Credit repair doesn’t exactly have the best reputation as a financial service. Scammers love to prey on people’s desire for a quick fix for their credit scores, which had led to a lot of fraud in the industry. But make no mistake. Credit repair is a legitimate service that’s protected under federal law. You have a right to repair your credit and there’s plenty of good reason to do so.
With that in mind, we’ve laid out the top 12 reasons why you need credit repair. If you want to know about the process, in general, please refer to Debt.com’s Credit Repair Guide for more information.
Important Update: Bureaus Offer Free Weekly Reports Through April 2022
In light of the unprecedented financial crisis caused by the COVID-19 pandemic, the credit bureaus have expanded free credit report access. You can now download your credit report from each bureau once per week through annualcreditreport.com.
We recommend taking advantage of these free weekly reports to check your credit often during this crisis, so you can avoid mistakes.
Reason #1: There’s a 1 in 4 chance your credit report has an error
That’s not some made-up statistic. It comes directly from a consumer credit report study by the Federal Trade Commission. In 2013, the FTC found that one in four reports contains some kind of error. Even worse, one in five reports has an error that would affect a consumer’s credit score. And one in twenty has an error that would drag down your score by 25 points or more.
So, this is not a small problem that doesn’t affect many Americans. To put it in perspective, you also have a one in four chance of becoming a victim of credit card fraud. So, think about all the steps you take to prevent fraud. If you’re not putting the same effort into keeping your credit reports error-free, you’re almost certainly leaving money on the table.
Reason #2: You can boost your credit score if you repair your credit
To be clear, the goal of credit repair is not to boost your credit score. The goal is to remove errors in your credit report. But more often than not, doing so improves your score. Again, there’s a one in twenty chance that you have a mistake that’s dragging down your score by at least 25 points.
That means that with one credit dispute, you could see a pretty big jump in your score in as little as 30 days. If you’re looking for a fast way to build credit and get on the road to an excellent score, this is it. Although improving your credit score is more of a happy side effect of credit repair, it’s often the fastest way to boost your score.
Reason #3: You can refinance all your loans for lower interest rates
One of the main benefits of better credit is lower interest rates on all your loans. The interest rates you can qualify for are directly tied to your credit score. Better credit means lower rates. It also means that you can get in while the getting is good on low interest rates available now.
Lenders set interest rates based on several factors, starting with your credit score. But the strength of the economy is another big deciding factor. When the economy is strong, the Federal Reserve raises its prime rate. This, in turn, causes lenders to increase their interest rates as well.
Currently, the economy is doing well the Federal Reserve has raised rates about half a dozen times since 2017. They say they plan to continue increasing rates as well. That means it’s in your best interest to get any loans you have refinanced as quickly as possible. You don’t want to procrastinate on this! Fix your credit through credit repair, then call your lenders.
You can refinance most types of loans if you achieve a better credit score:
- Personal loans
- Auto loans
- Consolidation loans
- Private student loans
The only time a better credit score won’t lower your interest rates on a traditional loan is with federal student loans. Federal school loan rates are not set based on your credit score. But every other type of traditional financing is, so it’s worth your time to repair your credit now and then see about refinancing any existing debt.
Reason #4: You can negotiate lower credit card interest rates, too
Almost all credit cards have variable interest rates. The rates on your existing credit cards rise and fall based on different factors. Right now, as the Fed raises the prime rate, your creditors are probably also increasing your credit card APR, too. The good news is that you can call your creditors to request lower rates. The key to making that happen is a good credit score and error-free credit report.
If you repair your credit within the next 3-6 months (that’s usually how long credit repair takes) then you can call your credit card companies to ask for rate reductions. Our founder, Howard Dvorkin has some additional tips for negotiating lower rates that can help you save money as you pay off credit card debt.
Take control of your credit score with SmartCredit, a comprehensive credit monitoring tool that’s designed to help you achieve a better credit score.
Reason #5: Getting approved for new financing will be far less stressful
There’s nothing more stress-inducing that waiting to hear from a lender if you’re approved for a loan. It’s nerve-wracking sitting around wondering if your credit score is strong enough to get you the loan you want. And getting rejected for financing is heart-breaking.
The good news is that fixing your credit through credit repair is an easy way to increase your chances for loan approval. The two biggest factors in financing approval are credit score and debt-to-income ratio. Credit repair helps you fix your credit score. Then you just need to worry about DTI, which is something you can check fairly easily online for free. Once you know your DTI is good and you’ve fixed your credit, you can apply for loans with confidence.
In addition, you can get the best credit cards, too. Although there are credit cards for bad credit, they usually:
- Require you to put down a down payment to open the credit line
- The interest rates tend to be really high – as in 25% APR or higher
If you have better credit, you get access to better credit cards. The best credit cards with the most rewards and lowest interest rates are reserved for consumers with excellent credit scores.
Reason #6: You can become mortgage-ready
Buying a home is still a big part of the American Dream. And with rising rent prices, homeownership has become the more affordable option in many places… as long as you can qualify.
Getting your credit right is a big part of becoming mortgage-ready. And when it comes to lower interest rates on loans, no loan is more important than your mortgage. Interest charges on mortgages add up to tens of thousands of dollars over the life of the average loan. Just half a percentage point difference in a mortgage interest rate means big money paid out of pocket.
