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 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.
Using a credit repair service, like you might find advertising on late night television that they can
“Fix Bad Credit!â€, 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 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.
Below are some tips for analyzing a credit counseling service.
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.