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Why Did Wells Fargo Shut Down Personal Lines of Credit?

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Wells Fargo (NYSE:WFC) recently decided to stop offering personal lines of credit. Why did the bank make this move, and is it unfair to customers? Plus, special-purpose acquisition companies (SPACs) are back in the news after Virgin Galactic‘s (NYSE:SPCE) successful flight with founder Richard Branson. Plus, Industry Focus: Financials host Jason Moser and Fool.com contributor Matt Frankel discuss what they’ll be watching as banks report their earnings later this week. 

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on July 12, 2021.

Jason Moser: It’s Monday, July 12. I’m your host, Jason Moser, and on this week’s financial show, Wells Fargo is making some changes to its credit offerings. We’ll take a look at SPACs and what separates the good from the not-so-good, and we’ve got an Earnings-palooza preview for you. Joining me as always this week, it’s Certified Financial Planner, and hey, he’s all around tan, he’s got a pool, he’s feeling good about this summer. It’s Mr. Matt Frankel. Matt, how’s everything going?

Matt Frankel: Just great. It is 90 degrees and sunny out here. I’m talking to you guys, but I’m probably going to hop in the pool afterwards.

Moser: Well, just, here’s an idea, maybe next week or the week after, maybe we do a pool show. You go to your backyard for your pool, I’ll jump over to our neighborhood club pool here, and we’ll have the splashing of the water in the background. It’ll create some nice ambient noise there. Maybe let’s talk about that after we get done taping.

Frankel: All right. 

Moser: Matt, last week, there was an interesting headline out there regarding Wells Fargo that we talked a little bit about among some of us on the team here, and you and I were taking this around. Wells Fargo notified customers that it’s closing down all personal lines of credit. Now, to me, there are a number of different ways you can look at this. Having worked in the banking industry myself, I understand the perspective. I understand where they’re coming from, because it seems like they’re saying, “Well, we feel like we can put our customers into a better product, a more appropriate product, whether it’s some type of credit card offering or whatever.” But to me, the risk here is in the messaging. So far, to me, it feels like they’re failing. But now, let’s talk about this. Go over a little bit, what exactly is going on here with Wells Fargo?

Frankel: Well, they’re doing a terrible job of selling it to customers and the media, I’ll tell you that much. They got Elizabeth Warren all riled up again.

Moser: Yeah. Well, that’s not too tough to do, though.

Frankel: Not for Wells Fargo. The CEO walks in with their shoes untied. She’ll call him out on it. I love watching Elizabeth Warren, by the way. She keeps the banks on their toes.

Moser: She does.

Frankel: She’s definitely a necessary part of the system.

Moser: Yeah. Checks and balances.

Frankel: They’re getting rid of these personal lines of credit, which is a unique product. Most times, when you get an unsecured loan, it’s usually in one of two forms. You either get a credit card, which is essentially a personal line of credit, or you get a personal loan, which has a fixed balance, fixed monthly payment, things like that. This is kind of a strange product. You have to stop and think, why would a bank get rid of any product? Is it unpopular? Were they just not getting enough people signing up for it? Was it inefficient to have? Meaning, like they said, that we could better serve our customers with other products. Is it just draining resources? Is it losing money, meaning are they doing a bad job of underwriting it and seeing a high level of defaults? We don’t know the exact reasons. 

They say it has nothing to do with the Fed’s growth cap, because that was my first reaction. Remember they’re not allowed to grow right now. My reaction was they were getting rid of that to be able to add more profitable loans to their books. But they said that’s not the reason. It looks like it’s a good business move. They’re essentially consolidating the types of loans they offer. Because there’s nothing you can do with a personal line of credit that you can’t do with a good credit card, or that you can’t do with a personal loan. Right now, remember, loans declined at banks year over year, over the past year. Savings rates are up; people are taking up fewer loans. They could just be seeing lower balances and are consolidating products. Also remember that, maybe not now because Jason’s house is a construction zone, but our home values are through the roof over the past year.

Moser: They are.

Frankel: People have home equity to borrow against, which is a much more efficient way of borrowing money than getting a personal line of credit. Right now if I wanted to get a personal line of credit, I would pay 7% or 8% interest most likely. If I were to borrow money against the equity in my house, I would pay 3%. Why would people use these personal lines of credit if they can borrow other ways? I’m sensing it’s a demand and an allocation-of-resources issue here. But they messed up when they said this could lower consumers’ credit scores. Yes, that’s true.

Moser: Yeah. 

Frankel: But they really didn’t sell it very well.

Moser: No, they didn’t. I think that to me was what could potentially grind someone’s gears, so to speak. Through no fault of your own, they’re saying, “Hey, your credit score might be dinged because of this action, and, well, there’s just not much we’re going to be able to do about it.” To me, that’s just obviously not very customer-centric. It’s not customer-centric at all, the way they messaged that, and maybe they’re going to backtrack and try to figure out a way to rectify that situation, because, to me, honestly, this is something where the consumer should not be held accountable here. This is no fault of their own, particularly if they’re ultimately going into some other type of lending product.

Because, like you said, I did a little bit of digging here just to get a better idea as to how important this was to the business. If you look through their 10-K, the personal lending division, this little chunk of the business, the personal-lending portion of the business represented $594 million in revenue in 2020 for the bank. That was, like you said, loan is declining; that was down from $652 million in 2019. Now this is in the context of a bank that brought in just a little over $58 billion in revenue in 2020. It is insignificant, really.

To your point, maybe it’s just, hey, getting rid of excess risk or products that they don’t need to manage, because they can put people into better products, I get that, absolutely. But when you message it the way they’ve messaged it, it really just leaves a bad taste in your mouth.

Frankel: Well, it’s not the consumers’ fault, and it’s not necessarily Wells Fargo’s fault. I think Elizabeth Warren is actually mad at the wrong people. It’s the credit bureaus’ fault, or the credit scoring. It’s FICA’s fault, specifically. That shouldn’t affect it. There should be some provision, let’s say, if your bank closes, if they shut down a product, like you see right now. If something happens through no fault of the consumer, there should be some provision in the credit scoring formula that ensures that that customer is not affected. Because it’s not their fault. It’s not necessarily the bank’s fault. You can’t fault the bank for making a good business decision.

Moser: Yeah. I agree.

Frankel: It’s not necessarily their fault, but because of the way the credit scoring formula is set up, this can affect consumers in two ways. One, the second biggest category of your credit score is the amounts you owe. That generally means the amount you owe relative to the amount of available credit. Now, you said some of these consumers were getting rid of $10,000, $20,000, $30,000 of your available credits. All of a sudden, the utilization rate shoots up without adding effects of their own, and their score gets dinged. On the other hand, if they’ve had these accounts for a while, there’s another credit score category that makes up the 15% year score called length of credit history. If you get rid of that, especially if it’s one of the consumer’s older accounts, it can really hurt. You’ve probably heard before you’re not supposed to close your oldest credit cards.

Moser: I have, yeah.

Frankel: Same idea there, because it reduces the age of your average account, which can also adversely affect your score. So it can, but it’s not necessarily for anything Wells Fargo is doing. It’s really because of how the credit scoring systems are set up. I feel like Wells Fargo should try to work with the FICO people to make sure it doesn’t. I just feel like you’re not going about it the wrong way, but I don’t necessarily think it’s their fault.

Moser: Yeah. Well, I think that what you’ve just said here, frankly, Matt, maybe you need to be working with their investor relations department or something, because all they had to do was basically message it the way you just said it and say, listen, this is something that, based on this set of rules, could impact your credit score. However, we’re going to work with the appropriate agencies to make sure that it doesn’t. It’s basically saying here’s a set of rules that everybody has been playing by here; we need to go back and change the rules. There needs to be some amendment there that helps protect the consumer in a situation like this. Maybe that’s ultimately what will happen here. Again, it just goes back to their messaging from the very get-go here has just been not so great.

