Have you recently decided to reclaim control of your finances by working with a credit repair company? Congratulations! This is a significant first step toward creating a blank slate and rebuilding your financial stability.
However, before you work with a company, you should do a few things to prepare yourself and your finances. Preparation puts you in the best possible position to achieve success.
Table of Contents
- 1 What Is a Credit Repair Company?
- 2 How Can You Prepare To Work With a Credit Repair Company?
- 2.1 1. Set Your Budget
- 2.2 2. Have an Open Mind
- 2.3 3. Start With the Endgame in Mind
- 2.4 4. Find Your Credit Score
- 2.5 5. Understand How Your Credit Score Works
- 2.6 6. Request Your Credit Reports
- 2.7 7. Check for Errors
- 2.8 8. Get Organized
- 2.9 9. Prepare To Negotiate
- 2.10 10. Understand the Process
- 2.11 11. Get Everything in Writing
- 2.12 12. Find the Right Credit Repair Company
- 3 Why Do You Need a Credit Repair Company?
What Is a Credit Repair Company?
Companies providing credit repair services work hard to improve your credit score. The company will work with you to identify negative items on your credit report and dispute them with the credit bureaus. This process can help you move into the next credit tier and improves your chances of getting lower-interest loans.
Consequently, many people rely on this service after bankruptcy or before buying their first homes.
How Can You Prepare To Work With a Credit Repair Company?
Increasing your credit score can feel like an uphill battle. You could feel tempted to let the company handle everything on your behalf. Some companies will do this, but you get much better results by taking a collaborative approach.
Proactiveness and collaboration not only reduce the services you need to pay for but also help you learn how to better manage your money and score. So, what should you do?
1. Set Your Budget
More often than not, you exceed your credit limits because you’re running low on cash. Consequently, setting a budget to pay a credit repair company could require a serious review of your monthly budget and spending habits.
Reviewing this information and making adjustments could free up money for you to spend on credit repair. It also sets the groundwork for better financial habits.
You could also wait for moments when you might receive a lump sum of cash. For example, your tax refund is an excellent source of money to repair your credit. Some people can also count on birthday money from family or Christmas bonuses at work.
In some cases, freeing yourself of an expense brings in the extra cash. For example, paying off your car loan could put a few hundred dollars back into your monthly budget.
2. Have an Open Mind
Keeping an open mind makes you coachable and ensures you can take direction well. Remember that the advice is not a critique of who you are. You hire a credit repair company to resolve an issue, so take the advice and apply it to see results.
Remember that repairing your credit takes time. Some well-timed fixes could immediately improve your score, but it gets harder to improve your score the higher it gets.
You will probably hear a lot of tips and advice from the credit repair professional you choose. At first, it might all feel like too much to remember. That’s OK! Take everything in and try your best to implement as much as possible.
3. Start With the Endgame in Mind
Before you start working with a credit repair company, know what you want to achieve. For example, do you want to improve your credit score to buy a house? Are you improving your score to get a better interest rate on a loan? Do you just want to raise your credit limit?
Whatever your goal is, make sure you’re clear about it. Stating it from the start will help you work with the company to create a plan and budget that meets your needs. Having an end goal makes it easier to make some of the more difficult adjustments professionals might recommend.
4. Find Your Credit Score
Your credit score will vary across different platforms, so check multiple sources before working with a credit repair company. Understanding the reasons behind the variations can also help you determine what sources to review so you can get a more rounded picture of your credit. Consider the following factors:
- The scoring models that platforms use, such as VantageScore 3.0 vs. FICO 8
- The credit bureaus they pull information from, such as TransUnion vs. Equifax
- How fast the company accesses new information and updates the score
The good news is that there are many free sources to access your score. One good starting place is your bank. Almost all online banks now allow you to view your score from the app. CreditKarma is another common source, especially if you later want recommendations for a wide range of credit options. Some people also swear by NerdWallet’s finance app.
5. Understand How Your Credit Score Works
Knowing your credit score is just the beginning. Before hiring a credit repair company, you also want to educate yourself on what makes up the score and what could have caused it to be lower or higher than you initially thought. Consider the following components.
This includes whether you’ve made on-time payments or missed any. It accounts for 35% of your credit score, the most considerable portion of your score. Creditworthiness looks at your likelihood of paying your bills fully and on time. Naturally, your past ability to do so counts toward whether lenders think you can continue to do it in the future.
This refers to the percentage of credit you’re using versus the available credit. It accounts for 30% of your credit score. Lenders want to see you using a manageable amount of credit so you can still make on-time payments if you have an emergency. Some finance gurus recommend keeping your utilization below 10%.
