There are several ways to repair your credit rating. Credit scores rate the likelihood that you will default on a loan and that you will pay off your credit debts, so there are specific factors used to determine your credit rating. So when you try to repair your credit rating, you have to account for these factors and see which ones you can control. I’m not being facetious when I say that you start with paying down your debts, because at the heart of your credit rating is that you show a history of paying your debts and an ability to pay your debts in the future.
Online Credit Repair Companies
First, I want to state that there is nothing that online credit repair companies can do that you can’t do yourself. Keeping this in mind, it’s probably better that you learn the few simple steps to credit repair that these companies have learned. Then you can use them yourself. Instead of paying extra fees for credit repair or debt consolidation, you can allot that extra money to actually paying down your debts. With that in mind, I’ll go over the various types of credit repair firms.
Remember, if a company offers to “handle everything for you” or “no interest loan”, they are scamming you. They want your money and probably aren’t going to do anything for you, so you’ll end up owing more money than ever. A company will have to charge interest if they are helping you, or they won’t make money. Also, a company that is offering to handle everything doesn’t want you interested in what they do with your hard-earned money.
Debt Consolidation Company – This is a company which offers you a debt consolidation loan. Essentially, instead of paying off ten different credit cards bills and student loans every month, you pay off one bill. The debt consolidation company (if it’s on the up-and-up) pays off your debts up front (hopefully), then you owe them money for these debts. You pay them one monthly payment at a higher interest rate than before, but the credit card companies let the credit reporting agencies know that you’ve paid off your debts with them, getting you on the road to a better credit rating (usually two years from the time the bills were paid). You start to raise your credit score, but at the cost of higher interest payments.
Debt Management Company – A firm which helps you set a household budget and advises you how to pay off bills. Sometimes, they offer a debt consolidation loan. There is no advice they can give you that you can’t learn on the internet reading articles like this. Also, there is no personal finance budgeting technique that you probably don’t already know yourself. The best that can be said is that they act like the little angel on your shoulder – someone you have to reckon with if you go over budget.
Debt Negotiation Company – A debt negotiator calls your credit card company and tries to negotiate a lower debt. These companies will often suggest they can get your debt reduced by as much as half. “Debt negotiation” is a real possibility, because credit card companies would rather you pay back 75% of your debt than have you declare bankruptcy and default on 100% of your debt. The idea of debt negotiation is that you have all the power in the negotiation, because you always have the option of going bankrupt. (That may sound like a strange way to put it, but that’s the logic and that’s how your creditor is going to look at things.) The point being, you can negotiate directly with your credit card company and get terms just as good, so there’s no need to hire a debt negotiator.
There are all kinds of other permutations of credit counseling and debt consolidation firms out there, and many of them combine some element of the three listed above. Also, there are plenty of online debt consolidation companies that are scam artists, who sell hope to get your money. My advice is to learn how to repair your credit rating yourself and then pay down your credit debts.
Repairing Your Credit Score
You’re already familiar with some of the concepts involved with repairing your credit score. Now it’s a matter of applying them to your debt situation. There’s no two ways about this: you’ll need to practice household budgeting to pay off your credit cards, while doing a few things to help your credit score while you’re digging yourself out of the debt hole.
- Don’t Make It Worse – To begin with, stop charging up more bills on your credit card. Tear up all but one or two of your credit cards and use the ones you have left only in the case of necessity. You’ll need to start paying off your credit card bills without using your credit cards, too, so you don’t have revolving debt. The first step in repairing your credit rating is that you must stop running up more credit debt.
- Negotiate Lower Debts – Call your credit card companies
and see if they will negotiate a lower debt with you. You might think that no sane credit card company would ever do that, because they have you on the hook for the debt you’ve amassed with them. But remember, if you are running up huge credit debts, they are probably getting concerned that you are going to declare bankruptcy. If you do, they never see one red cent from the debts you owe them. So they have an incentive to negotiate a lower debt.
So call your credit card company and let them know you want to negotiate a lower debt. And if you happen to mention that you are considering filing for bankruptcy, that probably won’t hurt the negotiations, either. Usually, you’ll get some debt knocked off, which is money right from the start that you don’t have to pay. It’s worth the call. Don’t go in expected to get your debt reduced to 50%, because that’s what debt negotiators who want your business will promise – and might not reflect reality. If you end up with 75% of your original debt, that’s a lot of money you don’t have to repay. Even getting 10% knocked off helps.Let the credit card company make the first offer, instead of suggesting a percentage yourself. Don’t take their first offer, but don’t be unreasonable in your counter-offer, either. And if you feel guilty negotiating your debt, don’t. If you’ve been paying interest on that credit card for a while, that credit card company made a profit off of you a long time ago.
One, pay off the smallest debts first. This way, you get a sense of accomplishment and start to lower the number of payments you have every month quicker. Also, these satisfied creditors will report you have paid them off in full and your credit rating will be helped (in time).
Two, pay off the highest interest debts first. You are saving money this way, because you won’t be paying the most outrageous interest rates for as long. In the long run, you’ll be a smaller percentage of your credit card payments every month in interest.Choose one of these two methods and go with it. Both make sense, so just figure out which one makes the most sense for you. Most importantly, get a plan and stick to it.
Each of these companies will sell you their credit reports for about $15. There are some cases you can get them for free, too. In either case, get a recent credit report and check the facts. You might consider getting all three (if you can afford them at the moment) and cross-referencing the reports. Check the discrepancies. Then go to the website for each of these credit reporting agencies and find the “dispute credit report” link. You can dispute their claims online.If you succeed in your dispute, the credit reporting agency will remove the erroneous information from your report, and your credit rating will instantly go up (or be repaired). As mentioned earlier, this is the quickest way to get some credit rating relief. Once again, there are companies that can do this for you, but you can do it yourself without much trouble at all and save your money.
Think about it. In two years time with a little budgeting an a credit repair plan, you can repair your credit score and be able to get personal loans and decent interest rates again. So start to repair your credit rating today by learning those few credit skills above, and you’ll live a happier, less angst-ridden life.