Frankel: Yeah. I call out Elizabeth Warren because she’s head of the Senate Banking Committee, so that’s why she gets —

Moser: Right. Great idea, yeah.

Frankel: I would rather see her put more pressure on FICO, the Fair Isaac Corporation, to make the credit scoring model more fair. Because when you think about it, there are a lot of businesses springing up based on the premise that the credit scoring system is not there. That’s the whole point of upstart business, and they’re doing really well with it, and it’s because the credit scoring methodology is somewhat flawed. I think they are pressuring the wrong people. It’s wrong to pressure Wells Fargo to keep failing products on their books.

It’s also wrong to fault the consumers when a bank shuts down or when a bank discontinues a product. If one of my credit card issuers decides to cancel one of my credit cards for no reason, which they have the right to do, during the financial crisis they were canceling consumers’ credit cards left and right through no fault of their own to reduce risk. There should be some provision in the rules that that doesn’t affect your credit score, that it’s considered for scoring purposes, like you’ve maintained that credit line in good standing because you did. I would like to see that. I wish you would let me talk to her about who she needs to put pressure on. I don’t know if she’s a fan of our show or not.

Moser: Well, we can only hope. Matt, we talked a decent bit about SPACs on this show. We even ran a four-part series on SPACs earlier this year. I had a lot of fun putting those shows together. You and I were talking about an article we just read here on CNBC in regard to SPACs. There was some interesting data from Wolfe Research in this article. It was talking about the performance of SPACs. I think it’s basically about one year here. But this data from Wolfe Research says that on average, SPACs with experienced sponsors record greater returns, since by sponsors, that’s the blank-check company that’s bringing the actual business into its universe, to bring it public.

We want to talk about this for a minute, just from the bigger-picture perspective of SPACs and what do you think about this data, what do you think it says. Then also talk a little bit more, as there’s a specific SPAC out there that’s been in the news here over the past couple of days, Virgin Galactic, for obvious reasons, successfully flying there into space. But let’s go ahead and start with just the bigger-picture implications here. Because it doesn’t sound all that surprising, but by the same token, it does feel like this is still a very short timeline on which to be judged.

Frankel: It is, and I think the point that they are trying to make is that the market was flooded with SPACs. I have some stats right here. In 2018, there were 46 SPACs that went public, in 2019 there were 59. In 2020 there were 248.

Moser: Holy cow.

Frankel: In 2021 already, there were 367.

Moser: Wow.

Frankel: The market was flooded with these. It used to be that when you were a SPAC sponsor, it’s because you knew something about the business or the industry you were trying to go after. Now it’s like everybody with any credibility was starting a SPAC. Shaquille O’Neal had his own SPAC.

Moser: I was going to say, it doesn’t even feel like you really need that credibility. You just have to have some name.

Frankel: Maybe he was trying to take the Los Angeles Lakers public. I really don’t know how his experience would come into play.

Moser: Or Papa John’s, maybe. I could see at least some pizza place because he sits on the board of Papa John’s, I think, still.

Frankel: He owns a lot of Five Guys.

Moser: That’s pretty good.

Frankel: But I love Shaq, so nothing against Shaq.

Moser: Yeah. Me, too.

Frankel: But the point being, and that’s really one of the things I look for, everyone always says, how do you pick out all of these SPACs, from the 400 of them? How do you decide the three to put in your portfolio? That’s one of the things I look at. Remember Latch? We had it on the show. They will take it public by TSI Innovation Acquisitions, sponsored by Tishman Speyer, one of the biggest commercial real estate firms in the country. That’s clearly a sponsor that knows a lot about that industry. That’s a good partner.

SPACs, the partnership aspect, is really undervalued. The celebrity aspect of it is getting way too much attention, and the partnership aspect is getting too little. Think of the Motley Fool investing strategy, how we want businesses that are partners. We want businesses where the CEO is a partner to their shareholders. When I got hired here, they told me that we would rather have a great partner than a great writer. It’s such a valuable part of business in general, and it’s become undervalued in the whole SPAC craze just because of all the big-name people throwing their names and not even like the, like the Bill Ackmans, Chamath.

Chamath worked at Facebook. Did he ever start a space travel company? No. That one’s done well, but that’s the exception, not the rule, according to this research. There are a lot of successful SPACs that were partnered with people who knew that industry really well. I mentioned Latch as a great example. 23andMe. We can argue that Richard Branson has a lot of experience with consumer branding and things like that. I don’t think he’s done any genetics research himself, but that’s not really the point. It’s a consumer products company at this point.

Moser: Yeah.

Frankel: There are some of the more successful SPAC IPOs. I’m trying to think of a good example from a year ago that was before the big SPAC craze.

Moser: Yeah. Well, let’s talk a minute, then, about the SPAC that I think is on everybody’s radar right now. It was really interesting to see the change in reception here from the morning to now. Because we know, of course, over the weekend, that Richard Branson was able to successfully make his way to the edge of space there with that Virgin Galactic flight. As a space guy, I really enjoy thinking about all that stuff. I thought that was just awesome, I love to see that stuff. I just think it’s cool. I love to think about it. I think as an investor, you have to take a much bigger-picture view there, and think about how this may impact our world over the course of the next decade and beyond. When you look at Virgin Galactic at its very core, this is a space tourism company, first and foremost. This is a business that is essentially pre-revenue. The market is valuing this company at somewhere in the neighborhood of $10 billion.

Frankel: It is $10.1.

Moser: Phenomenal. They have around 600 reservations for tickets on future flights. Those prices range anywhere between $200,000 and $250,000 each. You do the math there and you get something in the neighborhood of $135 million based on that right there.

Now, clearly, over the course of the coming five, 10 years beyond, this is not something that is going to be for the masses, because the masses can’t afford it. This is going to be something for people that can afford it and that have the intestinal fortitude to actually go through with it. I think there are a lot of people that probably say they would like to do it, but when it gets right down to it, maybe they’re going to take a pass because they want to feel a little bit more safe before they actually go through with it.

But my point ultimately is, after we saw this headline break later on in the day, where Virgin Galactic is doing another offering, they’re going to sell $500 million of shares. And hey, I don’t begrudge them that. I think it’s a great move. You got to take advantage when your stock price is feeling the love like theirs is. But to me, this is a SPAC that, while it feels like there’s a lot of potential there, it’s also really hard to see in the near term how big can this company really get from a revenue perspective, just based on what they’re doing right now in selling those tickets to go out for a 15-, 20-minute ride up to space? But it’s also going to be about what they learn and develop along the way with making all of these investments and building out their capabilities.

Frankel: You really hit the nail on the head, that it’s pre-revenue. Yes. Great achievement. Richard Branson got to go into space, his very successful flight, no hitches. When the spacecraft touched down, they said it looked flawless. Excellent achievement. He didn’t pay for his ticket. This is still a pre-revenue company. There are ways out from realizing any of that revenue, which you said, I think $135 million or so of booked revenue? That means they’re trading for almost 100 times the revenue that they will eventually get. Not even like price to sales. That’s revenue that they’ll eventually be going to get. At some point, it will become more affordable. They’re going to have to convince people to actually take these flights. Yeah. Affordability or not, I’m not doing it.

