Credit Repair Companies: What You Need To Know
Getting your credit in order is an important part of managing your personal finances. If your credit history is far from perfect, it may be tempting to call credit repair companies, but this is not the best next step. Here is everything you need to know about credit repair companies, if they are worth it, and how to fix your own credit.
What is a credit repair business?
Credit repair companies are organizations that claim to help consumers improve their credit in exchange for fees. These work on your behalf with the credit bureaus and creditors to eliminate errors from your credit report. Although many of these companies are scams, there are some legitimate credit repair companies.
That said, you can do whatever credit repair companies do on your own and avoid paying expensive monthly fees.
How Do Credit Repair Companies Work?
Credit repair companies work on your behalf to remove negative marks from your credit report. There are a few strategies they use to achieve this:
- Challenge negative marks on your credit report, with the goal of getting the credit bureaus to remove them.
- Ask creditors to check negative ratings. If a creditor does not provide verification, they should stop reporting these marks.
You can do both of these things yourself. You don’t need to pay credit repair companies for these services.
Most credit repair companies charge a monthly fee and offer several packages ranging from the most basic to the most advanced. The more expensive levels offer things like credit monitoring and credit score analysis. They can also send cease and desist letters to debt collectors on your behalf. Again, these are all things you can do on your own.
What to watch out for with credit repair services
The world is full of credit card scams and credit repair scams. Scammers tend to target financially vulnerable people. Proceed with caution and avoid credit repair services that:
- Tell yourself to avoid contacting credit bureaus directly
- Ask you to pay a fee up front before they do any work
- Insist on disputing information on your credit report that you know to be accurate
- Promise fast credit repair or instant results
- Claim they can give you a clean slate, new identity, or other social security number
- Tell you to lie or knowingly provide false information
- Do not explain what your legal rights are
Be sure to ask questions before signing up for credit repair services. If you don’t get clear answers, that’s a red flag. Even if a service is legitimate, consider whether it is worth paying for something that you could do on your own.
How can I repair my credit myself?
It is quite possible to repair your credit without paying the credit repair companies. In many cases, it’s best to rebuild your credit on your own. Here’s how.
Pull your credit report with all three credit bureaus
You are legally entitled to a free credit report every year from the three major credit bureaus (TransUnion, Equifax, and Experian). You can access it at AnnualCreditReport.com.
Your credit report will help you understand why your credit is low. Plus, you can spot mistakes that lower your score.
Dispute any incorrect information
If you find any errors on your credit report, you’ll want to have them removed.
You can file a dispute online with each credit bureau or you can send them a dispute letter. They may ask you for additional information or supporting documents while they investigate your complaint.
If the credit bureau approves your dispute and removes the false information, you should see an increase in your credit score.
Pay off credit card debt, especially high balances
Average household debt hit $ 14.35 trillion in 2020, so if you have a credit card balance, you’re not alone. However, paying off these balances is one of the best ways to increase your credit score.
Not only will this help you improve your payment history, it will also improve your credit utilization rate, which is one of the most important factors in determining your credit score. Here’s how to determine your credit utilization rate: Add up all the credit card debt you owe, then add up your credit limits on all the credit cards you’ve opened. Divide your overall debt by your overall credit limit and you will get your credit utilization rate.
In other words, this number is the percentage of your overall available credit that you are actually using, and it should stay below 30%. That’s why paying off high balances that are over your credit limit can improve your credit dramatically and quickly.
Build an on-time payment history
If you’re not currently paying off your debts, finding another way to build a positive payment history can help you rebuild your credit.
Using a low limit credit card several times a month and paying off your balance in full before the due date is an effective way to do this. Just make sure to avoid carrying a scale. If the temptation to overspend and fall back into debt is too great, it may be best not to take this step.
If you can’t qualify for a regular credit card, try this method with a bad credit credit card.
Keep old accounts open
The average age of your accounts is an important factor in determining your credit score, so it pays to have older credit accounts on your credit history.
If you’ve paid off old credit cards and no longer plan to use them and they don’t charge an annual fee, keep those credit cards open. This is especially important if you have had them for a while.
Wait for the negative ratings to disappear from your credit history
If you have specific negative scores that lower your score, like late payments or collections, the best you can do is wait for them to disappear from your credit report.
The good news: nothing lasts forever when it comes to your credit. Late payments and debt collections disappear from your credit report after seven years. Bankruptcies are deleted from your report in seven or ten years.
Monitor your credit
While you are working on repairing your credit, it is a good idea to monitor your credit score. The FICOÂ® credit rating agency and credit bureaus provide credit monitoring services for a monthly fee. These fees are much lower than those charged by credit repair companies.
There are also many credit cards that offer your credit score for free. Keeping track of your credit score as you work on repairing your credit will help you monitor your progress and give you an idea of ââthe most effective actions.
How Long Does A Credit Repair Take?
Credit repair can take anywhere from a few months to several years. The time it takes depends on your personal situation. Credit repair companies that guarantee fast credit repair or promise to repair your credit within a set time frame are most likely scams.
If the only negative scores on your credit report are errors that can be disputed and successfully removed, you will likely see an improvement in your credit score fairly quickly. On the other hand, if you have late payments, collection accounts, and other similar negative marks, it will take some time and a lot of diligence to rebuild your credit.
Are There Legitimate Credit Repair Companies?
Some credit repair companies are legitimate, but be sure to check credit repair reviews before agreeing to work with anyone. The best credit repair companies work with you to help you repair and rebuild your credit the old-fashioned way.
However, any work that they do on your behalf is work that you could do on your own. You pay for the convenience of not having to do so much paperwork, and there is no guarantee that your credit will actually improve.
How Much Do Credit Repair Companies Charge?
You are probably wondering “How much does a credit repair cost?” The fees for credit repair companies vary, but they often start at around $ 80 to $ 90 per month for basic services. The fees increase from there if you choose more advanced levels.
You can find ads for free credit repair companies, but that usually means you’ll get a free brief consultation. They will start charging you once they start providing credit repair services.
Improve Your Credit Score Without Credit Repair
Considering the high cost of credit repair companies, it is definitely worth your while to improve your credit score without credit repair service. Self-healing is all about checking your credit, disputing any mistakes, and working hard to pay off debt and establish a payment history on time.
Credit Repair Scams to Avoid
Beware of credit repair companies that make unreasonable promises. These can include promises to:
- Erase negative marks from your credit report
- Improve your score by a certain number of points
- Get quick credit repair within a certain timeframe
Avoid paying credit repair companies up front and instead opt for services that do the job of improving your credit before accepting payment. Any credit repair company that asks you to lie or provide false information in a credit dispute or credit application should also be avoided.