Personal Finance

Credit Repair Pros And Cons

Having a good credit score makes it easier to get approved for financial services like car loans and mortgages. Another positive impact is that your interest rates are lower when you have good credit. Credit scores can even help you not have to put money down on a cell phone plan or utilities.

But if you have credit issues, it can make things hards and negatively impact your life. If that sounds like you, you do have options – one of which is using a credit repair service. Now, that’s not saying that there aren’t credit repair pros and cons. So before you make a decision, let’s take a more thorough look at what the pros and cons of credit repair can be so you can be well informed.

Credit Repair and Credit Card

What is a Credit Repair Business?

A credit repair company provides services that may help improve your credit score. The Fair Credit Reporting Act (FCRA) requires that your credit reports contain accurate information about your credit history. Credit repair companies primarily use the dispute process to remove items on your credit reports to help improve your credit health.

Aside from correcting this information, credit repair companies can also help their customers by working with their collection agencies and other creditors to resolve issues. Many people don’t know they can do this, which can be a huge benefit to help get you back on track.

Some may also provide information and guidance on the best ways to manage their finances in the future. There are pros and cons to working with a credit repair company to helping you with your credit situation.

Credit Repair Business

Credit Repair Pros

If you’re thinking about hiring a repair company to help improve your credit score, there are many advantages to working with a repair business. Let’s discuss some of the pros that working with these businesses offers.

They are Experienced

To repair your credit, one has to know where to start. A credit repair agency knows what to do when it comes to dealing with the credit bureaus.

They have helped more people fix their credit than you have and are experienced in the process. For someone that doesn’t know or feels overwhelmed by the dispute process, repair services can put their mind at ease.

Credit Repair Service

Have Resources to Handle the Process

Credit repair companies already have the legal documents and letter templates that are necessary to work with the credit reporting agencies. They can speak on your behalf to the reps from a credit bureau if they have a question or need additional information. This service will help improve your score faster than if you did it yourself.

Can Work with Your Creditors

What’s more is that when you work with a credit repair company, they can also talk to your collectors. So if you have credit cards, a car loan, or otherwise owe money to a creditor, they can find debt solutions that can help improve your score.

Negotiation Skills

Another one of the pros of hiring credit repair agencies is that it gives you access to the best negotiators. They have worked with many customers on the negotiation table.

A credit repair service knows all the options to present to bring along offers for a better repayment plan. This bests you the best deal and can save you a lot of money.

May Handle Disputes on your Credit Report Faster

Hiring a credit repair company can streamline all the action items that must be done to fix your credit. In some cases, when you tackle credit repair yourself, you could miss something or the dispute might be valid so it stays on your credit file.

The chances that a repair service reviews your information to find all the items that can be disputed will get the job done on the first go. That’s time and effort that you don’t have to spend on credit repair, which is definitely one of the key pros to working with a company.

Credit Repair Cons

All these pros to hiring a credit repair company sound great. However, before you make a decision you should know there are some drawbacks. Here is more below on the cons to working with one of these companies.

Must Pay them to Improve your Credit Score

Using a credit repair service is going to cost a lot more than improving your credit score yourself. If you’re already drowning in debt with loans, hiring someone to do these services could be counter-intuitive.

These services are not cheap. You could be paying $70 or more a month to get their help.

Though spending money on a professional service could save you in the long run. This is particularly true when the credit repair services provide guidance that you use to maintain a good score moving forward.

Credit Repair Helps Improve Credit Score

There are Credit Repair Scams

While most credit repair businesses are legit, there are fraudulent credit repair services out there that will gladly take your money without providing results. You have to beware of the scammers out there, especially if they make offers like “Guaranteed to improve your credit score by 100 points!”. The more unbelievable they sound, the more likely it is that they’re not a reputable credit repair company.

Read customer reviews on the Better Business Bureau and other websites to help find reputable partners to work with. Pay particular attention to what previous customers are saying about their customer service. The credit repair process can be a long road and you should be assured that their services are top-notch.

Finally, make sure that you understand what your rights are as a consumer. The Federal Trade Commission outlines your protections.

