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Are Credit Repair Services Worth The Money Or Can You

DIY (do it yourself)?

Credit is essential for making your financial life easier. We live in a world of instant gratification where whether we have the money or not, we want to buy things as soon as possible. A low credit score can become a problem when you want to get a loan approved. A low credit score can diminish your ability to take out a loan as lenders prefer to loan individuals who have a good credit history and credit score.

There are several credit repairs companies in the market; helping people increase their credit scores. Whether or not you should hire a credit repair company to fix your credit score depends on your situation. There are several pros and cons of hiring a credit repair service that you need to keep in mind before choosing a credit repair service. If you choose to fix your credit score yourself, you can follow our DIY credit repair guide at the end of this article to increase your credit score yourself.

So, let’s dive into what is a credit repair company and what they can do for you.

What is a Credit Repair Company?

Credit repair companies are business firms that provide credit repair services to their clients in exchange for a monthly fee. The credit repair company handles all the major problems affecting your credit score by themselves. This way you don’t have to go down a rabbit hole of confusion especially if you don’t understand what affects a person’s credit score and why is yours low.

How a Credit Repair Company Repairs Credit?

Credit score companies use several tactics to improve your credit score. Some of them are as follows:

1. Dispute All Negative Items

The foremost thing credit repair companies do is disputing the negative items on the credit report. Surveys have shown that many individuals had negative items on their credit scores because of errors made by creditors. If you have never checked why your credit is the way it is, there might be errors on your credit report too.

Under U.S law, every item on a credit report must be verifiable within 30 days. So, your creditors are bound to provide all the resources that would verify the items on the credit report within 30-35 days after the dispute initiation.

The negative items will be removed if the creditor fails to respond within 30 days, is unable to find the resources, the data was misplaced or lost, or the items were mistakenly added to your credit report. Credit companies dispute everything on your credit report to get as many negative items removed as possible.

2. Negotiate or Clear Credit Issues

A negative item that is on your credit report can be removed by the creditor who added it. Late payments, incorrect payments, and bad debts are among the common reasons for a low credit score. The credit repair companies negotiate with the creditor on your behalf for the deletion of these negative items that lower your credit score. If a late payment was added erroneously, a removal request will be sent to the creditor by the credit repair company. Or if you had a good credit history and made most payments on time to the creditor, however one payment was a few days late only, they can request the creditor to remove it as a favour.

However, if there were consistent late payments or the debts were written off, the creditor might agree to update the credit report only if you agree to settle the collections (the amount you owe to the creditor).

Usually, an agreement known as; ‘Pay for delete’ is signed with the creditor. You and the creditor agree to an amount that you pay them for removing the damaging information from your credit report.

3. Fix Errors 

Credit repair companies also help you fix errors on your credit report. Errors that might be lowering your credit score but can be fixed include:

i) Old employer

ii) Wrong information

iii) Incorrect Payoff Status

iv) Wrong Due Balance

v) Bankruptcy or accounts that are not yours

vi) Debts that should have aged off and removed

Are the Credit Repair Companies Worth it?

Yes, in most cases, credit card companies can help you repair your credit score. They are experienced professionals who have hands-on experience in dealing with credit-related problems. However, it is important to note that not all credit repair companies and credit scores are the same. Credit repair companies can help individuals increase their credit score by 100+ points through a period of 6-months to one year.

Some companies offer to increase your credit score to 600 or 700 points in a matter of weeks or months. This may not be achievable because some people have a credit score as low as 300-450 points. Increasing credit score from 550 to 600 might be attainable in a month but going from 300 points to 600 or 700 points sounds unreasonable. Beware of scam companies that promise to increase your credit score in days or weeks.

Ideally, you should choose a company that promises practicable results. Oftentimes, scammers promise to uplift your credit score to 750 points. Their offers are not practical but are so lucrative, that it gets people to pay for the service.

A detailed study on credit repair by Finmasters showed that those who used credit repair services for at least one year, saw 100+ point score increases in their credit score.

Credit repair services may or may not be good for you based on your specific situation. However, if you want to choose a credit repair service, ideally, you should choose a credit repair company after ample research. Read their customer reviews and testimonials to know if someone in a similar situation as yours has benefited from their services. If a particular credit repair company doesn’t have a website, good reputation or high customer rating, don’t hire them.

Reasons to Hire a Credit Repair Company

Anyone can repair their credit themselves with some knowledge and by following the best practices. But in some cases, choosing a credit repair company is better than DIY.

If you have one of the following problems and want to repair your credit, hiring a credit repair company can help increase your credit score considerably.

Dealing with Identity Theft

You might suspect identity theft when your credit report shows information about credit issues that you don’t recall being involved in. Identity thieves use your name to open credit accounts and withdraw funds. As soon as you find out about identity theft, it is recommended to report it right away.