Moser: Well. I mean, that’s a good point. I think you asked people whether they would do it, and I think most people are going to have an immediate answer, like, “Hell, yeah, I’d love to do it.” or, “No way, there is not enough money in the world, and I’m not going to do it.” It’s funny because, honestly, Matt, I would do it. To me, that would be the coolest fun park ride in the world. I feel like I would be OK taking that risk. Now, with that said, I don’t have $200,000 to plunge down on this thing. I’m going to have to take a pass for now, too. You’ve got two hurdles to clear. You need people to say yes and actually follow through with it, and you need people who can actually afford it.

Frankel: Well, I’ll do it after a few years of successful flights. I’m not going to be on flight No. 3.

Moser: You don’t want to be the guinea pig. I appreciate that. I don’t think many of us do.

Frankel: I mean, I’m not Richard. He’s an adventurer at heart. I mean, always has been. We’ve seen pictures of him, I think, bungee-jumping and stuff like that. That’s not me. I don’t know if that’s you or not, but that’s not me.

Moser: I mean, I’ve never been bungee-jumping, never been parachuting. But it’s not for a lack of thinking it would be fun to do. I guess it’s just that our paths never cross, so it just never happened. But I don’t know, to me, space is just something I’ve always thought about as a kid and just all of those different possibilities. I think that as time goes on, we’re going to see more and more people who are going to, I think, take interest in it, but there’s no question those costs have to come down, when you look at the way that Virgin Galactic is being valued today. But there’s just an awful lot of success and growth being priced into that business today. It’s a little bit hard, I think, even for the most optimistic investor out there to fully be able to stand.

Frankel: I think it’s going to take a decade before they even justify the current valuation with their revenue. I look at Virgin Galactic as a company that could be a home run when my kids are 50 years old. It could be the ultimate long-term play.

I mean, right now, they’ve got the first-mover advantage. They have the know-how; they have the publicity; they have great PR. I mean, that company has fantastic PR. They have a greater ability to raise capital better than any other space tourism company I know, with the exception of Blue Origin, because Jeff Bezos is funding it. Great access to the public markets. I could see that being a home run when I’m old.

I’m a long-termer. We’ve talked about this before, but there has to be some point where I see a path to profitability. Right now, they could be profitable in 10 years. They could be profitable in 20 years. It could take longer than that. It’s really just up in the air. Not taking away anything from him. I think that’s a fantastic achievement. It’s been, I think, if Branson founded it, what, 17 years ago, something like that? It’s been a long time in the making. Congratulations to the Virgin Galactic team. I’m not going to be getting on your spacecraft anytime soon. Jason might. What do they call it? The Fool’s Errand, when you get a vacation. I think they should pay for you to go up to space, but I’m not doing it.

Moser: I feel like, given my druthers, I would probably choose Blue Origin over Virgin Galactic, because I think Blue Origin takes you actually further into space.

Frankel: You really want to go for it.

Moser: Oh, yeah.

Frankel: If you’re going to do it, why don’t you wait till they go to Mars?

Moser: Go big or go home. That’s what I say.

Matt, it is Earnings-palooza week. Earnings season is kicking off here over the coming few days here. As always, earnings season kicks off with the biggest of the big banks reporting. We’ve got JPMorgan and Golden Slacks — I think some people like to call it Goldman Sachs — on Tuesday. We got Bank of America, Citi, Wells Fargo, and once again Morgan Stanley on Thursday. I mean, we’ve got a big week ahead of us here with a lot of earnings reports. This is an interesting time for big banks, because it does feel like regulators are starting to take some of the pressure off, which means that these banks are getting a chance to put the pedal down a little bit. We wanted to see, instead of two to watch, we wanted to just go on with a little bit of an earnings season preview. It gives our listeners a chance to hear what you’ll be looking for from these big banks as they report throughout the week.

Frankel: Obviously, the ones I watch the closest are the three that I own. I own Goldman Sachs, Bank of America, and Wells Fargo out of that group. Bank of America is by far the biggest of the three in my portfolio. The dividends and buybacks mentioned were already in press releases a week or two ago, so that’s not a surprise. Remember, all 23 of the banks that were subject to the stress test passed them easily. The big rule change this year is now they don’t have to submit their capital plans for approval. Say, “Can we raise our dividend by 20%, and can we buy back $10 billion worth of stock?” Now they can just do it as long as they maintain a certain capital buffer. It gives banks a lot more leeway to return capital to shareholders as they see fit.

We already knew that’s happening. What I’m really curious about is, if you think of the first quarter of 2020 as when the nation fell into the COVID crisis, in 2020, January and February were pretty much normal months, and then March went crazy. The first quarter of last year really gave us a glimpse of what the pandemic was going to look like for banks. 

This quarter is going to give us a glimpse of what the recovery is going to look like. What I mean by that is, in April and March, the first few months of the quarter, there were still mask mandates everywhere, and there were capacity limitations. You couldn’t get a vaccine everywhere in April yet. April and May were pretty much still, I call them stay-at-home months. Offsets hadn’t really been pretty much anywhere at that point, and things like that. In June, it was when we really saw all of the regulations start to relax, when we really saw people start to move about the country again. That’s when you saw the TSA numbers coming out about how the most travelers since the pandemic started flying, and things to that effect. People are out spending money. That’s what Brian Moynihan, if you remember, said: Consumer spending was up 20% in Europe, the pre-pandemic levels. That happened in June.

We’re going to get a glimpse this year, not the whole quarter, but we’re going to get a glimpse of how the recovery is affecting banks. Are people borrowing money more? I’m expecting to see credit card balances starting to tick up a little bit.

Moser: I would think so, especially because at least it sounded like a lot of people were paying those credit card balances down over the last year. Because, I mean, we just weren’t spending our money really on much because we just didn’t have as many options, and so it did sound like at least those credit card balances were coming down.

Frankel: I’m not expecting loan balances to skyrocket. Like I said, most of this quarter was pretty locked down. Correct me if I’m wrong. I think at least one of the stimulus checks was in this past quarter. At least backing up to it. At least close to it.

Moser: That would make sense. I mean, there have been, I think, three rounds.

Frankel: There were three. I think the third one was somewhere in the second quarter, but I’m not positive on that. But employment’s really coming back up. We’re seeing wage growth really start to hit. I want to see how that’s translating into bank profits. I want to see what the delinquency numbers are looking like. I want to see, I guess, loan growth. I want to see what interest margins are looking like. I just want to see how the business is going, and management’s commentary on how things are shaping up now that the world’s really starting, not the world, the United States is really starting to return to normal.

I’m curious about Citi in particular, because they’re the most international. I just mentioned that the U.S. is returning to normal. Citi has a lot of international business, so they’re going to be the other one on the other side of that thing. Goldman, I’m really watching because they have — their investment-banking division benefited from the stay-at-home economy and the volatility in the market, which, the market really hasn’t been volatile lately. It’s been boring in a good way.

Moser: Yes.

Frankel: Boring markets usually go up.

Moser: Yeah, it feels like every day, you’re going to see things. It looks like things just continue to plod onward and upward.

Frankel: 2019 was the most boring stock market I can remember and it went up. Things went up by, like, 0.2% a day, it seemed like for the entire year.

Moser: Well, we’re halfway through the year and the stock market is something like 15% or 16% up at this point. The market’s up great, 15%, 16%. It doesn’t feel like it; it’s just a nice, slow, methodical progressive year.

Frankel: But there was a ton of volatility in the first quarter. Remember when all the tech stocks were plunging?

Moser: Oh, yeah.

