If you have less than perfect credit, then you have likely received numerous offers from credit counselors or businesses that specialize in credit repair.
In truth using these types of companies is not usually going to be in your best interest. This is because all of the things they can do, such as negotiating with creditors, is something that can be done by the individual.
Credit Repair Agencies are basically simply another lender and if you have ever watched any late night infomercials, you are sure to have seen their advertisements. They might say they will “Get rid of your Bad Credit!†or “Quickly Raise your Credit Score,†but in the end, they are out to make a profit.
Most credit repair agencies will offer free credit counseling to get people interested in their service, then they will set up a plan, where you pay them and they pay your creditors. It is basically just like taking out another loan, but with a much higher interest rate than if you had just spoke directly with your creditors.
In fact, credit repair agencies are so often the root of a business complaint that the Federal Trade Commission, published several warning signs that you might be dealing with a dishonest credit repair service.
Using a credit repair service, like you might find advertising on late night television that they can
“Fix Bad Credit!â€, is seldom in the best interest of a person with poor credit.
These companies may be able to lower your monthly payment, but this is likely something you could do on your own by speaking with the credit company. Instead, they make their money by offering a loan at subprime rates.
Credit Counseling is usually a better option than using a credit repair company, although there are a number of dishonest credit counseling companies as well.
The difference between a credit counseling company and a credit repair company, is that the credit counseling company will go over all of your debts and then speak with your creditors. The counselor will request that some of the debt be forgiven, such as late fees, and will request a lower interest rate, in return for the debt being repaid.
This is again something that the average consumer can do, because having the debt repaid is in the best interest of the creditor, so they are often willing to lower interest rates and forgive late fees.
Always ensure that the credit counseling company is non-profit and some are even run by the actual credit card companies.
Even though they are technically non-profit, credit counseling companies actually get paid a commission from creditors when they are able to work out a deal with a borrower. Sometimes, you pay the credit counseling company, who will in turn pay the creditor, which is referred to as a Debt Management Plan(DMP), but these should only be used as a last resort. In either case, there should not be a fee for using the credit counseling service.
While many of the things a credit counseling company does are within reach of the average borrower, they can provide a helping hand for some.
Since there is so much dishonesty in the credit and credit repair industry, it is important to always thoroughly analyze the company before using them.
Below are some tips for analyzing a credit counseling service.
In a perfect world, the best way to hand bad credit would be to avoid taking out debt in the first place.
Unfortunately, it does not always work this way, so it may be necessary to repair your credit.
If this is the case, speaking directly with the creditor should be your first step. The creditor wants you to pay them back, so will often work with you to reduce interest rates and forgive late fees.
Speaking directly with your creditors is almost always just as effective as using a credit counselor. It is also much safer and less expensive than using a credit repair company.
Credit reports are used by prospective lenders to determine if an individual is eligible to receive credit.
Since a persons credit report is one of the first things a creditor will look at, as a borrower it is important to try to fix any errors and clean up your credit report as much as possible before applying for a loan.
Credit reports are a special document that contains information about a persons financial records. It will include information about child support, debt, credit lines, mortgages, and in some cases utilities. This information details how the person has been in regards to using credit and paying it back.
While there is a great deal of personal information in a credit report, there is a lot of things that can not be printed in a credit report. This is as a result of the Fair Credit Reporting Act of 1971, which put an end to some very compromising data collection practices by credit reporting agencies.
For instance, prior to 1971, it was not uncommon for there to be information gleaned from actual surveillance in the credit report. They also often included information about race, religion, sexual preference, and criminal background. Credit reports where then used as an excuse to deny people credit, instead of determining if they were credit worthy.
Today the credit report has had the discriminatory and compromising information that was previously found in credit reports removed. Instead, the credit report is limited to only providing information about the persons finances and current debt load.
When a person misses a payment to a lender, creditor, or certain utility companies, this would be noted on the credit report.
Only debt that is relatively recent is included as well. For example, for bankruptcies, only those in the last 10 years are included in a credit report. Other types of debt, such as debt that has been sent to a collection agency, is only included for 7 years on a credit report.
Credit information is collected by three different credit reporting agencies, Transunion, EquiFax, and Experian, who store all this information and resell it as credit reports. Sometimes when applying for a mortgage, the credit report will be included in the cost of the application, but its cost should not exceed $20.
As a consumer, each credit reporting agency is required to provide one free credit report a year. It is a good idea to not get all three at once, instead spreading them out over the length of the entire year. This way, the credit report can be reviewed and corrected, then another copy can be received, which should reflect the changes. In this manner, it may be possible to not have to pay to receive your own credit report.
It is also possible to pay and receive a credit report whenever needed. However, it should be noted that creditors do look at how often a credit report has been requested and if it has been requested too much, this can count against you.
Credit reports can be viewed by a number of people, including government agencies, employers, insurance companies, and lenders.
It is also possible for many other people, t, such as landlords, to view your credit report, as long as they can provide a real financial reason.
For the homeowner, there are a number of advantages to home ownership, many of which are financial and tax related.
One of the biggest benefits of owning a home, as opposed to renting, is that every month you are actually putting money towards the value of the home, instead of simply giving it to a landlord. This process is referred to as building equity in a home.
Equity is the difference between the value of the home and the principal of the mortgage. As the principal of the mortgage decreases, the equity increases, however equity can also be influenced by increases or decreases in the value of the home.
As an example, lets say that someone purchases a $120,000 with a $12,000 down payment. This means that the principal of the mortgage is $108,000 and they have $12,000 in equity.
Now, lets assume that in five years, the value of the home has increased to $150,000 and they have paid the principal down to $80,000.
Even though the homeowner has only paid $40,000 towards the value of the home, because the homes value has increased, they have $70,000 in equity.
The equity is computed by taking the value of the home($150,000) and subtracting the amount that is still owed on the mortgage($80,000.)
It is important to remember that the equity of the home is not real money, in that it is not something you can physically hold. In order to actually earn the equity, the home must be sold and if the value of the home were to decrease, then equity would go down.
It is a common misconception that a homes value is always going to significantly increase, which was fueled by rapid increases in home prices during the 1990’s, when a homes value would sometimes increase by over 20% every year.
While technically, you do not receive your equity until you sell your home, a number of lenders offer home equity loans and home equity credit lines.
A Home Equity Credit Line is much like a credit card, which has a credit limit based off of the homes equity. In most cases, the interest rate will also be very high, like a credit card, but the homeowner is not obligated to use the Home Equity Credit Line.
A Home Equity Loan, on the other hand, is more like a second mortgage. The homeowner will receive a single lump sum, which is based off of the equity of the home. They then have to make monthly payments, which is in addition to their monthly mortgage payments.
With the rapid increase in home values that took place during the 1990’s, many lenders began offering very large home equity loans, but with subprime mortgage rates. As a result, many homeowners took out these loans and began using them for things like new cars, vacations, or college tuition. Some even began piggybacking their down payment loans, which is when the homeowner takes out a mortgage and a separate loan for the homes down payment at the same time.
Then, the housing bubble burst, home values decreased, which resulted in a lot of people owing a lot more than their home is currently worth. Also, many of those who had received a subprime mortgage faced increasing mortgage payments, which further compounded the issue.
Deciding to take out a Home Equity Credit Line or a Home Equity Loan should not be taken lightly, because if the homes value were to decrease, the equity would also decrease, with the homeowner still being responsible for paying for the home equity loan.