Credit History Length
A longer history usually results in a higher score because it shows you’re a reliable borrower. That is essentially what a credit repair company aims to prove. Credit history length accounts for 15% of your credit score. In some cases, even young people have older credit history lengths because their parents might have added them to their accounts. Some people also purchase tradelines.
The mix looks at the different types of credit you have, such as installment loans, revolving lines of credit, and mortgages. It makes up for another 10% of your credit score. A more diverse mix generally indicates you’re an experienced borrower.
New Credit Accounts
These refer to how many accounts you’ve opened recently and for what purpose. It counts for only 10% of your credit score. Even so, your credit repair company might warn that too many new accounts can temporarily drop your score. People with new or young credit scores might also experience big drops when adding new accounts.
6. Request Your Credit Reports
You’re entitled to a free credit report from each bureau once per year. Credit reports include the quantitative data behind the score you see. These reports cover more than just your loans or credit cards. They also include information on who your employers have been, how long you’ve held your job, and the addresses tied to you.
The FTC recommends getting your free credit reports from AnnualCreditReport.com. Remember that, every year, you get one free report from each company. So, ideally, you should not need to pay for a company to request this for you. However, if you lose the credit reports, you might need to pay for another.
7. Check for Errors
Only you can determine what is or is not accurate on the report, so take the time to complete this check before working with a credit repair company. Reviewing these reports can help you identify any errors or potential fraud on your accounts.
Start by making a copy of your reports that you can write on. Then, make a separate list of all the errors you note and the bureau that has the error. You might encounter errors on one report but not on others.
If you find any errors, you can file a dispute with the credit bureau. The credit bureau will investigate and determine if it should remove the item from your report. This is a step credit repair professionals can help you with, but many people do this independently.
8. Get Organized
You might need to provide a lot of documentation to the credit repair company. Having everything in one place will save you time when they request it. Gather any relevant documentation, which might include the following:
- Identification documents
- Proof of income
- Current debts and expenses
- Past credit reports
9. Prepare To Negotiate
The company will likely try to negotiate with your creditors on your behalf. Negotiation is one of the most challenging parts of the credit repair process and one of the top reasons people turn to professionals. You might be able to do this independently, but it can be difficult and time-consuming.
Even if you’re going to hire someone, you could try to negotiate your own terms first. Doing this will give you a starting point for the negotiations. You can also compare your negotiation results with what the credit repair company can achieve.
If you’re happy with their results, you can continue to use their services. If you’re not satisfied, you might be able to get a refund or cancel your contract.
10. Understand the Process
The credit repair process can be confusing. There are different steps involved and you might need to provide documentation at each stage. Ensure you understand what the company requires and when you need to provide it.
You should also understand the fees you’re paying. Some credit repair companies charge a flat fee, while others charge based on their results. Know how much you’re spending and what you’re getting in return.
How they charge for services also determines how you choose to handle the process. If they charge by the hour, it will save you money to get as much of the work done on your own as possible. When you pay a flat rate, it might be better to let the experts handle it, but try to stay involved so you can learn tips along the way.
11. Get Everything in Writing
When working with a credit repair company, make sure you get everything in writing. Written documents include the contract you sign and any correspondence with the company.
You should also keep your own records of what you’ve done to improve your credit. Consider documenting the steps you’ve taken on your own and the work the company has done on your behalf.
By keeping everything in writing, you can track your progress and make sure you’re getting the results you want. You can also use this documentation if you need to file a complaint or take legal action against the company.
12. Find the Right Credit Repair Company
Choose a reputable company that will help you improve your credit score legally and ethically. Unfortunately, some companies use illegal methods or aren’t upfront about their fees.
Research each company you’re considering. Check for reviews online and see what other people say about their experience. Ignore what the company has on its website and look for independent reviews.
You can find reviews on Google Business listings and the Better Business Bureau. When checking these reviews, look at more than the aggregate score. For example, a business with 200 reviews and a 4.5-star rating is likely more trustworthy than a business with four reviews and a five-star rating.
Why Do You Need a Credit Repair Company?
There are several steps you can take before improving your score. Taking action can save you time and money. However, you eventually reach a plateau where you might not have the knowledge or skills to improve your score further. That is when you need to work with professionals to get the job done.
Credit repair professionals can dispute errors on your credit report, negotiate with creditors and work to get negative items removed from your report. They might even know how to consolidate your loans and lower your interest rates in some instances. These services and more can help you develop a plan to keep your credit score for the foreseeable future.
It also eliminates a lot of the guesswork and experimentation you would otherwise need to do to get similar or lesser results. Are you ready to choose the right credit repair company? Check out our list of the best ones available.
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