Frankel: Because pretty much everyone at The Motley Fool has all the tech stocks, they think I’m weird because I have value stocks. I remember I was on the show with Tim Beyers and the market was up by 30%, but that was all the reopening stocks and he said, “Oh, my portfolio is all in the red because of all the tech stocks.” There was a lot of volatility, and the point being that investment banks benefit from that — trading revenues up, things like that. The SPAC boom mostly happened in the first quarter. Remember, me and you did a show on one day where, like, 20 new SPACs went public.

Moser: That’s right. I remember that.

Frankel: Investment banks got underwriting fees for that. I would call the second quarter a much more normal environment for investment banks. I’m expecting Goldman Sachs’ revenue to drop significantly. But I want to see how it’s affected them now that volatility is down, the SPAC craze is down a little bit. It’s a more normal environment. The flip side of that is their asset-management business should be firing on all cylinders. If the market goes up, their client balances go up. They’re already over $2 trillion. That translates to more fee income and stuff like that. A lot of really interesting moving parts to watch this quarter.

Moser: Yeah. Speaking of healthy balances, it was a couple of weeks back when I saw a passage from a recent Wayfair investor presentation on one of these conferences and the CEO of the business had noted that they saw pre-pandemic savings levels something like $800 billion, post-pandemic now in the $3 trillion range with all of the stimulus and everything that was going on, and basically equated to about four years’ worth of savings done in one year. You couple that along with credit card balances that have come down, it feels like there should be some consumer enthusiasm out there to spend. But yeah, we shall see.

Frankel: You see that happening with savings rates and loans during pretty much any uncertain period. The same thing happened in ’08, ’09. You saw savings rates before COVID, where the highest they’ve been in recent history was during the financial crisis. These people are worried about spending money, they want to save a little bit more. This time around, you’re seeing people not only save some of the stimulus money they’re getting, things like that. They didn’t have anything to spend money on, which wasn’t the case in ’08, ’09, you could still go out and spend money if you wanted to. People were still going to Disney World in 2008. That wasn’t the case in 2020. You’re also seeing a lot of people, I mentioned the refinancing thing, tap into the equity in their house. Home equity has gone up by about $2 trillion this year alone.

Moser: That’s amazing.

Frankel: That’s money that people can tap into. A lot of people don’t have anything specific in mind they want to do with it. They just see they can borrow $100,000 against their house at a 3% interest. How much longer am I going to be able to do that for? Might as well do it now and set it aside for when I have a project I want to do or something like that.

Moser: Yeah.

Frankel: That’s where a lot of the savings is coming from also.

Moser: Well, I think it feels like it, too. Maybe we’re seeing the drumbeat of inflation become louder, which makes perfect sense. But with that drumbeat comes the specter that we see interest rates on the way up. Ultimately, that could happen sooner rather than later. The timing is always a little bit squishy there. Yeah, that’s certainly something that can play on banks that I’ll be interested to hear of what they had any thoughts on the inflationary environment, and where they see that going. That’ll be another thing to pay attention to.

Frankel: Yeah. I’m curious about inflation too, because I have an unpopular opinion about that. I think it’s here to stay.

Moser: Oh, yeah. Really? I don’t know how unpopular that is, though. I think I agree with you. I was thinking about that the other day. To me, this doesn’t feel transitory, because you were just talking about a lot of great examples of the wealth that has been created here over the last couple of years between gains in the market, between gains in housing. There has been a ton of wealth created, more so it hasn’t been necessarily normal. To me, an inflation, it almost has to happen in order to try to normalize this a little bit. I tend to agree with you. I think that we’re going to see this inflation stick around. I don’t know that it’s a transitory.

Frankel: I feel like everyone believes that but the Fed. The Federal Reserve, they keep saying this is not going to last, it’s transitory and everyone else is saying no, this feels real.

Moser: Well, maybe we’ll see in hindsight that the Fed and Wells Fargo went to the same school of messaging. Maybe they’re both just falling short of really messaging as well as they could. But mate, we’ll see. It will be a busy week, Matt, but listen, that’s going to do it for us this week. I really appreciate you as always taking the time to sit down and talk with us. The show’s just always fun, man. I always enjoy talking with you about this stuff and I think our listeners enjoy hearing what you have to say.

Frankel: Yeah. Always good catching up with you and doing the show.

Moser: Yes, sir. Remember folks, you can always reach out to us on Twitter at @MFindustryfocus, or you can drop us an email at [email protected] As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us, for Matt Frankel. I’m Jason Moser. Thanks for listening, and we’ll see you next week.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Can you get a better rate even with bad credit?

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If you would like to refinance your current home loan but lack the credit score to snag a low rate, this article is for you. Here, we’ll suggest ways you can improve your current interest rate, even if your credit is less than perfect.

Can you refinance your mortgage with bad credit?

The short answer is maybe. It’s certainly not out of the question. If you’re looking for a conventional refinance, you’ll likely need a credit score of 620 or higher. Don’t let that discourage you if you’re not quite there, though. A mortgage lender will also consider factors like how much you earn and your cash reserves (to determine whether you can cover financial emergencies). Even if your credit score is low, a lender may be willing to take the risk as long as other aspects of your application are strong.

But first, you need to know where to start.

Speak with your current lender

Let your current lender know that you’d like to refinance and find out if it offers options that will work for you. The best thing about working with your current lender is that it knows your mortgage file and can quickly determine whether you’d qualify for any of their refinance programs, even with bad credit.

Your current lender may help by changing your loan terms. For example, it may be willing to refinance your loan to a longer term. You’d end up paying more in total interest over the life of the loan if you extend it, but it will lower your payments and, hopefully, give your budget a little breathing room.

Also, if you’re still carrying private mortgage insurance (PMI) on your loan because you put less than 20% down when you purchased the property, find out how close you are to hitting the 20% equity mark. Once you have 20% equity in the property, your mortgage lender will drop PMI. Here’s how that works:

  • Get your home appraised. A home appraisal typically runs between $300 and $450. You have to pay for the appraisal, but it could take as little as two months to recoup the cost once PMI is dropped.
  • Figure out how much you still owe. Let’s say the appraisal comes in at $325,000, and you currently owe $250,000. That means you owe less than 80% of what the home is worth (giving you more than 20% equity) and are eligible to drop PMI. ($250,000 ÷ $325,000 = 0.769, or just shy of 77%).
  • Ask your lender to drop PMI. Provide your mortgage company with the appraisal and a written request to drop your PMI payments.

Seek a government-backed loan

Government-backed loans — like FHA, VA, and USDA mortgages — are designed for everyday people who may not have much cash to get into a home. Though regular mortgage lenders distribute them, these loans are backed by the U.S. government. Lenders know that if you default on the loan, the government will make them whole. Simply put, if you want to refinance but your credit score is nothing to write home about, a government-backed loan may be your best option. While these loans do have minimum credit qualifications, they are typically lower than a traditional mortgage.

FHA

If you currently have an FHA mortgage, the FHA streamline option allows you to refinance without a credit check or income verification. The catch is that your mortgage must be current. If you’re hoping to switch from a conventional loan to FHA, you’ll need to undergo the typical credit check.

VA

Loans backed by the Veterans Administration are for active and former military members and their families. Although you will likely need a credit score of at least 620 to qualify (depending on the lender), a VA Interest Rate Reduction Refinance Loan (VA IRRRL) allows you to refinance an existing VA loan as long as you’ve made at least the last 12 payments on time. (This requirement varies by lender.) Lenders may also have guidelines regarding how long you’ve held your current mortgage. Unfortunately, there is no cash-out option available with a VA IRRRL.

USDA

Home buyers with an income of up to 115% of the median income for the area where they hope to buy (or refinance) a property may be eligible for a USDA loan. The home in question must be located in an area designated as USDA eligible.

