Finance Question #17: Is it worth it to pay a credit repair company to fix my credit?
At some point in your life, you have probably heard the words credit repair. According to CNBC, a staggering 68% of Americans commit at least one major financial misstep before turning 30, which can then haunt you for years. If you have ever committed a serious financial misstep you have probably wondered if a credit repair company can help, but what do credit repair companies do exactly? Let's dive in to take a look...
The Process
Generally, credit repair companies go through the process of disputing errors on your credit report, and or negotiating payment arrangements with collection agencies. Resources are available for you to go online to file a formal dispute about a potential error on your credit report, in addition to uploading any documentation you may have. Credit bureaus have 30 days to respond to your dispute from the date of your submission otherwise, they are required to remove the disputed error from your credit report. Credit bureaus are also required to provide you with a detailed report of their findings in regard to the dispute.
Many people either do not want to take the time to dispute the errors themselves, or they may not know how to make a strong case for themselves. Oftentimes this results in seeking the services of a credit repair company.
How credit repair companies are compensated
There are various ways in which credit repair companies are compensated, and some of the most common methods are listed below.
- Subscription-based: On average, you will be charged $50-$100 per month.
- Flat Fee: A credit counselor conducts an assessment of your overall situation and then charges one flat fee to fix everything.
- Pay-per-deletion: As the name implies, the credit card company charges a fee per negative item that is successfully deleted from your credit report.
- Do-it-yourself programs: A typical charge of $200-$400 to gain access to an online training program that claims to teach you all that you need to know to fix your credit yourself.
Is it worth the money?
To be frank, most of these companies are not doing much more than you can do on your own, but many people are drawn to these services because they feel intimidated to resolve these issues on their own. I have had many conversations about this topic with my associates, and I have come to find out that in most cases once they begin to pull back the onion they quickly realize that their situation is not nearly as intimidating as they thought it was. Keep in mind that what these companies do is very straight forward. They help repair your credit so that you can re-position yourself to borrow more money.
To put it simply, credit card companies capitalize on your FEAR of attacking your credit issues on your own. Is it worth the money...or should you face your fear by attacking your credit issues on your own, and then use the extra money to put towards the debts that you would have otherwise used to pay for credit repair services?
What are your thoughts?
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Disclaimer: Hudson Wealth Management, LLC (HWM) is a FINRA registered investment adviser firm. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and HWM's fee schedule. The information provided herein is for illustrative purposes only and does not constitute personalized investment advice, recommendations or solicitations to hold, buy or sell any investment or security of any kind. All images and return figures shown are for illustrative purposes only and are not actual customer or model returns. Past performance does not guarantee future results.
Prior articles in this series
MONEY QUESTION #1 - Do you live for today, or live for tomorrow?
MONEY QUESTION #2 - Should I "loan" money to friends and family when they are in need?
MONEY QUESTION #3 - Did grade school (K-12) teach you anything about money?
MONEY QUESTION #4 - Why do I need an emergency fund?
MONEY QUESTION #6 - What is the difference between financial security & financial freedom?
MONEY QUESTION #7 - How can I improve my chances of getting a credit limit increase?
MONEY QUESTION #8 - How much emergency money is needed?
MONEY QUESTION #9 - When Should I Start Saving for Retirement?
MONEY QUESTION #11 - How do I get paid what I am worth?
MONEY QUESTION #12 - I want to buy a house, now what?
MONEY QUESTION #13 - Should I pay off my highest interest debt, or my smallest debt first?
MONEY QUESTION #14 - Should I pay off all my debts before I begin investing?
MONEY QUESTION #15 - Should I cosign on a loan to help someone?
Managing Principal at Hudson Wealth Management
7 年Thanks for the input Derek! Your perspective combined with your experience in the collections industry helps to further emphasize the benefit of doing it yourself.
Collections Manager
7 年I would recommend doing it on your own. Working in the collection industry, I will see all different types of companies they all do the same. All they do is TALK to us, The same thing anyone can do. 90% of the time they ask for payment arrangements or if they can settle the account for less then owed. The end result is the same. Depending on which route you go will cost you more than they other. You just have to make the first step and you will be on your way.
Managing Principal at Hudson Wealth Management
7 年Mark I completely agree with you on the basic principles you have shared regarding the use of credit. But what if you are someone who has already gotten themselves into a financial mess? What if you are someone who cannot afford to make payments a month in advance because your credit is already in need of repair? Yes, using a credit card for only what you can pay off every month is great advice, but what if the damage has already been done...then what? This brings us back to the main question; How do you repair damaged credit? And in doing so should you do it yourself, or seek the services of a credit repair company?
President at Petsche Decorating Inc
7 年Credit is actually very simple. Live within your means. Pay your loan payments at least a month ahead and try to pay the loans off early. Use a credit card for only what you can pay off every month. If you do these simple things your credit will be much better in a year. Unstoppable in the future!
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7 年Credit starts as virus then becmes an epidemic and ends as pandemic