When dealing with fraudulent account reports, you need expert help. A credit repair company knows all the ins and outs of credit reports and how to resolve the problems. They can help you minimize processing time and ensure the best outcome for you.

Complex Problems

If your credit report has multiple issues and negative items then it might be a good idea to involve the credit repair company. Also, if you have been trying to fix the problems on your own but find it all overwhelming and need guidance, a credit repair company can take it from there.

Sometimes multiple errors on credit reports occur when the credit history of a person with the same name, living in the same city is added to your credit report. Other problems can be old addresses, phone numbers, or misinformation. The credit repair company can ensure that all the information on your credit report is correct and up-to-date.

Make Credit Report Presentable

If you are planning to buy a house or start a small business with a loan, you need a presentable credit report that increases your chances of getting the loan approved. And an additional 50 or 100 points on the credit report can help you secure a better interest rate.

Even if you think you won’t be needing a loan anytime in the future, it is necessary to keep a good credit history and a high credit score for rainy days. What if your uninsured car breaks down and you need a new one? To avoid financial problems, you should always try to keep a high credit score.

You Don’t Have Time

We live in a busy world where we have set times for work and leisure. If you are busy because you are working on your business after your job, are a single parent, or have too many things on your mind, you might not be able to schedule time for improving your credit score. After a long workday, we all need some time to destress. Hiring a reputable credit repair company gives you the peace of mind that experts are working on increasing your credit score.

Costs are Affordable

On average, hiring a credit repair company for 6-months costs around $750. And 90% of U.S households spend around $1500 throughout 6-months. So, credit repair services are affordable and you should hire a company if your credit score is if you have planned on securing a mortgage or auto-loan.

Lenders prefer individuals with a good credit history because their chances of default are low. Let’s assume you want to mortgage a house within a year. You might have to spend $750 upfront to increase your credit score, and a higher credit score helps you get a low-interest rate on your mortgage. A lower interest rate can help you save thousands of dollars on mortgage payments in the upcoming years.

How Can I DIY (Do it Yourself) Credit Repair?

Credit repair can be a simple or complex process depending on your situation. It might require you to contact the creditors and ask if they can remove the negative items from your credit report.

When you have decided to repair your credit yourself, there are some things that you need to keep in mind

1. Dispute Everything on Your Credit Report 

Disputing everything on your credit report makes your creditors re-check and verify everything again. Most errors in the information are found at this point and incorrect balance amounts are removed. Also, if you have a negative item on your credit report that your creditor fails to validate within 30 days will be removed. You can dispute the items on the credit report by sending an email to the credit bureau.

2. On-time Credit Payments 

Late payments on credit cards, auto loans, or debt can do the worst to your credit score. Payment history determines 35% of your credit score. Late payments or missed payments show up in payment history and lower your overall credit score. It is the most important factor that decides your credit score therefore, you should always make debt payments on time. Automate debt payments so they are deducted every month automatically from your primary bank account. Even if you forget a payment was due, your payments will be paid to the creditor in time.

3. Credit Utilisation Rate

The credit utilization rate has a 30% influence on your credit score. Having a higher credit limit on your credit card doesn’t mean you should use it all. If you have a $10,000 credit card limit and using the entire limit every month, your credit score will take a plunge.

Experts suggest that you should never utilize more than 30% of your credit limit. So, if you have a credit limit of $10,000, do not go above $3,000. If you want to withdraw a higher amount, apply for a credit card that offers a higher credit limit.

4. Clear Collections

Collections refer to the continuation of the amount that is owed to the creditor. Creditors are willing to do anything to get back the money you owe them. You can negotiate with the creditor that if you pay back the collection, will they remove the negative items from your credit reports. You can arrange a ‘Pay for delete’ agreement to make sure that after clearing the collections, the derogatory information from your credit report gets removed. Do not pay the collection amount without a ‘Pay for delete’ agreement because after the creditor has received what they wanted; they might not care to solve your problems.

5. Take Out More Debt

Multiple credits and on-time payments on your credit report show that you have a good reputation for paying back debt. Individuals who are responsible and have a series of debts are perceived as preferable clients. If your credit report only shows a student loan and auto loan, it is recommended to take out more small loans or credit cards. Use the credit card to buy groceries and pay the credit card bill on time. This will help you create a good credit history and maintain a high credit score.

Credit repair is a time-taking process therefore, you need to stay patient and consistent in your efforts. Whether you choose to hire a credit repair company or DIY, you shouldn’t expect instant credit improvement. Set realistic goals and work towards them. Try to learn as much as you can and if you’re repairing it on your own, you can involve a friend or family member who has some knowledge and experience.

For complex credit problems, hire a credit repair company because they are a bunch of experts who help people every day to improve their credit score. It might cost you a small fee of $80-120 per month but you’ll have the peace of mind that your credit report repair is in safe hands.

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