If you have a current USDA loan, their streamlined assist program lets you refinance without a credit check. You qualify as long as you’ve made the last 12 months’ worth of payments.

Add a cosigner

Though we’re putting this option out there for your consideration, convincing a cosigner to refinance a mortgage is not as simple as it sounds. Not only do you have to talk someone into taking responsibility for your mortgage if you miss payments, but some lenders want the cosigner to be on the title of the home. In addition, if your credit score is very low, a cosigner may not help. That’s because mortgage lenders use the lowest median credit score between you. No matter how high your cosigner’s credit scores are from the big three credit reporting agencies, the lender will be more interested in your median score. Let’s say your three scores are 600, 590, and 580. It’s that middle score (590) they’ll use to make a credit decision.

That said, if your median score is right on the cusp of the lender’s minimum required score, having a cosigner with excellent credit may be enough to inspire the lender to refinance your mortgage. For example, if the minimum required score is 660, and your median score is 650, you may have a shot.

There’s no credit score so low that it can’t be rehabilitated. So as you work through your refinancing options, take steps to raise your credit score. You might not be able to do it overnight, but you can do it.In the meantime, if you’re not sure where to get started, look at the best mortgage lenders for bad credit. They can point you in the right direction.

A historic opportunity to potentially save thousands on your mortgage

Offer from the Motley Fool: Chances are, interest rates won’t stay put at multi-decade lows for much longer. That’s why taking action today is crucial, whether you’re wanting to refinance and cut your mortgage payment or you’re ready to pull the trigger on a new home purchase. 

Our expert recommends this company to find a low rate – and in fact he used them himself to refi (twice!). Click here to learn more and see your rate.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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Best Credit Repair Companies: Top 7 Services To Repair Credit Fast

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If you’re looking to improve your credit score or fix errors on your credit report, hiring a good credit repair company to handle the process for you is a wise decision. The best credit repair companies work on your behalf with the major credit bureaus to remove negative items that are hurting your credit score such as charge-offs, late payments, debt collections, and bankruptcies.

To help you find the best credit repair service for your needs, we’ve reviewed the top credit repair companies on factors such as effectiveness, credit repair reviews, speed of results, company reputation, and price.

If you’re ready to repair your credit and save thousands of dollars per year in interest, here are our top picks for the best credit repair companies of 2021:

The 7 Best Credit Repair Companies of 2021

#1 Credit Saint: Best Company Overall

Credit Saint is our top choice for the best credit repair company of 2021. Credit Saint has had an outstanding A+ rating at the Better Business Bureau for over 10 years and has helped thousands of customers successfully improve their credit scores.

Credit Saint starts by offering you a free consultation to go over your FICO credit score and to identify negative items that are damaging your credit. Once problem areas have been identified, Credit Saint will send challenges to all 3 credit bureaus on your behalf in an attempt to remove inaccurate information from your credit report.

Credit Saint can help remove questionable negative items such as:

  • Collections
  • Late Payments
  • Bankruptcies
  • Repossessions
  • Liens
  • Foreclosures
  • Judgements
  • Credit Inquiries

Credit Saint is one of the most aggressive credit repair companies (which is a good thing) but they understand that one size does not fit all. Credit Saint has 3 different service packages to choose from, depending on your credit repair needs.

The Credit Polish package includes challenges to the 3 major credit bureaus, free score analysis, a credit score tracker, and 5 challenges of negative items per dispute cycle.

The Credit Remodel package includes everything in the Credit Polish package but also includes inquiry targeting, on-going credit monitoring through Experian, and 10 negative item disputes per cycle.

The Clean Slate package is the most aggressive option available. It includes everything in the above packages, but also comes with sending Cease & Desist letters on your behalf as well as challenging an unlimited number of inaccurate items on your report.

Overall, Credit Saint offers the best bang for your buck among all credit repair agencies we’ve reviewed. Their A+ rating at the Better Business Bureau is the best in the credit repair industry and they also offer a 90-day money back guarantee for their services. If you want a free credit consultation to see if they can help, you can talk to one of their credit pros for free without any obligation.

  • Free Credit Consultation
  • A+ Better Business Bureau Rating For Over 10 Years
  • Online Dashboard To Monitor Progress in Real-Time
  • 3 Different Credit Repair Services To Choose From
  • 90-Day Money Back Guarantee

Click Here To Visit The Credit Saint Website For More Information

#2 Lexington Law: Most Experienced Credit Repair Specialist

Lexington Law is the most experienced credit repair company in the United States with over 10,000,000 negative items removed from their clients’ credit reports in just 2017 alone.

Lexington Law is a company with a team of paralegals and lawyers that use specific laws to protect your credit from situations that may be out of your control. This credit repair company can help you if your credit score has been negatively affected by:

  • Identity Theft
  • Divorce
  • Military Service
  • Student Debt
  • Medical Bills

Lexington Law first works by obtaining a copy of your credit reports and then analyzes them for negative items that are harming your score. Their law firm will then send disputes on your behalf to challenge inaccurate items. They’ll provide you with an online dashboard, so you’ll have access to your progress every step of the way as well as solutions that can help you repair your credit even faster.

Lexington Law provides 3 different credit repair packages to choose from, depending on your needs. Price ranges from $89.95 to $129.95.

The Concord standard service is their basic package with prices starting at $89.95 per month. This includes challenging harmful items with the 3 credit bureaus as well as your creditors.

The Concord premier package includes everything in the standard service as well as score analysis, TransUnion alerts, and removing hard inquiries. This option costs $109.95 per month and is their intermediate service.

PremierPlus is their top of the line credit repair service that includes everything in the above packages as well as cease and desist letters, FICO score tracker, identity theft protection, and a suite of personal finance tools. This is their most powerful package at a price point of $129.95 per month.

Overall, Lexington Law is one of the most experienced credit repair agencies that you’ll find. They’re a little more expensive than other credit repair companies, but their quality of work is unmatched.

  • Get Help With Late Payments, Charge Offs, Collections, Foreclosures, & More
  • Ranked #1 Credit Repair Company By Many Independent Review Sites
  • Over 56 Million Removals Since 2004
  • Over 500,000 Active Clients

Click Here To Visit The Lexington Law Website For More Information

#3 Sky Blue Credit: Top Company for Cheap Credit Repair

Sky Blue Credit is the best credit repair company if you’re looking for transparent pricing and excellent value. Rather than offering multiple credit repair options and service levels to choose from (which can be overwhelming), Sky Blue Credit offers all of its services for a flat-rate of $79 per month.

Sky Blue Credit Repair disputes 15 items on your credit report (5 items per bureau) every 35 days. This is a great value compared to credit repair companies that only dispute items every 45 to 60 days, charging you monthly fees during the process.

Once you sign up with Sky Blue Credit, you’ll be provided a detailed analysis of your credit history including any hard-to-spot errors that could be harming you. Once problems are identified, the Sky Blue credit pros will send customized disputes on your behalf. They also will send re-dispute letters if necessary, to maximize their chances of success. They also check on the statue of limitation for any debt you have as well.

Sky Blue offers their services free of charge for the first 6 days while they gather your reports and also offers an impressive 90-day money back guarantee. If you’re looking for the top credit repair services while on a budget, Sky Blue Credit is a great option to consider.

  • Clean Up Errors on Your Credit Report
  • All Services Included For One Low Monthly Rate
  • No First Work Fee and No Charge For The First 6 Days
  • 90-Day Money Back Guarantee
  • No Contracts – Cancel Service At Any Time

Click Here To Visit The Sky Blue Credit Website For More Information

#4 CreditRepair.com: Best for Free Credit Score Analysis

CreditRepair.com is one of the top credit repair companies for challenging inaccurate information on your credit report. This company has been around since 2012 and has removed over 1,800,000 harmful items from their clients’ credit reports since 2012.

