If you’re dealing with damaged credit, it’s natural to be worried. After all, your credit score determines whether you can purchase a home, fund a business, or even what you’ll pay for your car insurance. Having poor credit can put multiple aspects of your life on hold.
You might also be thinking about how you can overcome your poor credit. Perhaps you’re thinking about better strategies to build credit.
Or, maybe you’re considering removing negative items from your credit reports through the credit repair process. As you may know, there are companies that help remove these negative items. These are known as credit repair companies.
In shopping for credit repair services, you’ll find a variety of business models. Some companies charge a fee to get started, and then a monthly fee, for each month that you’re part of the program.
Other firms charge a flat fee. A few only charge per negative credit item they delete, i.e. pay for results.
In short, there are a variety of credit repair business models. Full disclosure: We run a credit repair company, which charges only per item deleted.
We have strong feelings on the credit repair industry. We would like to share with you why we don’t think it’s a good idea to pay monthly fees for credit repair.
Monthly Fees Weaken A Credit Repair Company’s Incentive To Perform
Imagine you own a business. You offer your employees an attractive salary, and there are few performance incentives or bonuses. There are also few punishments for weak performance.
What do you think will happen in this situation? Your employees will be pretty comfortable. They’re being paid fairly well, and don’t have to worry much about being fired. With some exceptions, they’re probably not going to put in extra effort.
This is how monthly credit repair companies often operate. You’re paying for each month they work on your credit issues. Perhaps you offer some sort of initial fee, when you get started. On the same day that month, they’re being paid, regardless of the results delivered.
As a result, the credit repair folks you hired might feel a lesser sense of urgency. In fact, it’s possible they’ll let the process drag on for longer. After all, each month they’re still working on your credit issues, they’re receiving a fee. Why speed things up?
To be fair, this isn’t true of every monthly fee credit repair firm. Some of them work on your credit for a fixed period of time (say 6 months), and you pay a fee each month.
Others offer money-back guarantees. For example, if they cannot remove at least one or two negative credit items within 6 months, they’ll refund your fees.
If you’re going to work with a company that charges monthly fees, these are some of the better ones. However, it still isn’t ideal to incentivize (by paying) a credit repair firm for anything other than the actual results they deliver, i.e. credit items deleted or score improvement.
There Is No Guarantee That Negative Credit Items Will Be Deleted – And Monthly Fees Are Thus Wasteful
If you have an error on your credit reports, you have the right to dispute the error. If it isn’t corrected, you might have grounds to sue the credit reporting agencies, and possibly the company which placed the negative item on your credit reports (i.e. a credit card issuer, debt collector, mortgage lender, etc).
Whether or not you can sue depends on what the error it is, and how it is harming you. Lawsuits (assuming you have proper grounds) are perhaps the most surefire way to have a negative credit item deleted.
Here’s the issue: Most negative credit items don’t warrant a lawsuit. There are some great methods to remove negative credit items, but you can’t be certain that any of these specific approaches will in fact work.
If you pay a credit repair company for monthly fees, you cannot be certain that you’re only paying for their ability to deliver a negative credit item. Rather, you are compensating them for their time, regardless of what happens.
While this might seem fair to the credit repair companies (who are spending time on your file) it’s not fair to you. After all, you are spending your hard-earned money, with no promise of results.
An Alternative To Monthly Credit Repair Fees
The good news is this: Credit repair companies that charge monthly fees aren’t the only game in town. As we mentioned earlier, there are companies (ours is one) which only charge per negative item deleted, i.e. per result.
Why does this approach make sense? Recall that there are no guarantees that negative items will be removed from your credit reports.
Your goal is to remove these items, and thus boost your credit score. To do so in a cost-effective way, it’s best to only pay for what is removed.
Your interests, and that of the credit repair company you work with, will be aligned. After all, if they cannot remove any negative items from your credit reports, they won’t earn any money. Also, since they don’t get paid until items are deleted, they have every reason to work faster.
The Final Word
When you’re stressed about your credit and overall financial health, it can be difficult to figure out the best options. Under these circumstances, you understandably might not take as much time to research your credit repair options.
Whether or not you choose to work with our firm, we hate to see consumers waste their money, often for few results. For these reasons, we suggest that you avoid companies which charge monthly for credit repair services.
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