Figuring out how to fix your credit can really take you down a rabbit hole of misinformation and confusion. But what if I told you: That you don’t have to go at it alone and that a recent study we completed showed that using a credit repair company could significantly increase your score.
In this post today, I will help you understand what credit repair actually is and answer the question is credit repair worth it.
What Is A Credit Repair Company?
A credit repair company is a business that focuses on helping you improve your credit report and score in exchange for a fee. This fee is usually paid every month while the company takes over handling all the major issues that are affecting your credit.
What Can A Credit Repair Service Do?
The goal of a credit repair company is to get your credit profile back to (Zero) and then work on making it better.
They can do this through several tactics, but the ones below are the most used:
Fix Errors On Your Credit Report
According to a study conducted by the FTC, about 25% of credit reports have errors. These errors can affect your credit score negatively and could be anything like:
- Old Employer
- Incorrect Name Spelling
- Wrong Balance Showing Due
- Old Home Address
- Payoff status incorrect
- Accounts that do not belong to you.
- Bankruptcy that was not yours
- Incorrect dates.
- Debts that should have aged off
Credit repair companies assist with getting all of these issues fixed so that you can see an increase in your credit score.
Quick Tip: The easiest thing for you to do is dispute your personal information. Correcting this small thing can help your overall credit profile and score.
Dispute Negative Items
There is nothing worse than having a strong credit report with that one negative item, especially if the negative thing shouldn’t be on your report, or it isn’t yours.
By law, every item on your credit report must be verifiable within 30 days, and this is where a credit repair service can shine. Even if the negative item does belong to you, if the creditor doesn’t respond to the dispute because they don’t exist anymore or just don’t have the resources to respond on time, the negative item must be removed from all 3 of your credit reports.
You will find that most credit repair companies tend to dispute everything just to make sure they can get the most items removed that shouldn’t be on your credit.
Negotiate To Clear Up Collections, Late Payments, or Incorrect Payment Statuses
In my opinion, collections are the most common and complex items when it comes to credit repair. This is because no two collection agencies are similar, and each debt could have different terms. One of the best things a credit repair company can do for you is to negotiate on your behalf with things such as:
Pay For Deletions – This is where the collection is entirely removed from your credit report when you pay the agreed-upon amount. This is much better than paying for a collection item, and it stays on your report.
Reset Payment Status – This is when you send a letter to request that a late payment be removed from your account. For example, you have 1 – 30 Day Late – on an auto loan and ask if the lender can remove the 1 late due to excellent payment history.
A credit repair company would know when and how to send this letter and to whom. Just remember that debt settlement could be considered a separate service depending on the credit repair service you choose.
Can They Really Fix Your Credit?
We recently completed a very detailed study on credit repair, and the findings were both unexpected and surprising, we found that:
- 48% of respondents who used credit repair services for 6 months or more saw an increase of 100 points or more to their credit score.
- 100+ point gains dropped to 33% if the respondents only used credit repair services for 1 to 2 months.
- 26% of respondents reported a credit score gain of 100 to 149 points
- 17.2% of respondents reported a credit score gain of 75 to 99 points
- Only 8.4% of respondents reported a gain of 0 to 24 points.
Believe it or not, we went into this study as a neutral party and actually are huge believers in the DIY credit repair strategy.
However, you can’t look past the numbers, and they are substantial numbers.
Our study shows that if you invest some money and at least 1 year into credit repair, you have an extremely high chance of seeing a 100+ point credit score increase.
So, of course, each situation will be different, and as they say YMMV (Your Mileage May Vary).
Quick Note: You should do as much research and read all reviews before deciding on a credit repair company. You should base your decision on what’s offered and your specific situation.
Are Credit Repair Companies Worth It?
As we stated early, you can repair your credit on your own; however, there are some situations where you might want to enlist a credit repair company to help.
You might not want to deal with identity theft on your own and want to pay a company to help deal with your issues.
Just remember that it takes time and patience to resolve credit issues, especially if you are dealing with fraudulent accounts on your report.
