Bad credit has many ugly effects, and really, none leaves one’s financial life the same. To say a few, getting loans becomes difficult. And if you’re lucky to secure one, then be ready for some strict repayment terms: high-interest rate and short payback duration. The reason is simple: you’re a big risk to your lender.
It could also result in increased insurance premiums. You can also miss out on career opportunities, and even find it difficult to find an apartment to rent. The list goes on and on.
If you’re in this cycle and have decided to fix things up, one of the many questions that would come to mind is – “How much does credit repair cost?” You just stumbled on the most insightful piece on repairing bad credit. But just before we go into the nitty-gritty of that, let’s take a peek at the term “credit repair.”
If you stealthily read through, you will learn all you need to successfully repair your bad credit score. So, here we go!
Credit Repair: What Does it Mean?
Credit repair is the process of improving a bad credit score to give a better credit standing. What do you know about credit scores? Answering the question: how much does credit repair cost is much easier when you have a firm grasp of what a credit score is. It is any figure ranging from 300 to 850 representing the credit standing of an individual.
Several scoring models are adopted by financial institutions; however, the Fair Isaac Corporation system, commonly called FICO, is mostly used. FICO has five ranges of scores: 300 – 579 (Poor), 580 – 669 (Fair), 670 – 739 (Good), 740 – 799 (Very Good), and 800 – 850 (Exceptional).
Credit scores below 580 are red flags to financial institutions, and such requires repair. So how much does credit repair cost? We’re only a step away from figuring that out. Let’s quickly consider the factors responsible for bad credit.
Factors Responsible for Bad Credit
If you have bad credit and you’re wondering what and what caused it, the answers are in one or more of these five factors: payment history, the total amount owed, age of your credit account, the types of credit accounts, and the number of recently opened credit accounts.
Payment history is a top concern in lending money out. Financial Institutions do not get into sentiment, they want to find out how you’ve handled past credit. Before you ask how much does it cost to repair bad credit, you might first need to do a quick review of what your payment history looks like. Under the FICO credit scoring system, it accounts for 35%.
Total amount owed
Next to your payment history in credit scoring is the amount owed. It is calculated with respect to the credit utilization rate. The credit utilization ratio is the proportion of credit limit being utilized. Simply put, the portion of your credit limit that you have borrowed from.
Here is a typical illustration. Craig has borrowed $4000 and his limit is $8000. So, how much of his credit limit has he utilized? He has utilized exactly 50%. Trust me, that’s a big turn-off for a potential lender. Any rate above 30% is a red flag that you are not creditworthy. The FICO scoring model allots 30 percent to this factor.
Age of your credit account
Here’s another factor every potential lender will take time to review before handing you a loan. The longer it is, the better the credit score, and consequently the more creditworthy you appear. This accounts for 15% in the Fair Isaac Corporation model.
Types of credit account
Credit accounts are of various types, and the ones you keep could affect your credit standing. If you don’t have a robust portfolio of credit accounts, you’re not likely to have a good credit score. Under the FICO credit scoring system, it accounts for 10%. To keep a good credit score, it is expected that you’re able to operate multiple credits, say – mortgage, car loan, credit card, and even more.
Number of recent credits
Finally on the factors – the recent credit accounts. It also accounts for 10% of FICO’s credit score. If you have lots of new credit accounts, it’s going to have an ill effect on your credit score.
Whatever factor led to your bad credit rating, you can take vital steps to set things straight. You can either take up the repair yourself or engage a credit repair company. Either way, the content of your credit report would be reviewed/investigated for omissions, misrepresentations, and ideas into cleaning up the record.
Now let’s examine how this works with a credit repair company.
Credit Repair Companies
A credit repair company is any service-providing company that helps individuals with low credit scores fix their bad credit standing. These companies can help you repair your bad credit.
This is how these companies work: they carefully review your credit report to identify inaccurate or obsolete content. Sometimes, credit scores go down because of misinformation.
Are you wondering what an inaccurate detail could be?
Well, it’s an item on your credit record that has an incorrect amount, was paid rather than unpaid, or was reported as yours, while in reality, it belongs to another person.
On the other hand, an obsolete charge is older than 7 years which is still being reported.
When you employ the services of a credit repair company, the company would act as a third-party negotiator and try to strike items off your credit records in exchange for limited repayment.
Many people who are holders of delinquent debt will be happy to accept less than the full value of the debt in exchange for the removal of the negative entry on your credit report.
How Much Does Credit Repaid Cost?
It is time to get up and do the needful. Trying to repair bad credit can be somewhat draining. Make sure you look for a credit repair specialist that is reliable.
You must know that repairing credit takes a longer time. But with a good credit repair company/specialist you can save yourself from intense headaches. Just make sure you listen to your credit repair specialist and play along.
Indicting details like late payment staying long in your report is bad for your credit score.
I hope you understand that this can hurt your chances of qualifying for a loan or credit card.
Look at what you are going to do…just pay a third-party credit repair company to get rid of negative information. You are likely to pay a monthly fee of $120- $500 it just depends on the specialist or company you are dealing with. Mind you, everything that is accurate in your report would still remain accurate.
