If you’ve been looking into credit repair programs, you’ve probably seen countless warnings to “Beware unscrupulous credit repair companies!” Plenty of resources warn you to look out for credit repair companies who take your money but fail to provide the services you need, but few resources tell you about the little-known dangers of credit repair companies. Did you know that contrary to what they tell you, a credit repair company can actually be damaging your credit further? Before you consider using a credit repair company, think about these warning signs:
Credit counseling companies can ruin your credit.
Some credit repair or debt relief companies set up a plan where you pay them a large monthly payment, and then they disburse your payment to your creditors. In return for their services, the credit repair company takes a chunk off the top of your payment. Why would you pay a credit repair company to make payments that you could make yourself? Most credit repair or debt relief companies that discuss this consolidation tell you they can get creditors to agree to repayment plans that you would never get.
Beware these repayment plans.
What these companies don’t tell you is that the payments they send may not be enough to meet your creditor’s minimum payments. The only way a creditor is legally obligated to accept a low-monthly-payment repayment plan is through bankruptcy. If your credit repair or debt consolidation company is sending less than the minimum payment without the approval of your creditor, the creditor may report your payments as late payments, delinquent or even a charge off. If your creditor is reporting your payments late month after month, that’s a serious hit against your credit report. And worse – if you’re making less than the monthly minimum payment, a creditor can go to court and seek a judgment against you!
As for the so-called “non-profit” credit counselors; think again before you think they’re not making money. Many non-profit credit counselors are paid by your creditors for negotiating a payment plan, so they earn their fees directly from the creditors – they’re not just in it out of the goodness of their hearts. If you’re thinking about using a non-profit service, clarify any potential sources of revenue – including revenue from creditors – that might constitute a conflict of interests. If they’re not in it solely to help you, you could get bad or misleading advice.
Credit repair is something you can do yourself.
Beyond debt relief or credit repair repayment plans, there’s another way in which credit repair companies don’t do you any services. If you’re paying a credit repair company to clean up your credit, you’re paying for a service that you could be doing yourself! Credit repair companies don’t do anything that consumers can’t do themselves with a little time and patience. You’re much better off saving your money and applying it towards your outstanding bills. No credit repair company can improve your credit overnight, and the only way to legally make your debt go away is through bankruptcy.
If it sounds too good to be true, it probably is.
Like with many things in life, if a credit repair company sounds too good to be true, it probably is. Credit repair companies make ridiculous claims that they can’t back up, just to get consumers to give them money. Some credit counseling services offer legitimate services, but credit counseling and credit repair are two distinctly different services. If you’re in doubt, consult a legal professional about your debt scenario.
-Money Maven
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