One of your greatest tools to building wealth is your credit score. With a solid credit score and history, you have access to interest rates, including a mortgage for a home, a car, good rates on your credit cards and student loans. Credit scores are also used by employers to vet job candidates, and — fair or not— prospective lovers may not be interested in forming a partnership if your credit situation is in tatters.
In other words, those three little numbers that make up your credit score are something you cannot afford to ignore.
But, what if once you start paying close attention to your credit score, you realize you need to improve it, ASAP? After all, the time involved in addressing errors and negative marks (like late payments, maxing out lines of credit, or failing to pay an account) can take months to deal with. Maybe you’d avoided your finances, and are now paying the price. Or, you may be a victim to credit fraud or honest errors. A Federal Trade Commission study found that 1 in 5 U.S. consumers had errors on their credit reports — errors that significantly torpedo their credit scores.
Why are credit scores a big deal?
The lower your credit score, the more you pay in interest on loans — and the less likely you are to get a loan in the first place. For example, as of this writing, if your credit score is between 760 and 850, you would qualify for a 30-year mortgage at around 3.88 percent, or $942 per month on a $200,000 mortgage. However, if your score is in the 620 to 639 range, the rate jumps to 5.477 percent, or $1,133 per month on the same principle — a $68,664 difference over the life of the loan.
Worse yet, if your score is lower than 620, then you have a small chance of getting a loan at all.
By the way, do you know what your score is right now? You may want to check out CreditSesame to find out where you stand.
But, what if you want to buy a home in the next couple months, or your Honda Accord finally died for good and you need a new ride — but you don’t have cash on hand to buy one, and need a loan?
Thankfully, consumer protection laws ensure that you and I are entitled to have removed any and all errors from our credit histories — and legally can take on this process ourselves, for free.
These errors include:
- Accounts that do not belong to you — including those in the name of your husband or wife only, even if you are still legally married to him or her.
- Bankruptcy that was not yours.
- A single legitimate debt that has been reported multiple times.
- Misspellings, which may add negative entries that belong to someone with a similar name — or may mean positive entries aren’t showing up when they should.
- Incorrect dates.
- Debt that should have aged off the report, but didn’t.
Many people chose to tackle credit repair themselves — and do so successfully. This takes time and diligence, and educating yourself on credit law.
Pros of DIY credit repair include:
- It’s free
- You will learn a lot about consumer credit laws, and how credit scores work
- It may inspire you to improve your money management habits long-term
Cons of DIY credit repair:
- It is tedious, and most people don’t enjoy it
- Like doing your taxes and fixing your car – sometimes it makes sense to pay an expert to do this, because they are inherently better at it than you
- If money management is not your strong-suit, then credit repair probably is not within your core competency
My interview with Lexington Law credit expert Randy Pedawer:
Another option is to turn to credit repair services, that work on your behalf to rebuild your credit — for a fee. These services are not cheap, and if you google the different companies, many complaints pop up on reviews. However, the fact that there are so many credit repair companies suggests that many people use them.
This from my friend Penny, a Houston single mom:
Are credit repair services a good deal? Or are they a total ripoff you should avoid?
Here is how a credit repair service like Lexington Law works:
If you chose to work with a credit repair company, you will pay a monthly fee, and give the company access to your credit score and report. They will then go through your report and identify any errors. They may ask you to verify records and produce documentation to prove you are not responsible for certain negative marks. For example, if your ex defaulted on debt that your divorce decree specified is his sole responsibility after your split, you may be asked to show documentation of that decree to have the default removed from your score.
It can take months or even more than a year to really improve your credit score. However, because the law requires credit bureaus to remove errors within 30 days, doing so can be one of the fastest ways to boost your score, and help you meet your goals — whether buying a home, car or reducing your credit card interest rates so you can pay off debt quicker.
Pros and cons of hiring a credit repair company vs DIY
Below are tips on choosing and working with a reputable credit repair company. But before you commit, how do you know that paying money to such a company is a good value?
Everyone is allowed to dispute credit errors on their own behalf. The DIY method can be time-consuming and confusing — but it is also free (free is good!). A credit repair company will charge you a fee to take this task off your plate and do it for you.
A credit score is often a time-is-money proposition. After all, if you have a poor credit score, and are paying high-interest rates on your debt, it may be a wise investment to hire a pro to efficiently work to remove any errors that are keeping your credit score down. The quicker you boost your credit score, the quicker you qualify for lower interest rates, which can save you hundreds of dollars each month.
Just like hiring an accountant, or outsourcing housecleaning to a professional, there is value in hiring an expert to take on an unpleasant task, in part because they are far more efficient than you at credit repair, and in part because credit repair is boring, annoying and you can use your time much more effectively elsewhere!
A qualified credit repair company will work within federal laws to protect and improve your credit history and score. These laws include the Fair Credit Reporting Act, the Fair Credit Billing Act, and the Fair Debt Collection Practices Act.
On the other hand, credit repair companies can only remove errors. If your score suffers because of legitimate mistakes you made, those can only improve by you practicing good credit hygiene, like paying bills on time and using less than 30 percent of your credit available. Eventually, past mistakes will age off your report and your score will improve.
Randy Padawer, Ph.D., credit expert at Lexington Law, a credit repair company, said: “If your situation is not complicated, and your credit score only has an easily resolved error or two, then you may just want to try credit repair on your own. Any ethical credit repair company will tell you that.”
“Most people think that credit repair means disputing over and over until the bureaus relent. If that is your strategy, you probably will not succeed. The best kind of credit repair involves a broader conversation with lenders, the bureaus, and the consumer. Moreover, many factors related to credit reporting fairness provide substantial leverage for consumers who want to improve their credit scores.” — credit expert Randy Padawer
How to choose a reputable credit repair company
The credit repair industry is full of companies, and it can be hard to tell which are legit and reputable. Padawer suggests asking for real-life case studies. “Every case is different, and no professional firm can ethically predict exact outcomes — so be wary if one tries to.”
Also note laws that prohibit credit repair firms from charging up-front fees, and that they are required to give clients a three-day right to cancel without charge. Avoid firms that promise certain scores within a specific time frame or those who promise they have access to credit repair tools that you do not — that is not true.
Lexington Law is an actual law firm, owned and run by lawyers. Lexington Law credit repair fees are $89.99, though there are packages for up to $129.99 that include monitoring and fraud alert features.
Some of the links in this and other posts generate a commission. I never recommend products that I don’t truly believe in. Seriously – I get asked to write about stuff all the time and turn down hard cash if I’m not feeling it.
Emma Johnson is a veteran money journalist, noted blogger, bestselling author and an host of the award-winning podcast, Like a Mother with Emma Johnson. A former Associated Press Financial Wire reporter and MSN Money columnist, Emma has written for the New York Times, Wall Street Journal, Forbes, Glamour, Oprah.com, U.S. News, Parenting, USA Today and others. Her #1 bestseller, The Kickass Single Mom (Penguin), was named to the New York Post's ‘Must Read” list.
Emma regularly comments on issues of modern families, gender equality, divorce, sex and motherhood for outlets like CNN, Headline News, New York Times, Wall Street Journal, Fox & Friends, CNBC, NPR, TIME, MONEY, O, The Oprah Magazine and The Doctors. She was named Parents magazine’s “Best of the Web,” “Top 15 Personal Finance Podcasts” by U.S. News, and a “Most Eligible New Yorker” by New York Observer.
A popular speaker, Emma presented at the United Nations Summit for Gender Equality. Read more about Emma here.