When you sign up with CreditRepair.com, they’ll immediately retrieve your credit report and analyze it to find items that may be invalid, inaccurate, or misleading. They will then build you a personalized credit repair plan to not only remove negative items that are hurting your score, but also provide a strategy for rebuilding positive credit.

After thoroughly analyzing your credit reports, CreditRepair.com will begin challenging the negative items that are likely having the biggest impact on your score. They have several different methods for repairing your credit including debt validation letters and goodwill letters.

CreditRepair.com offers 3 different credit repair packages depending on your needs.

Direct – This is their entry-level package and includes up to 15 negative items challenged per month, and 3 creditor disputes per month. This plan costs $69.95, which is one of the lowest monthly fees in the credit repair industry. This plan is recommended for those with only a handful of negative items.

Standard – This package includes everything above plus cease & desist letters to creditors, quarterly credit score analysis, hard inquiry challenging, and 24/7 credit monitoring. This package is $99.95 per month.

Advanced – This is their most comprehensive credit repair plan and includes up to 19 negative item challenges per month and 6 creditor disputes per month. Additionally, you’ll also receive your monthly FICO score, ID theft protection, $1 million in identity theft insurance, and an array of personal finance tools. The advanced plan is just $119.95 per month, which is a pretty good value considering everything that’s included.

Overall, CreditRepair.com is one of the best options when it comes to credit repair. They have the top-rated credit repair app in the industry, which is available for both Android and iPhones.

  • 50% off setup fee if you sign up with a friend or family member
  • Aggressive credit repair process that gets results
  • 3 unique credit repair programs to choose from
  • Free consultation with credit score analysis
  • 15+ challenges per month

Click Here To Visit The CreditRepair.com Website For More Information

#5 The Credit Pros: Best for Fast Credit Repair

The Credit Pros is a fast-growing credit repair agency that has been in business for over 12 years and is trusted by over 200,000 clients nationwide. They maintain an A+ BBB rating and are consistently rated as one of the best credit repair services by many independent review sites.

The Credit Pros offer 3 different credit repair packages to meet the needs of all clients. Whether you’re looking for credit score monitoring or a full-fledged credit repair service, you’re likely to find a plan that meets your needs and budget.  Here are the 3 packages that are offered by The Credit Pros.

The Money Management package is their entry-level plan that starts at just $49 per month. It includes Transunion credit monitoring, identity and dark web monitoring, as well as CashRules finance manager. The CashRules finance manager offers the ability to integrate your banks, set budgets, get alerts, and easily track transactions.

The Prosperity Package is $119 per month and should fit the needs of most credit repair clients. It includes everything in the Money Management package, but also offers 3-bureau credit repair. The AI-driven credit repair process includes:

  • Cease and desist letters to collection agencies (to stop harassment)
  • Debt validation letters to creditors
  • Goodwill letters to creditors
  • Unlimited dispute letters
  • One-on-One Action Plan With a Certified FICO professional

The Success Package is $149 per month and includes everything above + a guaranteed $1,500 line of credit. With the credit line, they report directly to Experian and Transunion, so you can improve your credit scores faster.

If you’re not sure what plan is right for you or if you have questions about your credit, you can request a free, no-obligation consultation to see if they can help.

Overall, The Credit Pros is one of the best options when it comes to hiring a credit repair agency. With unlimited disputes, 24/7 access to client portals, and identity theft protection with every plan, you can’t go wrong with The Credit Pros.

  • AI-Driven Credit Repair Technology
  • Quick Credit Repair For Expedited Results
  • A+ Better Business Bureau Rating
  • Credit Monitoring Is Included At No Additional Cost
  • One-on-One Action Plan With Certified FICO Specialist
  • Monthly Plan With Unlimited Dispute Letters Available
  • Free Consultation With A Credit Repair Specialist

Click Here To Visit The Credit Pros Website For More Information

#6 The Credit People: Best Service Guarantee

The Credit People is one of the top credit repair companies of 2021. This company has been in business for over 15 years, offering both monthly pay-as-you-go and six month flat-rate service plans.

The Credit People markets itself for unbeatable customer satisfaction and has earned features in The New York Times, Wall Street Journal, and SmartMoney.

The Credit People says that it can improve your credit score by 53 to 187 points. It’s important to note that these figures are estimates because credit repair companies cannot guarantee their services. (More on this in a moment.) The company also has had nearly 1.5 million negative items removed from credit reports since 2004.

The best overall company for repair speed has an equally impressive pedigree for quality. According to The Credit People website, lenders approved 71% of its users for home loans, and 78% secured auto loans. Its average customer saw a 32% improvement in their credit score after joining.

Some of the other perks of joining The Credit People include:

  • 24/7 account access
  • Unlimited disputes
  • Debt and inquiry validation
  • FCRA certification
  • Toll-free customer support

The company charges an annual fee of $419 rather than a monthly one, making it cheaper than other credit repair services. You can try The Credit People for one week for $19 to see if you like it. The company also offers a 60-day money-back guarantee.

Click Here To Visit The Credit People Website For More Information

#7 Ovation Credit Services: Reputable Credit Fixer With Good Reviews

More than 120,000 people have already improved their credit score, thanks to Ovation Credit Services. This credit clean up company has made a name for itself with cost-effective results and outstanding customer support. Ovation Credit Services takes pride in building personal relationships with its customers and finding customized solutions to improve their credit reports.

All clients receive a free consultation during their initial appointment. The meeting gives case advisors a chance to review someone’s credit history and determine the appropriate credit cleaning services. Its site states that a quarter of people have at least one error on their credit report, and more than half have outdated information.

After you sign up to get started with Ovation Credit Services, your advisor will file disputes on your behalf. That can involve writing goodwill letters or contesting late payments with creditors. Ovation Credit works with credit reporting bureaus to make sure you have an accurate credit score.

This credit repair company has a first work fee of $89 for its basic package. After the first month, the work fees drop to $79 per month. Ovation Credit Services has a Better Business Bureau rating of A+ and a 4.3 rating on TrustPilot.

How Do Credit Repair Companies Work?

Credit repair companies start the process by helping you request a copy of your credit report with each of the three major credit reporting agencies: TransUnion, Equifax, and Experian. An experienced credit professional will then examine your credit report for negative items that could be hurting your credit score such as:

  • Late Payments
  • Bankruptcies
  • Charge-offs
  • Hard Inquiries
  • Judgements
  • Foreclosures
  • Debt Collections

After reviewing the derogatory items on your credit report, the company will start working with your creditors and the credit bureaus on your behalf.

Credit restoration services employ a variety of tactics to get harmful items removed from your credit report including:

  • Goodwill letters to your creditors
  • Requests to validate information
  • Dispute letters for inaccurate information
  • Cease-and-desist letters to stop harassment from debt collectors

Good credit help companies will also work with you to build positive credit history and provide tips to help optimize your credit score.

How We Chose The Best Credit Repair Companies

Credit Repair Reviews and Complaints

When it comes to the credit repair industry, a company’s reputation is everything. In order to find the best credit repair companies, we took a look at reviews and complaints from a variety of sources including:

  • Google reviews
  • Better Business Bureau
  • Consumer Financial Protection Bureau complaints
  • Yelp

The Better Business Bureau rates and reviews most credit repair companies, providing a letter grade between A+ and F. Just as in high school, the higher the grade, the better. The Better Business Bureau gives A+ ratings to credit repair agencies that exercise ethical business practices, and it makes good-faith efforts to resolve customer concerns. Consider it a red flag if a credit repair agency has an F rating.

