August 14, 2022

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Credit repair companies are some of the most sought-after services in America. But do they...

Credit repair companies are some of the most sought-after services in America. But do they work? The answer is yes, but not as well as people think. Unfortunately, they can actually make your situation worse if you’re not careful. This article will go over the pros and cons of credit repair services to help you decide for yourself whether or not to use them.

What is a Credit Repair Service?

Credit repair services are companies that offer to help you improve your credit score. They typically charge a monthly fee for this service, and some even guarantee they can repair your credit in six months or less.

Typically, your repair specialist will review your current debt situation and suggest a few options based on your goals. They’ll most likely discuss the differences between debt consolidation loans versus credit card refinancing as these are popular ways they might work to repair your credit.

Some services will get your authorization to work directly with your lenders to set up a new payment plan for your outstanding debt, while others will work alongside you and expect you to be the primary contact for your lenders.

When should I use credit repair services?

Credit repair services are good for those who:

  • Want something done quickly about their debt situation
  • Want someone else to manage their debt
  • Needs a quick boost to their credit score
  • Have the ability to pay a monthly service fee
  • Don’t understand how they got into this situation and need guidance
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When shouldn’t I use credit repair services?

While credit repair services do a lot of good for those who can afford it, there are some things you need to consider before reaching out for help:

  1. Some banks or lenders will only work with the account holder – No lender is legally required to work with debt consolidation or credit repair services even if they’re speaking on your behalf.
  2. The fees can be high – You should expect to spend anywhere from $75 – $150 or more per month just for their help.
  3. There are many credit repair scam companies out there – If you don’t have time to vet the service you’re going to use thoroughly, don’t sign up. Most legitimate companies are registered with either the Financial Counseling Association of America or the National Foundation for Credit Counseling so check their registries to ensure your potential company is listed. If they’re not, ask for references or why they’ve chosen not to be a member of either registry.
  4. You don’t need a paid service to fix your credit – You can get yourself out of debt for free without needing a third party. Not only could you save hundreds of dollars a year in both service fees and interest, but you might be able to cut down the timeline for becoming debt-free just as quickly as a paid service could. Look into popular strategies like the snowball or avalanche method and contact your creditors to see if a new payment plan can be set up to resolve your outstanding debt.
  5. You’re not serious about getting out of debt – No credit repair service can fix your spending habits, so if you’re unable to commit to changing the way you spend money, you’ll just end up back where you started.
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The bottom line

Having bad credit can affect your ability to borrow money, even for essential things like buying a car or a house. Credit repair services can be helpful if you’re choosing between bankruptcy and debt consolidation, but they won’t be effective if you’re behind on payments or are unwilling to commit to getting out of debt. If you’re unsure whether or not you need to use a credit repair service, it’s best to try fixing your credit first and bringing in professional help only when you’re in over your head.