers step-by-step instructions.
When Are Credit Repair Companies Worth It?
While it isn’t absolutely necessary to hire a credit repair company, you may want do so to in some cases. For example, victims of identity theft may want to pay a company to deal with the complex issues for them. That said, you can still do this on your own. IdentityTheft.gov offers a step-by-step guide on resolving identity theft issues. However, you may prefer to outsource the task to a credit repair company.
You may also want to hire a credit repair company if you have complicated reporting errors. When collections agents buy and sell your debt, they update records on your credit report. Changes to the data can lead to duplicate entries or other reporting problems.
If you choose to hire a credit repair company, you should use a reputable one with an “A” rating from the Better Business Bureau. Here are four recommendations:
|Credit Repair Company||BBB Rating||Initial Cost||Monthly Cost|
|Sky Blue Credit||A+||$59||$59|
|Credit Saint Credit Restoration||A+||$99 – $195||$49.99 – $99.99|
|The Credit Pros||A+||$179||$50 per deletion or $75 for public records removal.|
|Credit Solution Experts, Inc.||A+||$250 (credit coaching and audit. Includes budgeting and credit-repair advice)||Pay for deletion ranges from $10 to $250, depending on the level of difficulty.|