First-Work Fees

For each credit repair service we reviewed, we took into consideration each company’s first-work fees. First-work fees go by many names, including advance fees, discovery fees, and setup fees. Whatever you call them, they serve the same purpose.

The Credit Repair Organization Act requires that credit repair companies do not charge for credit repair services until after work has been completed. This rule has been put in place to protect consumers against fraudulent credit repair companies that charge an exorbitant setup fee and then fail to provide the agreed-upon credit repair services.  

In order to abide by these new regulations, credit repair companies charge first-work fees. First-work fees are usually billed about 7 days after you sign up with a credit repair company and after the first-stage of work has been completed.

Credit Repair Services Offered

In order to find the best credit repair company, we took into consideration the credit repair services and packages offered. Credit repair shouldn’t be a one-size-fits-all solution. The best companies should offer a variety of credit repair options, depending on the level of service you need. 

Many credit repair companies have tiered packages that vary by the number of services included. For example, some credit fixers offer unlimited disputes per month while others offer credit monitoring or identity theft protection in their premium plans.

When evaluating the best credit repair companies, we took into consideration the following:

  • Credit repair packages offered
  • Monthly price
  • Whether credit monitoring is included
  • Number of credit disputes per month

Number of Credit Disputes Per Billing Cycle

One of the most important things you need to consider when hiring a credit fixing service is the number of monthly credit disputes included. Every time a credit repair company challenges a negative item on your credit report, it counts as a dispute. 

Some reputable credit repair companies like The Credit Pros offer unlimited disputes per billing cycle, while other companies like Sky Blue Credit offer 15 disputes every 35 days. The number of monthly credit disputes will often depend on the credit repair package you choose.

An important thing to keep in mind is that a dispute has to be filed separately for each of the three major credit bureaus. So if you have a credit reporting error on all three credit bureaus, that will count as three separate disputes. 

Additional Services

The best credit repair companies often offer additional services that help improve your financial well-being. These additional services may include credit monitoring, identity theft insurance, bill reminders, personal finance tools, credit repair software, and more.

Some credit repair companies also offer other financial services such as debt management or loan refinancing. When evaluating reputable credit repair services, we gave extra points to companies that provided credit monitoring and other financial tools.

Money-Back Guarantee

When evaluating the top credit repair services, we took into consideration the guarantee (if any) made by each company. According to the Credit Repair Organizations Act, companies aren’t allowed to guarantee results in order to acquire new clients. However, some good credit repair companies offer a money-back guarantee if results aren’t seen by a certain period of time.

For example, Credit Saint offers a money-back guarantee if they are unable to delete any questionable items from your credit report within 90 days. Other credit repair companies like AMB Credit Consultants don’t offer a money-back guarantee at all.

We believe that legitimate credit repair companies should offer a money-back guarantee if no successful disputes are made within a reasonable amount of time.

Cancellation Policy

The Credit Repair Organizations Act (CROA) requires companies to tell the truth about their products and services. That includes providing customers with a mandatory cancellation period. Consumers have the right to cancel their credit repair services for free within the first three days.

When a company charges you, it must have already delivered its promised services. This process does not work the other way. If you believe you’re the victim of a scam, you can contact the Consumer Financial Protection Bureau.

Fees and Costs

One of the biggest criteria we used when evaluating credit repair companies was their pricing structure and fees. Some legitimate credit repair companies such as Pyramid Credit Repair offer all of their services for a flat-rate of $99 per month, while other companies such as The Credit Pros offer several pricing plans depending on your needs and budget.

We evaluated each credit restoration company on the following factors:

  • First-work fees
  • Monthly fees
  • Credit repair packages offered
  • Discounts for couples

Are Credit Repair Companies Worth It?

Credit repair companies are worth it when a bad credit score is preventing you from qualifying for a loan or is causing you to pay a high interest rate. 

Although you can repair your own credit, it is a very time-consuming process. The best credit repair companies take the burden off your shoulders by handling the whole process from A-to-Z. They’ll help you gather credit reports, identify negative items, and work with your creditors on your behalf.

When you consider how many hours of time you will save and the fact that most credit repair companies only charge $79-$129 per month on average, it is definitely worth it.

How Much Does Hiring A Credit Repair Company Cost?

Most credit repair companies charge a monthly fee between $79 and $129. You may also pay a first-work fee on top of the flat monthly rate. The credit repair service usually takes several months to work but can last a year. For example, Pyramid Credit Repair charges $99 per month, which falls in line with the industry average. Pyramid Credit Repair also has a couples plan that is $198 per month.

You can buy credit repair software that cuts down the time to navigate credit reports and bureaus. Some companies have a freemium, where you can download the essential software and pay for exclusive features. Most credit repair software costs between $40 and $400, including our favorite, Turbo Score Home.

Do Legitimate Credit Repair Services Guarantee Results?

No, even the best credit repair service can’t guarantee results. Consider it a red flag if a company says that they can increase your credit score by a specific amount or achieve gains in a particular time. There are too many variables at play to make promises.

Some companies may provide you with an estimate for certain milestones. If you have minimal negative marks and a brief credit history, a company may estimate a 100-point boost in the first six months. Note that the company hasn’t promised to increase your credit score by 100 points in that time.

How To Avoid Credit Repair Scams

The federal government passed the Credit Repair Organizations Act in 1968. The statute prohibits credit repair companies from making false or misleading statements about their products or services. Any companies that offer credit repair services must provide contracts in writing and give consumers a chance to cancel the arrangement within 3 days of signing up.

Credit repair companies cannot accept payment until they finish the services. Because it takes up to six months to repair credit, you can theoretically wait that long before paying, too. Many companies such as Credit Versio use a setup fee (first work fee) and monthly payment structure to circumvent this rule.

Being a smart consumer means knowing your rights. The Fair Credit Reporting Act lets you dispute any errors for free. You do not have to pay a company for this service, though it helps to have a credit professional on your side.

Exercise skepticism if the credit companies can’t give you a straight answer or if they provide misleading information. For instance, you should avoid any credit repair companies that tell you to avoid contacting the nationwide credit monitoring bureaus. Don’t let the company misrepresent your information by creating a new identity and credit report with your Social Security Number, either. Make sure they safeguard your privacy.

How Do Credit Repair Companies Get Items Removed?

Every legitimate credit repair company has its own unique methods for repairing your credit. Here are some of the most common methods credit improvement services use to fix your credit.

Goodwill Letters To Your Creditors

Most companies in the credit repair industry use creditor goodwill letters in an attempt to remove negative items from your credit reports. Goodwill letters are essentially letters that are sent to your creditors, nicely asking them to remove negative items that they reported to the credit reporting agencies. Goodwill letters sent to your creditors don’t always work, but they work more often than you’d think.

Cease and Desist Letters To Debt Collectors

Cease and desist letters are letters sent to your creditors or a debt collection agency, requesting that they stop contacting you regarding your debt. According to the Fair Debt Collection Practices Act, if you demand a credit collection agency to stop contacting you, they must abide. Not every company offers these services, but many credit repair companies do.

Debt Validation Letters

Challenge validation letters are sent to debt collection agencies or your creditors, requesting proof that your debt is valid or within the statute of limitations. If a creditor can’t prove that your debt is valid, the debt must be removed from your credit scores.

Fix Inaccurate Information

Once you’ve signed up with the best credit repair company, you’ll be assigned a personal case advisor. They will work with you to go through your credit reports, looking for inaccurate data and questionable items that can be disputed. This is especially useful if you’ve been a victim of identity theft.

