How to Avoid Dishonest Credit Repair Companies

Those with less than perfect credit are often bombarded daily with letters from companies offering to erase their bad credit or raise their credit score. While there are some legitimate companies out there, many of these requests come from credit repair companies who pray upon the insecurities of those with bad credit.

In almost all cases, it is in the best interest of the borrower to speak directly with their creditors.

The creditors are better off if they get paid, so are often very flexible in working with the borrower. They will often waive late fees and other fees, while also reducing the interest rate on the loan. This is because at the end of the day, they are better served if you pay them back.

Most Credit Repair Companies are in reality not much more than a dressed up lender.

They will often advertise late at night on television, with adds touting their ability to instantly fix bad credit. Often, they will advertise free credit counseling, but this is mostly to get people to call. In reality, they don't do much counseling, instead they repackage the debt into another loan, with a higher interest rate.

You might end up with a lower monthly payment when using a credit repair company, but you are likely to pay a great deal more in interest in the end. Especially, when you consider that many lenders will lower your interest rates if you call them up and speak with them.

The Federal Trade Commission has published several pointers to help consumers identify and avoid dishonest credit repair companies.

• Did the Credit Repair Company ask for money up front before they do anything?
• Did the Credit Repair Company tell you that you can not repair your credit on your own?
• Did the Credit Repair Company fail to inform you of your legal rights?
• Did the Credit Repair Company tell you NOT to contact the credit reporting agencies, Equifax, TransUnion, Experian, directly?
• Did the Credit Repair Company tell you that you can create a new identiy to get a clean credit report?

If you answered yes to any of these questions, then it is very likely that you are dealing with a dishonest Credit Repair Company, which should be avoided.

In most cases anything a Credit Repair Company does, you can do by simply talking with your lender.

Credit Counseling Companies are a step up from Credit Repair Companies, but you must still be very careful when dealing with them. Instead of just setting you up with a new loan, as a Credit Repair Company would, a credit counseling company will call up your creditors and try to work out a deal.

They will ask for lower interest rates and forgiveness of late fees, as well as additional charges, in return for the borrower paying back the loan. The company then gets paid a commission from the creditor for working out a deal where they get their money back.

Credit Counseling Companies sometimes also set up a Debt Management Plan, in which all of the debt is consolidated and the rates reduced by the creditors. The borrower then pays the credit counseling company once a month, who in turn pays the creditor.

Reputable credit counseling companies are non-profit, although they do get reimbursed by the lending industry.

While credit counseling companies are a step up from credit repair companies, it is still important to be very careful when using them. Below are some tips for ensuring you are using a reputable company.

• Local companies are best and you can check the Better Businesses Bureau for recommendations or to find out if they have had any problems.
• Pay attention to any fees involved with the service, because they should be willing to provide free advice and literature.
• Using a Debt Management Plan should be the last resort, not the first option presented.
• Find out how they get paid, because this will help you understand their reason for helping you.
• Before signing or agreeing to anything, carefully look over any payment plans to find out how they work and any requirements they might have.
• Check to ensure that the bills are being paid by the company and are coming off of your credit report.
• Always have a paper trail for anything you do with the company.

Credit counseling is usually a much better choice than using a credit repair company, but it is important to remember that many of the things that a credit counselor can do, the creditor can also do themselves. This includes speaking directly with the creditors to request lower payments and to forgive fees, as well as contacting the credit reporting agencies.