When Is Credit Repair Worth It?
You might also need to think about getting a credit repair company for:
Dealing With Complex Problems
Things like duplicate collection data or if you have a collection on your account because someone with the same name, living in the same city defaulted on a loan.
You might also be trying to get a mortgage or a car loan and need to make sure your report is ready for the process.
If your situation has multiple negative issues and accounts, you probably should get some help.
When You Need To Use Your Credit
If you plan to start a small business within the year, then you are going to need an excellent personal credit score to get approved for any lending. Getting an additional 50 to 100 points added to your credit score will help you a ton when it comes to getting funding.
Or what if you plan to get married and want to finance the wedding ring or wedding dress?
If you need to start using your credit, but it’s in poor condition, then you should be looking into credit repair.
You Just Don’t Have Time To Do It Yourself
Fixing your own individual credit is a time-consuming process, and with most of us working 2 jobs at a time or being a single-parent household, having that time just isn’t going to happen. However, your busy schedule shouldn’t mean you don’t get to have good credit.
True Credit Repair Costs
Most companies charge an initial investigation fee and a monthly fee starting on the low end at around $80 bucks per month.
These rates can be higher and according to our study:
- 38% of respondents who worked with a credit repair company for at least 6 months spent over $750.
- 32% of all respondents spent over $750 on credit repair services. Of those, 48% reported a credit score gain of 100 points or more.
This means that if you want to hire a good credit repair company, it isn’t going to be cheap, and it isn’t going to happen overnight. You should be ready to spend at least $100 or more per month for at least a year to see real results.
It’s also a great idea to go into credit repair with as much self-knowledge as possible so you can understand a bit about what is happening to your report.
Can I Repair My Own Credit?
Absolutely! But bear in mind that the entire process could take months and would involve getting in contact with several creditors individually.
It can also be a complex and confusing process, so seeking the help of a professional may ensure a more thorough clean-up of your credit report and better results.
Be Careful! Make sure you are very well prepared before you start doing any outreach to a creditor you owe.
How to Increase Your Credit Score on Your Own
However, if you can’t afford a credit repair company or think you can do a better job, there are several ways to increase your credit score:
The first thing you need to do when dealing with fixing your own credit is to dispute everything on your report. This is critical when you are trying to fix your credit since it’s going to make your lenders have to re-verify your information. It can help with fixing errors like incorrect balance amounts or getting items removed from your credit overall. You can dispute online or through the mail.
Pay Your Bills On Time
If you have been missing any payments… STOP, because on-time payments are a massive part of your credit score. It’s essential that you start making on-time payments and not miss any other payments.
Lower Your Credit Utilization
It would help if you lower your overall credit utilization, this will mean paying down credit card debt so that your credit utilization decreases. You want to keep this under 30% if you can, and if you are under 30%, you should have a goal to get it under 15%.
Clear Any Collections
If you have a collection you need to clear it with the Pay For Deletion method, under no circumstances should you pay for a collection if it isn’t going to be deleted from your credit profile. There are cases where the Original Creditor will not remove the collection; in this case, you have no choice, but a Collection Agency will do everything they can to get the debt paid.
Increase Available Credit
Finally, you should get new accounts, or make a few credit limit increase requests to increase your available credit. This is important because it gives you more room to keep your credit utilization low. If you do these tasks and don’t rush anything, you will absolutely see an increase in your score over time. But remember, a credit repair company would be able to handle all of those items for you (outside of paying your bills on time… you need to do that).
If you have bad credit, then it might be time for you to get your credit repaired, there is no reason to wait when it comes to having better credit.
Just keep in mind that it is going to take time to fix your credit regardless of the strategy you choose.
Hiring a credit repair service doesn’t mean instant credit improvement.
Overall, from our research, it looks like, based on your situation, the right credit repair company can increase your score by up to 100 points.
It might cost you a small to a medium-sized monthly fee, but bad credit can cost you an unlimited amount of opportunities.