Consider total interest charges on a 30-year fixed-rate mortgage for $300,000 with a 20% down payment:
- At 5.0% APR, your monthly payment would be $1,288.37 and the total interest paid would be $223,813.88 over the life of the loan.
- At 5.5% APR, the monthly payment would be $1,362.69 and total interest charges would be $250,569.70 over the life of the loan.
That 0.5% difference in your interest rate means almost $75 more per month and $26,755.82 more in interest charges. This is why you want your credit score to be as high as humanly possible before you apply for a mortgage. Leave no stone unturned and start by repairing your credit.
Reason #7: You can take advantage of advertised dealership offers
Car dealerships are notorious for advertising some really sweet incentives to get you on the lot for your next auto purchase. They’re also notorious for turning most people down for these offers because their credit score is too low to qualify.
All those no-money-down, no-interest for X years offers aren’t available to most consumers. But they don’t tell you that until you’re there. Then they basically bait and switch you into a different loan that doesn’t offer nearly as much value.
With a good or excellent credit score, you can qualify for all those dealer offers as advertised. You can also use your good credit score to shop around for the best financing. First, hit up your bank, credit union or favorite online lender. Tell them you want to prequalify for an auto loan. They’ll check your credit and tell you how much car you can really afford.
Then, you take that knowledge to the dealership, so you can compare financing. Make sure to compare the total cost and monthly cost of any dealership offer to the traditional financing through your preferred lender. This ensures you get the best value.
Reason #8: You’ll also get discounts on car insurance
Low-rate auto loans aren’t the only way that better credit helps you save money. You can also qualify for better rates on your car insurance policy, too. Most auto insurers use what’s known as a credit-based insurance score. Essentially, a low credit score means you pay more for insurance, even if you’re a good driver with a clean record.
If you improve your credit score, you can call your agent to see if you qualify for a discount. It could decrease your premiums, deductibles or both, meaning your out-of-pocket costs for insurance would be lower.
Reason #9: Property rentals will be easier
Whether you want to rent an apartment or a care for your vacation, the property owner will run a credit check. Bad credit means you can get rejected if you try to rent an apartment. Even renting a car can be problematic. If you have bad credit, they may make you put down a deposit to rent the vehicle, which could throw off your vacation budget.
Most people don’t consider how much bad credit can make life more difficult. But fixing your credit is the best way to get the property rented without any hassle.
Reason #10: You can avoid deposits on utilities, too
Most companies that provide a monthly service will also check your credit when you apply for a new account. That includes:
- Electric companies
- Utility companies
- Mobile service providers
- Internet providers
Anytime you apply for one of these services with bad credit, you end up paying a deposit. This makes moving into a new place more expensive because you need deposits for all your bills. Fixing your credit means a higher credit score, which can help you avoid these deposits.
Reasons #11: You may be able to get out of collection actions
Credit repair is 90% about correcting errors in your credit report, but there’s a little-known use for the service, too. It comes down to the legal definition of when and why a credit bureau must remove a negative item from your credit report. By law, an item must be removed if the credit bureau cannot verify the information about the debt with the owner of the said debt.
Basically, anytime you make a credit repair dispute, the credit bureau goes to the holder of that debt to ask them to verify the information. They have to be able to prove it’s your debt and that you owe the amount they say you owe. If they can’t and the information can’t be verified, by law it must be removed.
This means that there’s a potential to use credit repair to get out of debt collection. If you believe that a collector does not have complete information about your debt, ask the credit bureau to verify it. If they can’t, then it’s basically not your debt to repay. The collection account disappears from your credit report and stops dragging down your score.
This is true, even if you legitimately owed the original debt. Debt buyers buy and sell debts all the time and they often do it with incomplete information. If you question them and they can’t provide all the details necessary to verify the debt, you get off the hook.
Reason #12: You can avoid risky alternative financing solutions
If you need cash, financing is a good way to get it when you’re running short on income. You can finance a home renovation or a car repair or even an investment if you know how to make your money really work for you. But you always want to stick with traditional financing. To do that, you need good credit.
There are plenty of “alternative financing solutions” (AFS) available that promise you instant cash in your checking account with no credit check. You can get payday loans or cash advances or short-term installment loans. All of these are effectively the exact same type of lending tool. And the trade-off for no credit check is that you pay extremely high finance charges for these types of credit.
Short-term loans tend to have interest rates that are 300% or even 3000%. You can pay as much as $30 for every $100 that you finance. These lenders also have notoriously terrible customer service. They use ACH Direct Debit to withdraw funds to pay the loan off directly from your checking account. It can be impossible to cancel or stop payment if you don’t have funds available, leading to NSF fees on the loan and overdraft fees on your account.
Alternative financing solutions are never a good solution and should be avoided at all costs. This means that you need good credit to qualify for traditional financing. Otherwise, your fast-cash solution could leave you in a much worse financial position than when you started.
If you know you would like to borrow money in the future, a year or two, you might want to consider a credit builder loan.
Ready to repair your credit? Let Debt.com match you with an accredited, top-rated credit repair service today so you can fix your credit without any hassle.
Article last modified on July 14, 2021. Published by Debt.com, LLC