It’s little surprise that a growing number of individuals are seeking the help of credit repair services. The national unemployment rate is still above 9.5 percent. Housing values have fallen, cutting homeowners off from the cushion of home equity loans. And more people than ever have bad credit scores.
But consumers need to be careful when seeking out the help of credit repair services. Not all of them are created equal.
Before signing up with such a company, consumers need to do their research. If they don’t, they might find themselves spending hundreds of dollars for little to no results.
Credit Scores are King
Consumers today know that credit scores are king. Mortgage, auto, and personal lenders use them to determine who gets loans and at what interest rates. Consumers with low credit scores, under 620, are usually saddled with high interest rates. Those whose scores are above 750 will usually qualify for the lowest interest rates.
The problem today, though, is that a growing number of consumers’ credit scores fall under that 620 mark. A recent study by FICO, the largest provider of credit scores in the country, said that nearly 25 percent of consumers have scores under 600. A score this low, of course, ranks as a bad one. Consumers with such low scores will struggle to obtain any loans from conventional lenders.
Credit repair services promise to help consumers boost their weak scores. The best of these firms follow through on their promises. They help consumers set up spending budgets so that they can gradually trim their credit card and other debts. They make sure that consumers have enough available cash to pay their bills on time every month. And they provide credit counseling, so that consumers can identify the reasons for their past overspending. By doing this, consumers will be far less likely to run up their credit card debt again.
Unfortunately, not all of these services are interested in helping their clients. Many have sprung up during the recession and its slow recovery in the hopes of earning quick cash. Indeed, one of the few industries to thrive during these dismal economic times is the credit repair business.
Consumers who scan the Internet will find plenty of stories, from across the country, on companies that take loads of money upfront from their clients and then do nothing to improve their credit. Others take the money and simply disappear, leaving behind no traces that they ever existed.
Fortunately, it’s relatively easy to spot the scammers. Consumers should avoid companies that make outrageous promises. For instance, there is no way for consumers to raise their credit scores by 100 points or more overnight. They is no legal way for credit repair companies to remove a correctly recorded bankruptcy, housing foreclosure, or other negative judgment from their clients’ records.
Avoid the Upfront Fee
Finally, consumers should always steer away from credit-boosting services that charge upfront fees. This is a good sign of a company that is running a scam. Too often, companies that charge upfront fees are merely doing so as a way to nab some quick cash for no work.
This is a serious problem. A new Federal Trade Commission rule goes into effect October 27th that will ban debt settlement companies from accepting upfront payments for their work. Consumers should keep this in mind when they’re tempted to pay for a service before that company has done anything to help them boost their credit scores.