How Credit Repair Services Can Save You Thousands
For quite some time, companies that offered credit repair services had a blemished reputation.
In the past, they were known for charging exorbitant fees and providing little assistance to consumers.
In many cases, clients were in a worse financial situation after working with the credit repair service they initially hired.
In 1996, new federal regulations were established to govern organizations that offered these types of services.
Around the same time, the industry’s trade association engaged in self-policing practices. This played a significant role in cleaning up questionable business practices.
Additionally, the Federal Trade Commission leveled indictments against several credit repair companies charging them with numerous violations of federal statutes.
Today, the field of credit repair services is much more legitimate.
How an Improved Credit Score Can Save You Money
By hiring a reputable credit repair service, you can improve your credit score in a matter of months.
Those with great credit commonly save thousands of dollars giving them the ability to amass savings, pay off debt obligations, invest, retire in comfort, and achieve any of their other financial goals.
Conversely, those with subprime credit or even an average credit score will pay additional fees, higher interest rates, and possibly lose the opportunity to apply for additional credit lines.
Before inputting any figures, the loan savings calculator at myfico.com clearly shows a disparity of 1.589% between a credit score of 760-850 and a credit score of 620-639.
That may not sound like much, but it easily equates to tens of thousands of dollars over the life of 30-year loan.
So how can you save money with an outstanding credit score and how much?
Let’s look at an example involving a credit card.
Two people, Alan and Brad, are each given a credit card with a $10,000 balance.
Alan, with a credit score between 740 and 850, is given an APR of 12.99%.
Brad, with a credit score between 600 and 679, is given an APR of 22.9%.
Alan’s monthly payment would be $297 and would take him approximately five years to pay off the card.
Brad, on the other hand, has a monthly payment of an astounding $715. It would also take him two years longer to pay off the card!
Taking all of this into account, Alan would pay a total of $18,414. Brad would pay $44,330.
With the difference of over $25,000, Alan could put the difference toward the financial vehicle of his choosing.
Now let’s imagine that Alan and Brad each want to buy a car.
Terms and rates vary greatly, but one thing is certain. The higher the credit score, the more money to be saved when making monthly payments.
As reported by VantageScore, the primary supplier of credit scores for the auto lenders, the breakdown of a standard $25,000 vehicle loan over five years looks like this:
|A Vantage Score||Interest Rate||Amount Paid in Interest|
|550 or below (poor)||18.95 APR||$13,828|
|550 to 620||17.9% APR||$13,009|
|620 to 680 (average)||11% APR||$7,614|
|740-850 (excellent)||5.1% APR||$3,375|
A credit score of at least 760 is ideal for attaining a mortgage and you can get a very good rate for an auto loan with a score of 720 or higher.
In some cases, consumers with superior credit qualify for 0% financing when purchasing a new car.
One of the most significant ways working with a credit repair service can help you save thousands of dollars is when purchasing a home.
Most likely, you will be applying for a home loan unless you are paying in cash. Pricing and interest rates will be based heavily on your credit score.
Let’s assume after putting 20% down, the 30- year fixed mortgage for your home is $274,640:
- With an average credit score, you may get a 5% interest rate and as a result, your monthly payment would be $1,474. After 30 years, the final cost of your home will be a little over $530,000 (including payments toward the principal and interest).
- With an excellent credit score, you may get a 4% interest rate for the very same loan. Your monthly payment would then be $1,311. The final payoff will be a little less than $472,000.
So, a person with average credit will pay almost $60,000 more for the same home. If your credit is below average, you will pay thousands of dollars more.
Tips for Finding a Reputable Credit Repair Service Company
As you make the decision to work with an organization that offers credit repair services, look at your own credit report.
Once a year, AnnualCreditReport.com will allow you to get a free copy of your Experian, Equifax, and Transunion credit report.
Because the different reports may not contain the same information, it’s essential that you check all three.
Examine your report for any derogatory marks (i.e. missed payments) or incorrect information.
Upon working with a credit repair service, you will review each report with a member of their staff.
You will be able to provide them with documentation supporting your dispute such as receipts, court records or invoices.
You should be ready to answer any of their inquiries regarding your credit history.
Precautions to Take When Working with Credit Repair Services
If you are considering working with a credit repair service, exercise caution.
In a report released by the CFPB, over 50% of their complaints involved an alleged scam or fraud by an organization offering credit repair.
If you are fortunate enough to find an organization you are comfortable working with, their offerings may not be in line with what you are looking for or your situation.
Thanks to the Credit Repair Organizations Act, it’s illegal for businesses that offer credit repair to falsify information pertaining to their services and their results. The Act also sets forth additional rules as well:
- Credit repair companies are prohibited from demanding payment in advance.
- Contracts pertaining to credit repair must be in writing.
- Consumers have the right to cancel their contract within three days without being charged.
If a credit repair company requests that you pay up front, fails to answer your questions or neglects to put the terms of the agreement in writing, proceed with caution as those are major indications their business practices should be questioned.
Consumers have a couple of options if they decide to evaluate a credit repair company.
They can visit the website for the Better Business Bureau to read reviews of the organization.
They can also check out the database of complaints maintained by the Consumer Financial Protection Bureau (CFPB).
Other ways you can save money by having a great credit score include:
- Better deals on car insurance
- Less expensive cell phone plans
- A better interest rate for student loans
- A reduced likelihood you will be turned down for a job
Get a Free Credit Audit Today!
If your credit score can be improved and you are eager to start saving money or better your financial situation, contact National to work with one of our growth advisors today.
In addition to offering credit repair services, we will provide you with a free credit audit to find potential areas of improvement.
Raising your credit score is a complicated process. We can give you the tools to be successful.
When you are ready to improve your credit or discuss a business loan, connect with a business growth advisor by calling (877) 482-3008 for a free consultation.