Credit counseling and credit repair are two very distinct ways to get out of debt, even if they sound like different ways of expressing the same thing.
Credit counseling is professional financial guidance. Credit counselors are employed by charitable organizations to provide clients with tools for successful money management and debt repayment.
On the other hand, credit repair businesses concentrate on your credit report. They are just there to find and remove any erroneous information that may still be on your credit report. Expecting a credit repair organization to help you create a monthly budget, combine your credit card debt, or negotiate a reduced interest rate is unrealistic. They don’t do that.
It would be wonderful if the two approaches had more interesting names, but for the time being, you’ll simply have to be careful not to confuse them. We’ll explain some more of the similarities and differences between credit counseling and credit repair below.
What Is Credit Counseling
Credit counseling is financial guidance that is given to you on an individual basis and is accompanied with a package of resources.
The entire purpose is to provide customers with the resources they need to manage their debt. It costs nothing to consult a credit counseling agency, and their budgeting guidance is priceless.
You’ll be required to rethink whether you actually need that $9.99/month ($120/year) Spotify subscription or whether you could get by with the interruptions of adverts in the free version by a credit counselor. They will assist you in identifying additional areas of your spending plan where you may make some savings that could be used to reduce your debt.
You might be able to participate in a debt management program if you decide to seek help beyond a counseling session. Programs for managing your debt can lower your credit card interest rates to as little as 8%!
As of February 2020, the typical interest rate on credit cards is approximately 20%. The average penalty interest rate is just around 30%, which is likely what you are now paying if you are thinking about consolidating your debt.
Without even mentioning the advantage of having all your cards combined into a single easy payment, it would be difficult to find credit card interest rates in the single digits. Before selecting if debt management programs are the correct choice for you, consider the advantages and disadvantages that each program has to offer.
What Is Credit Repair
By eliminating inaccurate information from your credit report, credit repair businesses guarantee to raise your credit score. The trouble about credit repair businesses is that they don’t provide any services that you can’t obtain on your own.
There isn’t a magic wand that can remove the flaws from your credit report. Credit repair businesses merely seek for inaccuracies (such as payments that were reported as overdue but were really paid) and send letters to the credit bureaus requesting that they be corrected.
Negative information cannot be removed only because it is negative. Your credit report is marred by bankruptcies, foreclosures, and past-due payments, which temporarily lowers your credit score. There is no “credit repair” that can alter it. It takes time for these issues to improve. However, the less impact a negative mark like a bankruptcy or repossession has on your score, the longer it has been since the incident.
Lenders are scared off much more quickly by a recent bankruptcy than by one that occurred three or four years prior. However, credit repair agencies can persuade the credit bureaus to remove inaccurate information from your credit report. Your credit report may be harmed by a chapter 7 bankruptcy for ten years, whereas a chapter 13 bankruptcy remains on the report for seven.
But errors will always occur. One in five persons have a mistake on their credit record, per a Federal Trade Commission survey.
This issue would be discovered by a credit repair business, which would then send a letter to the credit bureau asking them to correct the error and remove it from your credit report. With the exception of the most extreme circumstances, most customers could handle this on their own.
Keep in mind that lenders will be able to view your credit record. There is a lot of private data in one place. You run the danger of falling victim to a credit repair scam or even identity theft if you give it over without first making sure you’re working with a respectable business.
Before working with a credit repair firm, read several evaluations from various sources. Before signing any contracts, you should search the Consumer Financial Protection Bureau’s complaint database for the business’s name.
Credit Counseling and Credit Repair: Their Differences
The main similarity between credit counseling and credit repair is that both are meant to assist you in gaining control over your money. A more comprehensive approach is used in credit counseling, which examines your earnings, outgoings, and overall debt. In order to get out of debt and keep your credit score high, they educate you how to budget.
But with credit repair, your credit report is the only thing that matters. You employ a professional to check your credit report for inaccurate or out-of-date information. They will notify the credit bureaus if they discover anything suspicious.
A bankruptcy that shouldn’t be included on a consumer’s credit record might be seen, as well as late payments that were really made on time. A specific stamp is not required to contact the credit bureaus. You are welcome to submit a disagreement letter to them. Credit repair businesses are subject to certain regulations designed to safeguard customers.
This indicates that they won’t be able to bill you until they’ve received the promised outcomes. Never believe a credit counselor or credit restoration specialist who claims they can raise your credit score quickly. Even the CEO of FICO does not possess such authority.
According to the Credit Repair Organizations Act (CROA), you have the following rights:
- Companies that fix credit cannot make misleading promises. They are not permitted to misrepresent their skills to you.
- They won’t be able to collect money until they’ve fulfilled all the conditions of the agreement, including removing all of the things from your credit record that they promised to.
- Within three days of signing your contract, they must allow you to terminate it without any conditions.
- They must let you know that you may get in touch with the credit bureaus on your own.
- They must provide you recommendations on how to strengthen your credit portfolio.
- Additionally, credit repair businesses cannot encourage you to change your identity or lie about your credit history. Yes, the legislation expressly mentions this. Therefore, you’re out of luck if you were seeking guidance on how to modify your EIN or SSN.
What are your main goals? Credit counseling is the best option for you whether you need assistance sorting out your complex finances, eradicating credit card debt, or just creating a budget.
BUT call a credit repair service if your credit report is full of inaccuracies and you don’t have the time or patience to check into them (and you don’t mind spending a little money). Remember that credit repair businesses only work with credit reports. There isn’t much they can do for you if your credit report is clear of errors but your credit score is still poor. Credit Repair Bay Area looks forward to helping you improve your credit report and score, call us today!