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The Pros and Cons of Paying Someone To Fix Your Credit

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utah778 / Getty Images/iStockphoto

utah778 / Getty Images/iStockphoto

Having a poor credit score can be a major hindrance when you are trying to open a new line of credit, whether it be a new credit card, car loan or mortgage. If you’re in this boat, it’s likely you want to improve your credit score ASAP to be able to move on with your financial life. Credit repair services promise to do just that — but there are costs associated with these services, so they may or may not be worth it for you to use. To help you determine if you should consider using a credit repair service, take a look at some of the pros and cons.

Read More: 30 Things You Do That Can Mess Up Your Credit Score

Pros of Using a Credit Repair Service

Here are some of the reasons why using a credit repair service may be right for you.

1. It’s easier and quicker than trying to repair your credit on your own.

“Companies that specialize in credit repair save you the time and hassle of trying to do it yourself,” said consumer and money-saving expert Andrea Woroch. “They have stronger negotiating power and work with your creditors to consolidate and reduce your outstanding debt.”

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Credit repair services may be able to boost your score more quickly than you would be able to do on your own, which could save you money in the long-term.

“While you may end up paying around $100 per month for credit counseling services, they can sometimes end up paying for themselves — and then some,” said Tony Wahl, director of operations at Credit Sesame. “In some cases, credit repair services can help repair your credit faster, which means that you can start benefiting from having a better credit score sooner. This can include lower interest rates, which can help save you even more money in the long run.”

2. A credit repair service will show you exactly what’s causing your credit issues, which can be helpful if you’re unsure why your score is low.

“These services can help you figure out what exactly is wrong with your credit, even if they can’t fix them,” said Jack Cunningham, founder of the personal finance blog Nickel & Dime Decade.

Paying in Full vs. Partial Payments: Which Is Best for Your Credit Score?

They can also help you understand what needs to be done to improve your score.

“If you’re unsure where to start, credit repair services are a great resource and can provide you with a personalized plan,” Wahl said.

3. It may the push you need to improve your credit if it’s a process you’ve been putting off.

“There’s nothing these companies will do that you can’t do yourself, but you also have to be willing to do it,” Woroch said. “If you don’t take steps — and haven’t taken steps thus far — hiring a professional and paying some fees may be worth it to finally repair your past credit mistakes.”

Cons of Using a Credit Repair Service

For some people, the cons of using a credit repair service may outweigh the pros. Here’s a look at the drawbacks of hiring someone to fix your credit.

1. These services sometimes charge high fees.

If you’re already struggling with your finances, hiring a credit repair service may just add to your already existing debt.

“Many people can’t afford the $70 a month or more that these services cost,” Cunningham said.

2. It’s not an instant fix.

“Some credit issues that are years in the making take years to fix,” Cunningham said. “These take work on your behalf, and credit repair companies can’t instantly fix these issues.”

3. Some ‘credit repair services’ are scams.

“Before making the decision to hire a credit repair service, be sure to verify that the agency you’re working with is reputable,” Wahl said. “Most legitimate agencies are nonprofits and members of either the National Foundation for Credit Counseling or the Financial Counseling Association of America, so be sure to check for the appropriate accreditation or certification. It’s also worth noting that ‘nonprofit’ doesn’t always mean ‘free,’ so be sure to do your research before making a decision to find what’s best for you.”

4. You can fix your own credit for free.

“It is important to know that you can work to repair your credit on your own with the same tools that a credit repair agency would use,” Wahl said.

Find Out: 90-Second Moves To Raise Your Credit Score 200 Points

Allyson Dennen, an accredited financial counselor and CEO of Fab Life Now, advises against using credit repair agencies. Instead, she said to be vigilant about monitoring your own credit and report issues yourself.

“Check each report one time per year at annualcreditreport.com and then dispute any mistakes or issues you see,” Dennen said. “All consumers can easily dispute items on their credit directly with each of the three credit bureaus. To make it even easier, once you dispute an item and the bureau finds it is in fact a mistake or needs to be removed, they have the legal obligation to report this change to the other two bureaus on your behalf.”

Did You Know: Will Opening a Checking Account Hurt Your Credit Score?

Even if there are no mistakes on your report, there are other steps you can take on your own to improve your credit score that don’t require professional help.

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This article originally appeared on GOBankingRates.com: The Pros and Cons of Paying Someone To Fix Your Credit

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Ask Gareth Shaw: ‘I’m scared I’ll get rejected for credit card because of mistakes I made in the past’

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‘Credit-builder’ cards can be used to demonstrate that you are a responsible borrower

Answer: Well done to you for getting back on your financial feet. Climbing your way out of debt is a marathon – it takes sacrifices and planning, so you’ve taken some really important steps in your financial journey.

The good news is that the negative information – the records of missed payments, defaults and even county court judgments – won’t stay on your credit report forever. Details of your late payments can be viewed for six years after they were settled. Searches and rejections of credit typically disappear after 12 months. So this dark cloud won’t hang over you forever.

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Before we talk about applying for credit again, there are steps you can take to improve your credit health. Firstly, you should review your credit reports and make sure there are no errors that could be holding your score back. You can get your credit report for free from each of the three credit reference agencies – TransUnion, Equifax and Experian – and can ask them to investigate errors. Lenders and credit reference agencies have 28 days to respond to disputes.

Registering to vote by getting on the electoral roll can boost your credit score, while you may even be able to add the record of your monthly rent payments to your credit score by asking your landlord to report rental payments to firms like The Rental Exchange, CreditLadder or Canopy.

Experian has launched a new tool that allows you to share information about your banking habits and subscriptions – information which is not traditionally factored into your credit score – in order to increase your score. That means paying your council tax or even paying for Netflix and Amazon Prime could give your score a boost.

If you still want a credit card, your choice is likely to be limited to a particular set of cards designed for people with poor or ‘thin’ credit histories. These are known as ‘credit-builder’ cards, or sometimes ‘bad credit’ cards.

These cards have higher interest rates compared to the most competitive products in the market, to reflect the risk that a lender is taking in by providing credit to someone with a history of repayment problems. You can expect to find an APR of around 29 per cent. They also have lower limits, so when you apply, don’t be surprised to find that the lender will initially only give you £250 to £500.

However, these cards can be used to demonstrate that you are a responsible borrower, can repay on time and stay within your credit limit.

Here’s the golden rule – avoid borrowing money on these credit cards. Purchases tend to be interest-free for 55 days, after which you’ll be charged a considerable amount of interest. So limit the use of these cards, and when you do use them, try to pay them off in full. If you don’t pay on time, you will lose any promotional offer, be hit with a fee and your provider will report your missed payment to the credit reference agencies, reversing any good work you might have done. Set up a direct debit to ensure that your minimum payments are met in advance of the credit card payment date.

When you apply, use an eligibility checker first. This will ask for some basic information and carry out a ‘soft search’ on your credit file, returning a list of cards and the probability of your application being successful. That would be a helpful guide to find a card that is likely to accept you.

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