Make sure you get a company or a specialist with proven expertise and a good understanding of what and what should be done to effectively repair bad credit.
Keep in mind that credit repair companies are not magicians; hence, their repair services usually take quite some time.
Bad credits do not just get fixed overnight. As you get into repairing it, don’t expect to see an immediate change. If your credit repair company seems to be taking longer than expected, it’s not a show of quackery. Besides, being a professional, they have hands-on experience on how the policies work. So, give the process some time.
How to Recognize Scam Credit Repair Companies
Now that we have an answer to “How much does credit repair cost,” you have to know this – a lot of credit repair schemes are scams, oh yes! But not all of them. This is just the unfortunate truth. Many companies that advertise credit repair solely focus on making money without helping their customers.
Some credit repair companies have gotten into trouble with the Consumer Finance Protection Bureau (CFPB) for misleading business practices and scams. Here are various traits exhibited by some credit repair companies that scam people.
These warning signs are provided by CFPB and some attorneys general that focus on financial crime.
They always charge upfront
Do not pay any upfront, you must always abide by this simple rule. The real credit repair companies are never allowed to charge money, they simply confirm that you have improved your credit scores.
They try to guarantee a score gain
Offering a guaranteed point increase isn’t just possible because no one can guarantee the removal of accurate and up-to-date information from your credit report.
Just know this. If you don’t have an error on your report, what and what you can remove depends on the negotiation between you and the issuer of the delinquent debt.
They tell you not to talk to a credit reporting company
Again, they go all the way to prevent you from talking to a credit reporting company just to keep you blindfolded. No real credit repair company will ever do this.
They don’t or won’t tell you what you can do for free
I hope you know that people can obtain a detailed credit report for a very low cost? And often get a free copy.
People can also file disputes without the help of an agency. Unethical credit repair services will try to charge you for things, like credit reports, that you can get for a very little sum or no cost at all.
Don’t call me, I’ll call you
That’s what they will tell you. They call you, you don’t call them. You should be wary of any credit repair agency that cold calls you to sell their services.
Always remember that the CFPB has a great guide on credit repair services. If you need a real credit repair company it would be thoughtful to use a list of government-approved credit counselors.
How to Repair Your Credit Yourself
Employing the professional services of a credit repair company is great; however, increasing your credit score is something you can do on your own. How much does credit repair cost? Only a little or nothing when you thread the DIY route.
If you found this thrilling and would love to explore the possibilities of repairing your credit yourself, here are 4 simple steps you can take.
Obtain a copy of your credit report
To start with, request copies of your credit report from relevant credit reporting bureaus. Preferably, from – Experian, Equifax, and TransUnion. You’re legally entitled to a copy from each of them.
Afterward, check out: your actual credit score, derogatory remark, and other possible negative reports affecting your credit score.
Apart from Experian, Equifax, and TransUnion, you can get your credit report from credit karma, even the three credit bureaus will give you these as well and I think they have to give you one for free every year, there are different ways to get these for free.
Make sure to review and fix derogatory remarks
Up next – do a thorough review of all the contents, most importantly, the derogatory remarks and credit issues. Once you have your report, it only takes a few minutes of concentrated reading to detect these on a credit report.
If there are some derogatory remarks, then pick the repair up from there.
Derogatory remarks can be an unpaid balance, potentially it would be some kind of dispute. But if it is a credit issue, I would suggest you call and ask for forgiveness. Let them know you were in a bad financial space, but you are in a better space now taking your finances seriously. Make sure to be nice and humble.
In reality, fixing derogatory remarks is such an easy way to boost your credit score.
Don’t fail to pay off to under 20% credit utilization
After reviewing your credit report and fixing derogatory remarks, clear off some debts so your credit utilization ratio can drop. The more you can go with this, the better your credit score. Basically on this, you should aim at a score below 20 percent. And if you can even get under 10 or even zero, please do.
If you don’t know what credit utilization ratio means, it is simply the amount of credit that you are allowed to have, compared to how much credit you have actually taken out.
You have to get a credit card and make an on-time payment
Get a secured credit card. Of course, that’s in the case you have none. That would go a long way in improving your credit score. But before you get a card, make sure you look for a card with decent value and also that is secured.
You have to understand that repairing bad credit cards is somewhat equivalent to trying to lose weight. The same way you can’t burn out 10kg in 3 days, credit repair does take time too.
Hiring a credit repair company is like going to a specialist to get your oil changed. Everyone can change their oil in their garage, why some people prefer to take it to a quick lube place for a few reasons which could be…hassle-free, efficiency, speed, proper tools, professional help and most importantly time. I would advise you to get help.
Either way, It is paramount to get a guru or a trusted credit repair company on board.
Bad credit, in the long run, leaves no aspect of one’s life untouched. Securing a loan becomes a tug of war, insurance premiums get increased, mortgages become difficult. You can get your score up again yourself if you’re able to figure out the reasons for your bad score. Alternatively, engage a credit repair company at a cost. A quick warning – only patronize those with proven expertise else you could get scammed.