Credit Repair and Credit Counselling

Credit Repair

Consumers who have a credit score that is lower than they would like it to be or who are struggling keeping up with their debt are not alone. The recent financial recession played havoc with many people’s finances and credit history. Fortunately, there are two programs available for people to correct these situations and reign in their credit and finances to a more manageable level.

Credit Repair

A credit repair company is one that works with clients to help them improve their credit score by cleaning up their report. This can mean challenging inaccurate information and helping clients to make better decisions which will lead to an overall improvement in their credit file. However, they can not remove any item that is accurate and which is legal to report according to the guidelines of the Fair Credit Reporting Act. For example, bankruptcies and other major delinquencies can be legally reported on a credit file for seven years. If a business inquires about someone’s credit history, the inquiry will remain for a period of two years.

Credit repair companies charge various fees for their services, which may include an account set-up fee and a monthly service fee. Some require consumers to sign a contract for a minimum length of time, while others offer month to month service. It is up to the consumer to understand the charges and choose the option that will be most beneficial. According to Sky Blue Credit, the average consumer stays enrolled in a repair program for six months.

While in the process of having his or her credit repaired, the consumer will be informed of laws relating to their rights as a consumer. Even though this information is available outside of a credit repair company, it can be difficult for consumers to find and understand. A trained credit counsellor may better be able to present information so that people are aware of their rights. This includes the right to dispute information in their credit files.

Consumer Credit Counselling

Whereas a credit repair company is focused only on a consumer’s credit report, a consumer credit counselling agency is concerned with helping people who have become overwhelmed with debt to find solutions. Although many are non-profit, they must still charge at least a small fee to offset their expenses. Consumers who can not afford services may be able to get a waiver or pay based on a sliding-fee scale.

Credit Counselling agencies offer many different services, including helping consumers to prepare and live within a budget. For people who are deeply in debt to the point of considering bankruptcy, a credit counselling agency can offer them a way to restructure their bills through a debt management plan (DMP).

To facilitate a DMP, the consumer will be asked to list all current creditors, along with the address, account number and balance owed to each. A counsellor will contact each of these creditors on behalf of the consumer and propose a payment amount that is more affordable. The counsellor may also attempt to negotiate lower interest rates. Creditors are not obligated to participate in a DMP, and if they choose not to, the consumer must continue to make payments to that creditor directly.

After each creditor has been contacted, the counsellor will add up the new payment amounts in order to arrive at a total that the consumer must pay each month to stay current on his or her accounts. The agency will add in a monthly account maintenance fee to that as well. Each month, the consumer will make one payment to the credit counselling agency by money order or direct debit from a checking account. When the agency receives the payment, it will be sent to creditors according to each one’s previously agreed-upon payment schedule.