Credit Repair Companies and Credit Counselors

If you have less than perfect credit, then you have likely received numerous offers from credit counselors or businesses that specialize in credit repair.

In truth using these types of companies is not usually going to be in your best interest. This is because all of the things they can do, such as negotiating with creditors, is something that can be done by the individual.

Credit Repair Agencies

Credit Repair Agencies are basically simply another lender and if you have ever watched any late night infomercials, you are sure to have seen their advertisements. They might say they will “Get rid of your Bad Credit!” or “Quickly Raise your Credit Score,” but in the end, they are out to make a profit.

Most credit repair agencies will offer free credit counseling to get people interested in their service, then they will set up a plan, where you pay them and they pay your creditors. It is basically just like taking out another loan, but with a much higher interest rate than if you had just spoke directly with your creditors.

In fact, credit repair agencies are so often the root of a business complaint that the Federal Trade Commission, published several warning signs that you might be dealing with a dishonest credit repair service.

Warning Signs of Dishonest Credit Repair Companies

• The Credit Repair Company requests payment before they actually do anything.
• The Credit Repair Company does not inform you of the many things you can do for free, without their help, and also doesn’t mention your legal rights.
• The Credit Repair Company advises that you do not attempt to contact the Credit Reporting Agencies, TransUnion, EquiFax, Experian, instead suggesting that they have to do it
• The Credit Repair Company tells you to create a new identity, using a employer identification number instead of your Social Security Number.

Risks of Using a Credit Repair Company

Using a credit repair service, like you might find advertising on late night television that they can
“Fix Bad Credit!”, is seldom in the best interest of a person with poor credit.

These companies may be able to lower your monthly payment, but this is likely something you could do on your own by speaking with the credit company. Instead, they make their money by offering a loan at subprime rates.

Credit Counseling

Credit Counseling is usually a better option than using a credit repair company, although there are a number of dishonest credit counseling companies as well.

The difference between a credit counseling company and a credit repair company, is that the credit counseling company will go over all of your debts and then speak with your creditors. The counselor will request that some of the debt be forgiven, such as late fees, and will request a lower interest rate, in return for the debt being repaid.

This is again something that the average consumer can do, because having the debt repaid is in the best interest of the creditor, so they are often willing to lower interest rates and forgive late fees.

Always ensure that the credit counseling company is non-profit and some are even run by the actual credit card companies.

Even though they are technically non-profit, credit counseling companies actually get paid a commission from creditors when they are able to work out a deal with a borrower. Sometimes, you pay the credit counseling company, who will in turn pay the creditor, which is referred to as a Debt Management Plan(DMP), but these should only be used as a last resort. In either case, there should not be a fee for using the credit counseling service.

While many of the things a credit counseling company does are within reach of the average borrower, they can provide a helping hand for some.

Since there is so much dishonesty in the credit and credit repair industry, it is important to always thoroughly analyze the company before using them.

Evaluating a Credit Counseling Company

Below are some tips for analyzing a credit counseling service.

• Try to find a local company. Often the Better Business Bureau will be an excellent place to check prospective companies.
• Be Wary of Companies Asking for Money. A legitimate Credit Counseling Company should send you free information and advice about how to restore your credit.
• Watch out for Credit Counseling Companies that offer a Debt Management Plan as the first option, DMP should only be used as a last resort.
• Determine how the company gets paid. This will help you understand their motivation.
• Determine how the debt will be paid off. If using a Debt Management Plan, inquire into how the plan works and how it is paying off your debt.
• Check behind the company to make sure the debts are actually being paid off.
• Always have a written copy of anything you do with the credit counseling company.

Fixing Your Credit on Your Own

In a perfect world, the best way to hand bad credit would be to avoid taking out debt in the first place.
Unfortunately, it does not always work this way, so it may be necessary to repair your credit.

If this is the case, speaking directly with the creditor should be your first step. The creditor wants you to pay them back, so will often work with you to reduce interest rates and forgive late fees.

Speaking directly with your creditors is almost always just as effective as using a credit counselor. It is also much safer and less expensive than using a credit repair company.