They include that these companies are not allowed to charge a fee prior to doing work. Therefore any company that asks you to pay for their services up-front should be avoided.

No Guarantees they will Repair your Credit

Even if you work with a reputable credit repair company, there’s no guarantee that their services will improve your credit score. So not only do you have to pay them for help, but their work might should no results.

For example, the first thing that credit repair services do is order a copy of your credit report from all three credit bureaus. They review each credit report to find errors or inaccuracies to dispute.

But if have been late on your credit cards, which is the main cause to make an impact on your score, those items are correct. Not all issues on your credit report can be resolved, even though credit repair services.

Control is out of your Hands

When you hire someone to repair your credit, you don’t have full control. This could be considered a con to some people.

You Can Fix Your Credit on Your Own

Doing the work of credit repair service can be done yourself. You have the right to receive your credit report from all three of the credit repair bureaus. Equifax, Experian, and TransUnion all give you the ability to dispute mistakes on your reports for free.

Since you have this option, you could save money and have control over the situation. Keep in mind that you make sure that you’re providing sufficient documentation to prove that the information is an error.

There are also inaccuracies that you may not know to look for. For example, duplicate accounts and name misspellings are items that should be disputed.

However, if you’re dealing with a lot of complex problems like identity theft, working with a credit repair company is typically the better option. Otherwise, it could be difficult to get the results that you want in a timely manner when you don’t know your rights and limitations.

Credit Repair Company Alternatives

Aside from the credit repair industry, there are other options when you’re seeking help.

Credit Counseling Services

If you’re struggling with debt caused by credit cards and loans, credit counseling could help. You work with a credit counselor who works with you to improve your financial situation.

They will organize your finances and help create a plan to improve your credit and finances. Tools and resources are typically recommended during these counseling sessions.

If the need exists, they may suggest a debt management plan (DMP) to help you get out of debt faster as a last resort.

Apply for a Secured Card

A secured credit card is will use money that you offer up-front as collateral. If you default on making payments, the lender will use collateral as payment.

Lenders who offer a secured credit card take on less risk because they have a guarantee that they’ll be paid. Hence, they will typically approve someone even if they have bad credit.

The card itself functions just like a regular, unsecured credit card. Your deposit is generally your credit limit. If you carry a balance, you’ll pay interest and you’ll get monthly billing. As long as you pay at least the minimum balance on time, you will keep your account in good standing and improve your credit score.

Credit Repair Secured Credit Card

Take out a Credit Building Loan

Another option is to consider a credit-building loan. People that have bad or no credit can get approved for these loans and use them to improve their scores.

Every payment that’s made is reported to the credit bureau, which builds credit history and improves your score. There’s no guarantee that you will see improvements in your credit score with a credit builder loan or secured card. But on-time payments are the important factor in computing your score.

Open another Credit Card or Increase your Credit Limit

If you have high credit utilization that’s affecting your score, increasing your limit could help. Your credit usage is how much of your credit line you’re using versus your limit.

For example, if you a $10,000 total limit and have a $4,000 balance then you’re at 40% utilization. It’s best practice to keep your usage below 30%.

You can increase your limit by opening up another credit card. The other option is to ask for a credit line increase on your existing cards. However, if increasing your credit line could make it tempting for you to spend more, this might not be a good idea.

Conclusion: Credit Repair Pros and Cons

Handling your finances can be overwhelming when you have credit issues. If your problems are fairly straightforward, you might be able to handle fixing in on your own. But if you want the help of an expert who can deliver faster results or have financial complexities, it’s typically the better choice to go with a reputable credit repair company.

Credit Repair Fixing Credit Issues

Anjana Paul

Anjana Paul is a financial writer with extensive education and experience in the financial industry. She received a Marketing and Management degree from Kansas State University and a Masters in Business Administration (MBA) from Baker University. Anjana also holds a Business Analytics Certificate from the Wharton School. Throughout her career, Anjana has worked in multiple roles within the financial industry. She has worked in banking, finance, student loans, consumer credit cards, and tech. Anjana's experience and education allow her to bring a credible, well-informed perspective to the content she writes at Wealth Pursuits, where her primary areas of focus include investing, credit, and personal finance.

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