The Pros and Cons of DIY Credit Repair
There’s a lot to understand when it comes to fixing your credit. But you don’t always need a credit repair service to fix your credit problems if you can do it yourself.
We’ll explain do-it-yourself (DIY) credit repair, how to get started, and the pros and cons of doing it on your own.
DIY credit repair: How to get started
The Federal Trade Commission explains how to get started and tells you your rights under the Credit Repair Organizations Act. The three major U.S. credit agencies — Experian, TransUnion and Equifax — also have their own guides explaining how to fix your credit.
The process starts with looking at your credit report, which you can receive for free once a year from the three agencies. From there, review what’s on the report for any accounts that are negatively affecting your credit, such as accounts in collections, legal judgments or unknown accounts opened via identity theft. You can begin the dispute process with the credit agencies to get the ball rolling. Look at other accounts to see if there are any issues with credit history and see how much you owe since both of those factors can negatively impact your credit score.
Once you learn about the ins and outs of credit reporting, credit scores and credit repair, it will be valuable knowledge that can be used throughout your life. It will help you make smarter decisions in the future by avoiding common pitfalls when it comes to dealing with credit.
Pros of DIY credit repair
One of the biggest benefits of fixing your own credit is the amount of money you’ll save in the process. Credit repair services are not cheap and typically require recurring monthly payments during the process. One of the highest-rated services, Sky Blue charges a startup fee of $79 and then a monthly fee of the same amount. Considering the time it takes to receive responses to disputes, it could take multiple months before the issue is fixed, or not, on the report. It can go even longer when dealing with accounts in collections and legal judgments.
Instead of spending that money on a service, use those funds to help pay down debts to improve your credit score. You could also save up the money into a lump sum that can be used to negotiate with collections agencies to remove those negative accounts from your credit report.
No need to shop around for credit repair services
Like any other service, you want to make sure you get someone reputable. Doing a Google search for a credit repair company will result in multiple pages of services available. Then it takes time to research which service won’t cost too much and will actually provide results instead of empty promises. Worrying about whether you fell for a scam is not an issue you need when fixing your own credit.
“You’re sparing yourself the agony of finding a credit repair company that you can both trust and afford,” said Beverly Harzog, consumer finance analyst and credit card expert at U.S. News & World Report. “There are some decent ones out there, but it will take a lot of research to find one you feel good about.”
There’s a lot at stake when choosing a service designed to fix your credit. Not only will the results affect your financial future, ideally in a positive way, but you will have to provide the company with a lot of personal information. This is the kind of information that if abused or stolen could spell far more trouble than just damaging your credit.
Cons of DIY credit repair
Saving money costs time
Credit repair is not an overnight fix. Dealing with the three credit reporting agencies, debtors and any other institutions that affect your credit often takes a lot of time. Some aspects of credit repair can be done online, but there are times when you may have to get on the phone to speak with someone or even send an actual letter to get things done. It can take weeks, if not months, to get a response.
“The DIY approach is usually a labor-intensive task that will take a lot of time to work on,” said Michael Gerstman, CEO of Gerstman Financial Group in Dallas. “If someone is intent on handling it themselves, they need to do a cost-benefit analysis as to what they think the savings would be by not hiring a professional versus what they think they will actually end up spending to clean up their credit.”
It’s up to you whether you want to spend time waiting on hold, typing up letters and checking on your accounts to see if any progress has been made, or pay someone to do it for you.
Following the wrong advice
There are many misconceptions about what will repair your credit. One of the common ones is that you have to close all your credit card accounts and try to be completely debt-free, which is not the best idea.
“Believe it or not, having no debt is worse than having some debt,” said Michelle Buonincontri, a certified financial planner and founder of Being Mindful in Divorce in Scottsdale, Ariz. “Remember to keep a mix of credit types when cleaning up your credit report because paying your debts monthly — or credit history — is a big part of your credit score. So charge something small and pay in full even when you don’t need to.”
It’s important to keep in mind the biggest factors that will ding your credit: payment history, credit utilization and accounts that are in collections or legal judgment.
Closing accounts, especially ones in good standing that you’ve had for several years, is not a good decision. That’s because the length of your credit history is a factor in your score, too. Creditors look at the average age of your accounts to see if you have a track record of managing credit responsibly.
Focus on bringing down how much you owe, make payments on time and work on trying to remove any negative marks or invalid accounts.
Part of the credit repair process is straightforward: If there’s something on your credit report that you don’t recognize, file a dispute and let the credit reporting agencies verify it or remove it from the report.
On the other hand, if there is an account in collections or a legal judgment then there’s more to the process than just clicking a button online. Some issues will require research to figure out the origin of the derogatory mark. There also may be a need to negotiate with a collections agency on a debt to remove it from the report.
“It’s a very hands-on approach,” said Allison Vanaski, vice president of investments for Arcadia Wealth Management in Smithtown, N.Y. “Sometimes credit repair companies may have faster access to credit bureaus and know exactly what to say to get any errors disputed or fixed.”
Along with understanding new terms and how certain systems work, there’s also the tracking and organizing of documents needed in order to fix your credit. The whole process is not easy, but it can be rewarding.
What’s best for you?
It’s up to you whether to spend the time and money to repair your credit yourself or have someone else handle it. The important point is that if you believe your credit is in need of fixing, there’s no better time to work on it than now as your credit will continue to play a major role in your financial future.
Fees mentioned in this article are accurate as of the date of publishing.