Financial health is an important aspect of overall wellness. Struggling with financial management can cause chronic stress, damage relationships, and negatively impact one’s quality of life.
One of the side effects of challenging financial situations is the impact on one’s credit score. As people strive to become more financially stable, they’ll often enlist credit repair companies.
So, how do credit repair companies work? Here’s what you need to know about credit repair companies, including what they do and the pros and cons of using them.
What Do Credit Repair Companies Do?
In essence, a credit repair company reviews your full credit report, highlights negative items impacting your credit score, and works to remove them. For example, if you have a collections item that’s past the statute of limitations, it should no longer be on your credit report or impacting your score. A credit repair company would reach out to the creditor to highlight the issue and have it removed.
The dispute process is inherently arduous, as consumer debt is a profitable business. As such, communications have to occur via traditional mail, and clear knowledge of the legalities and consumer rights is a must. While the credit repair process is something people can navigate themselves, time commitment and accuracy are a factor. Many people who navigate the credit repair process themselves try to learn how to start a credit repair business to share their newfound skill set with others.
Some credit repair companies also take a financial education approach and help clients create long-term credit improvement and financial management strategies.
Why Do People Use Credit Repair Companies?
As mentioned before, the credit repair and dispute process is something people can learn to manage themselves. Why, then, do so many people work with a credit repair company?
The main benefit is that credit repair experts know how to get in contact with creditors, what to say, and how to support their arguments based on legislation. As there’s often a lot of back and forth throughout the credit repair process, hiring someone avoids costly delays.
Consumers often look into credit repair services after filing for bankruptcy or when trying to improve their score to secure a loan. Home loans require a baseline credit score for approval, making a targeted approach to credit repair essential for homeownership.
Pros and Cons of Credit Repair Companies
In addition to having an expert on the case, using a credit repair company can boost your credit score in a few months. The alternative is waiting seven to ten years for the statute of limitations to hit negative items. Credit repair experts are also skilled at finding fraudulent items and making complaints to the right regulatory bodies.
Unfortunately, there are some disadvantages as well. A credit repair company can’t remove anything that’s legitimately listed on your credit report. They may be able to negotiate a payoff deal for older collections items, but generally, they can only remove things that are incorrect in some way.
It’s also important to note that you’ll be spending money to use this service. Protect yourself by researching credit repair companies and working with reputable, experienced businesses. Take some time to understand the regulations surrounding credit repair companies. For example, they aren’t allowed to charge you before services have been rendered— many companies offer a free consultation because of this rule. If they want to charge you upfront, run in the other direction.
Working with a credit repair company can be incredibly beneficial if you want to improve your credit score quickly. However, it’s essential to understand what you’re paying for and know how to protect your personal information.
Are You Ready to Work with a Credit Repair Company?
Working with a credit repair company won’t necessarily help you avoid making the same mistakes in the future, so take some time to improve your financial literacy and focus on long-term improvements too.