Negative Item Challenges

You have the right to dispute any questionable items on your credit reports that you disagree with.  By law, the three major credit bureaus have up to 30 days to respond to your challenge from the time they receive your dispute letter. Before you sign up with a reputable credit repair company, make sure you pay attention to how many disputes you are allowed to file per billing cycle. Some companies offer unlimited disputes, while offering a limited number of challenges per month.

Frequently Asked Questions

Who is the most aggressive credit repair company?

The most aggressive credit repair company is Credit Saint. Their Clean Slate package offers unlimited challenges to the 3 major credit bureaus, score tracker, inquiry targeting, and creditor interventions.

Is it worth paying someone to fix your credit?

Yes, it is definitely worth it to pay someone to repair your credit. Although you can dispute items on your credit report by yourself, it can be a very frustrating process, especially if you’ve never done it before. A better credit score will save you hundreds of dollars per year in lower interest.

How to fix your own credit?

You can definitely take the DIY approach to credit repair, but it will take a lot of time and patience. This process involves writing dispute letters to your creditors and the credit reporting agencies. By law, the credit bureaus are obligated to investigate your claim within 30 days.

What is a credit bureau?

A credit bureau is a company that exists for the purpose of tracking credit scores and credit history. Credit bureaus provide this information to creditors and lenders to help them make important lending decisions.

What is credit repair?

Credit repair is the process of removing negative items on a credit report that negatively impact a credit score. Credit repair is often used to dispute negative items on a credit report such as late payments, hard inquiries, and charge-offs.

Why is credit repair important?

A large number of employers look at the credit information of applicants when making hiring decisions. People with a bad credit score could potentially lose out on their dream job. Additionally, a bad credit score can result in paying more interest on personal loans and mortgages.

How to maintain a good credit score?

You can maintain a good credit score by making payments on-time, limiting the amount of credit used, establishing different types of credit, and paying off debt.

How to find the right credit repair company?

In order to find the right credit repair company for you, look for companies that are BBB accredited, offer a free consultation, include free credit reports, and have a reasonable monthly fee.

The reviews and statements published here are those of the sponsor and do not necessarily reflect the official policy, position or views of Observer.

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If you want a credit score that’s well above average, aim for an 800 credit score. Although this score isn’t the highest credit score possible, it puts you in the highest credit score range available for the FICO credit scoring model. Borrowers in this credit score range typically pose the least amount of risk to lenders.

Because of this, if a lender approves you, you’ll likely have a better chance of securing the most favorable terms, such as the lowest interest rate available. Forbes Advisor will teach you what it means to have an 800 credit score, how you can get there and the benefits that come along with it.

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What Does It Mean to Have an 800 Credit Score?

When you have a credit score of 800, your score is better than a good credit score. According to the most popular VantageScore and FICO credit scoring models, it’s an excellent or exceptional credit score. As of April 2018, only 21.8% of Americans had a score that was at least 800, according to a FICO report.

To score this high, you must do an outstanding job of managing your credit. This means you likely have a long credit history, perfect payment history, a good credit mix and only use a small percentage of your total credit limit. Based on your excellent credit history and good credit habits, a lender will consider you less likely to default on a loan than applicants who have lower credit scores.

How to Get an 800 Credit Score

While there’s no guarantee your score will reach 800, applying these tips could help you improve your score.

1. Build or Rebuild Your Credit History

Since the length of your credit history accounts for 15% of your credit score, negative, minimal or no credit history can stop you from reaching an 800 credit score. To solve this problem, focus on building your credit. You can do this by taking out a credit-builder loan or applying for your first credit card.

A credit-builder loan is a personal loan that’s designed to help you add positive payment history to your credit report. Unlike a traditional personal loan, a lender doesn’t directly deposit a lump sum of money into your account. Instead, it sets aside money in a savings account or certificate of deposit account (CD), and you gain access to the funds after repaying the loan.

Using a credit card responsibly is another way to build your credit history. If you don’t qualify for or don’t want to use a traditional credit card, you can apply for a secured credit card instead. When you take out a secured card, you’ll be required to make a cash deposit that’s held in a collateral account, which is equal to your credit limit.

2. Pay Your Bills on Time

Your payment history is the most important credit score factor—it accounts for 35% of your FICO score. Because of this, you should aim to never miss a payment. If your bills become 30 days past due, your creditors can report this to the credit bureaus. Once your credit report lists a late payment, it can cause serious damage to your credit score. To avoid paying your bills late, use a spreadsheet to keep track of your due dates or enroll in autopay.

Most people who have 800 credit scores or higher pay off their balances in full each month, according to FICO.

3. Keep Your Credit Utilization Rate Low

The second most important credit score factor behind payment history is your credit utilization ratio—it accounts for 30% of your credit score. Your credit utilization ratio measures the amount of credit you use vs. your total credit limit. If your total credit limit is $10,000, aim to use no more than 30% of it—$3,000. To boost your credit score, keep your ratio closer to 0%, if possible.

4. Review Your Credit Score and Credit Reports

To keep track of your progress, monitor your credit score and credit reports. You can check your credit score for free by using a free credit scoring website. Some of these websites will even offer you recommendations on how to improve your credit score.

Since your credit score is based on the information listed on your credit reports, review them to ensure each one doesn’t contain inaccurate negative information, such as late payments or collection accounts. Even if you pay your bills on time, a credit reporting mistake can happen. You can view all three of your reports for free weekly through April 20, 2022 by visiting AnnualCreditReport.com.

If you find an error listed on one of your reports, file a dispute with each credit bureau that has it listed to remove it.

Benefits of an 800 Credit Score

A credit score of at least 800 comes with several benefits, including easier loan approvals, lower rates, better credit card offers and lower insurance premiums.

Better Loan Approval Odds

When you apply for a mortgage, personal loan or private student loan, you won’t have to worry about meeting a lender’s minimum credit score requirements with a score of 800. As long as you meet other loan requirements, such as income and debt, the lender will likely approve your application.

Lower Interest Rates

An 800 credit score will typically land you the best interest rate available if you’re approved for a loan. For example, you may qualify for a 0% financing deal on a new car or a lower mortgage or personal loan rate. This can save you thousands of dollars in interest during your lifetime.

Better Credit Card Offers

High-qualified borrowers with credit scores of at least 800 can qualify for the best 0% APR credit cards. These cards come with interest-free periods that last for up to 21 months on balance transfers and purchases. As long as you repay the balance in full before the promotional period expires, you can avoid interest payments.

Additionally, you’ll likely qualify for some of the best travel credit cards. Some of these cards come with generous travel bonuses after you reach their minimum spending requirements.

Lower Insurance Premiums

When you apply for insurance, some insurance providers factor in your credit score when calculating your insurance premium. If you live in a state that allows credit-based insurance, an 800 credit score could get you a discount on your homeowners insurance or auto insurance premiums.

For example, you may save more than $1,500 in auto insurance premiums if you have an excellent credit score versus a bad credit score (below 580), according to an auto insurance study by The Zebra.

How to Maintain an 800 Credit Score

Once you achieve an 800 credit score, your work is far from finished. Your credit score isn’t set in stone—it fluctuates based on the factors we discussed above. If you want to keep your score in the highest credit score range possible, you’ll have to continue practicing good credit habits. This means monitoring your credit score and reports often, keeping your credit utilization low and paying your bills on time.

Raise Your FICO® Score Instantly with Experian Boost™

Experian can help raise your FICO® Score based on bill payment like your phone, utilities and popular streaming services. Results may vary. See site for more details.

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