If you have seen an ad for a credit repair agency you may have noticed taglines like, "bad credit - no problem!" Even if you're in quite a bit of credit trouble, it is best to take the statements in these ads with a grain of salt until you can verify their validity.
What A Credit Repair Agency Does
Also called credit counselors, credit agencies assign a representative to each customer. This representative is responsible for speaking with the customer's creditors and trying to help make it easier to make their payments. For example, a credit agency representative can try to get interest rates lowered, payment terms extended or the overall amount of the debt reduced. Other services the agency might provide include the following:
- Going over your credit report and checking for errors
- Speaking to your creditors to correct any error found
- Helping you make choices that can improve your score
The creditors working with the agency usually permit the agency to take a percentage of the debt the client repays. This is a win-win situation since the consumer repays instead of simply declaring bankruptcy, meaning the creditors recoup either all or some of what they are owed as opposed to nothing. This doesn't mean it can prevent consumers from declaring bankruptcy in instances. Lenders do have limits to how little money they are willing to accept.
Choose an Agency
You want to find an agency that puts clients first, working with your creditors to get you better repayment terms and lower interest rates than what you currently have on your debts. One of the best agencies you'll find is the Consumer Credit Counseling Service, which is a nonprofit organization affiliated with the National Foundation for Credit Counseling. There are numerous branches of this service, so you should be able to find one nearby - or at least one that is willing to work with you over the phone or online.
Once you find an agency that looks good to you, ask the following questions before proceeding further:
- Do you charge a fee upfront? Some credit repair companies make you shell out $1000 or more just to begin using their services. This should set off a red flag. The company isn't really helping you repay your debt, but is instead putting you deeper into debt. This is often the sign of a scam. Note that a small fee, like $5 to $20 is fairly reasonable.
- Are you accredited? If the agency is not affiliated with the Foundation, it should be affiliated with the Association of Independent Credit Counseling Agencies. Use an agency that is not accredited and you could be asking for trouble.
- Will you guarantee my payments arrive to my creditors on time, including the payment for the first month? If not, there really is no point in using this agency. Your credit could potentially get worse.
- Can you fix my credit right away? If the agency representative says yes, be wary. While you can improve your credit over time by using the right agency, any company that promises miracles is biting off more than it can chew.
If you can still afford to repay your debts without help, even if it does get tough at times, you might not benefit from using a credit repair agency to help you repair your credit. In fact, you're probably better off not working with one. Once you start paying back less than the total amount you owe, you can expect to see that information come back to bite you on your credit report.