There has been a lot written lately about the evils of credit repair and credit repair companies.
While it's true that some are unscrupulous, you will find that in any industry.
The best defense is understanding the laws and regulations in place to protect you.
The true cost of bad credit will astound you.
It is said that the "average" person with less-than-perfect credit will have, all other things equal, over $3,000 LESS DISPOSABLE INCOME per year than someone with very good credit.
While I personally believe that figure to be low, it makes it very clear that someone with a 700 score will see benefits that someone with a sub 600 score will not see.
While the way the actual score is determined is a "secret", it is based on the information reported to the credit reporting agencies by your creditors.
Since the creditors are paying to report information on you so that your ability to borrow and repay on time can be evaluated, they are able to submit whatever information they have in their files.
The simple fact is that the credit reporting agencies are collecting and distributing unverified information that affects your financial security and possibly your livelihood.
A 2004 report distributed by the U.
S.
PIRG (federation of state Public Interest Research Groups) states that 79% of all credit reports contain errors.
If the reporting agencies validated the information before posting, that number would be much, much smaller.
The report adds that 25% of those errors are serious enough to be refused credit.
In other words, the rumors they spread could be harmful to you and your financial stability.
Until the government intervened with the Fair and Accurate Credit Transaction Act of 2003 (originally intended to assist victims of ID Theft), you had to purchase copies of your "Consumer" credit file.
For many, it was difficult to see what was in the file and more difficult to dispute errors on it.
Thankfully, it is much easier to see what is in your file now, but disputes are still difficult at times and errors are still found on a majority of reports.
This is where the credit repair companies can help.
Yes, individuals can dispute their own files, but unless they are very familiar with FACTA, the Fair Debt Collection Practices Act, and other consumer protection acts and laws, they are at a distinct disadvantage during the dispute process.
Just like you would see an ER physician or a cardiologist if you are having chest pain, you should see a specialist who works on credit dispute issues every day.
Before we discuss the cost of credit repair, let's break down the cost of bad credit.
From a financial aspect, if your scores are below 720, you could be paying hundreds of dollars MORE on your mortgage every month.
Even a small difference in interest rate, from 8% to 7% on a $150,000 mortgage, equates to just over $100 a month in savings on principle and interest alone.
Add in the increased cost of private mortgage insurance and the new Loan Level Price Adjustments for borrowers with a score less than 680, and you could be looking at higher monthly payments, more "penalty fees" paid up-front or financed into the loan (soon up to 2.
75% because of the LLPAs) and higher required down payments.
All because of potentially inaccurate information on your report or from past financial difficulties that you have overcome, but are still being penalized for.
Another issue that I often see is the presence of collections on the report.
While the fact that a collection agency reports a debt may be true, there is no notation of whether or not the company has the LEGAL right to collect.
However, do not think for a moment that they won't try.
In fact, every year, consumers are bullied into paying millions of dollars to unethical collection companies who don't have the right to collect any longer, but because they use threats of lawsuit, garnishment, or lien, consumers feel that they have no other option than to pay.
So, what is the true cost of credit repair? In most cases, much, much less than the cost of poor credit.
In addition to the savings on a mortgage as described earlier, repairing poor credit may decrease the interest rates on your credit cards and auto loans, as well as decrease your insurance costs.
These savings could add up to hundreds if not thousands of dollars a month, depending on your level of debt and your current interest rates.
If you can spend a certain amount on credit repair and get 2-5 times the return on your investment over the next year, it's very much worth it.
Think of it as someone willing to sell you $10 bills for $5; how many would you like to buy? If you said ALL OF THEM, we obviously think alike.
While it's true that some are unscrupulous, you will find that in any industry.
The best defense is understanding the laws and regulations in place to protect you.
The true cost of bad credit will astound you.
It is said that the "average" person with less-than-perfect credit will have, all other things equal, over $3,000 LESS DISPOSABLE INCOME per year than someone with very good credit.
While I personally believe that figure to be low, it makes it very clear that someone with a 700 score will see benefits that someone with a sub 600 score will not see.
While the way the actual score is determined is a "secret", it is based on the information reported to the credit reporting agencies by your creditors.
Since the creditors are paying to report information on you so that your ability to borrow and repay on time can be evaluated, they are able to submit whatever information they have in their files.
The simple fact is that the credit reporting agencies are collecting and distributing unverified information that affects your financial security and possibly your livelihood.
A 2004 report distributed by the U.
S.
PIRG (federation of state Public Interest Research Groups) states that 79% of all credit reports contain errors.
If the reporting agencies validated the information before posting, that number would be much, much smaller.
The report adds that 25% of those errors are serious enough to be refused credit.
In other words, the rumors they spread could be harmful to you and your financial stability.
Until the government intervened with the Fair and Accurate Credit Transaction Act of 2003 (originally intended to assist victims of ID Theft), you had to purchase copies of your "Consumer" credit file.
For many, it was difficult to see what was in the file and more difficult to dispute errors on it.
Thankfully, it is much easier to see what is in your file now, but disputes are still difficult at times and errors are still found on a majority of reports.
This is where the credit repair companies can help.
Yes, individuals can dispute their own files, but unless they are very familiar with FACTA, the Fair Debt Collection Practices Act, and other consumer protection acts and laws, they are at a distinct disadvantage during the dispute process.
Just like you would see an ER physician or a cardiologist if you are having chest pain, you should see a specialist who works on credit dispute issues every day.
Before we discuss the cost of credit repair, let's break down the cost of bad credit.
From a financial aspect, if your scores are below 720, you could be paying hundreds of dollars MORE on your mortgage every month.
Even a small difference in interest rate, from 8% to 7% on a $150,000 mortgage, equates to just over $100 a month in savings on principle and interest alone.
Add in the increased cost of private mortgage insurance and the new Loan Level Price Adjustments for borrowers with a score less than 680, and you could be looking at higher monthly payments, more "penalty fees" paid up-front or financed into the loan (soon up to 2.
75% because of the LLPAs) and higher required down payments.
All because of potentially inaccurate information on your report or from past financial difficulties that you have overcome, but are still being penalized for.
Another issue that I often see is the presence of collections on the report.
While the fact that a collection agency reports a debt may be true, there is no notation of whether or not the company has the LEGAL right to collect.
However, do not think for a moment that they won't try.
In fact, every year, consumers are bullied into paying millions of dollars to unethical collection companies who don't have the right to collect any longer, but because they use threats of lawsuit, garnishment, or lien, consumers feel that they have no other option than to pay.
So, what is the true cost of credit repair? In most cases, much, much less than the cost of poor credit.
In addition to the savings on a mortgage as described earlier, repairing poor credit may decrease the interest rates on your credit cards and auto loans, as well as decrease your insurance costs.
These savings could add up to hundreds if not thousands of dollars a month, depending on your level of debt and your current interest rates.
If you can spend a certain amount on credit repair and get 2-5 times the return on your investment over the next year, it's very much worth it.
Think of it as someone willing to sell you $10 bills for $5; how many would you like to buy? If you said ALL OF THEM, we obviously think alike.
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