Credit Repair vs. Credit Counseling

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Good credit means better interest rates on homes, cars and credit cards, lower insurance rates, easier access to rental apartments and utilities and maybe even better job opportunities.

Consumers with bad credit know that. They also know the door is open to join the good credit club … if they can just find a way in.

Credit counseling and credit repair are two routes into the good credit club, two very different routes, mind you, with lots of differences, but two routes nonetheless.

The only real similarity between them is that both work at scrubbing clean some of the smudges on a credit report. They can’t remove accurate stains – things like late or missed payments – but they can try to wipe away negative activity that wasn’t the consumer’s fault like identity theft or accounts that mistakenly wound up with collection agencies.

Their approach to gain that end, however, is vastly different and unfortunately, not all the companies that operate in this section of debt-relief are on the up and up.

Be careful which door you knock on and be sure you know what you’re getting into before you enter.

Understanding Credit Counseling

 Credit counseling is a service that educates consumers on budgeting, dealing with debts in a timely manner and managing money effectively. The goal for credit counseling should be to provide the guidance and support that helps a consumer stay out of debt.

Credit counseling covers a lot of financial ground. Counselors are most effective at evaluating your situation and coming up with ways to pay off debt, which is documented in your credit report.

Their efforts include examining your credit report and explaining the impact each item has on your credit score. If you identify mistakes on the credit report, credit counselors should advise you on how to correct those mistakes.

Some other areas they can help with include:

  • Advice on setting up a monthly budget
  • Steps to take in purchasing a home
  • Counseling on student loans
  • Whether to pursue bankruptcy
  • Saving for retirement
  • Educate you on the differences between debt management, debt settlement and debt consolidation.

The cost for credit counseling depends on where you live. Each state regulates the industry independently, so costs vary dramatically.

Nonprofit agencies offer credit counseling for free. However, nonprofits do charge a set-up fee and monthly fee if you enroll in their debt management programs. The set-up fee for a debt management program is usually $50-$75. The monthly fee for the program ranges from $60 down to $0, depending on your situation.

Pros for Credit Counseling

  • The primary advantage of credit counseling is that the counselors are trained and certified in reading credit reports and dealing with credit card debt, student loans, bankruptcy and many other aspects of finances.
  • Credit counselors provide help in budgeting and properly managing money to keep people from going deeper in debt.
  • Nonprofit credit counselors are required to offer recommendations that are in the consumer’s best interests, not necessarily the company’s best interest.
  • Credit counseling can be done online, over the phone or in person.
  • Credit counselors can provide educational material to address any form of debt a consumer may encounter.

Cons for Credit Counseling

  • The cons associated with credit counseling deal with the debt management program that nonprofit agencies use to help consumers eliminate credit card debt. While the counseling is free, there are fees involved for enrolling in the debt management programs.
  • It’s possible that you may benefit from one counseling session, but if you are deep in debt, the program usually takes 3-5 years to eliminate your debts.

Understanding Credit Repair

The goal of a credit repair company is admirable. They aim to wipe out the negative factors in your credit report that are untimely and inaccurate.

The problem is that most – sometimes all – of the negative marks on your credit report are timely and accurate. Nobody – not you, not a credit repair company, not anyone – can eliminate timely and accurate blemishes on a credit report.

However, there are plenty of examples that can be removed. The Consumer Financial Protection Bureau says that 20% of the nation’s credit reports contain errors. That means approximately 40 million consumers in the U.S. have correctable mistakes on their credit report.

And the credit repair companies say they are the ones who can fix them.

They do so by pulling your credit report and going over it with a fine-tooth comb. They are looking at every negative item on the report and checking to see if the information has been verified as accurate.

Here are some of the services they provide:

  • Verifying name, address and social security numbers are accurate
  • Validating late or missed payments
  • Verifying accuracy of charge-offs, bankruptcy claims and tax liens
  • Validating debts from collection agencies
  • Writing cease-and-desist letter to stop calls from collection agencies
  • Gathering information to dispute errors in credit reports

The cost for credit repair services is variable and can be difficult to pin down. Some agencies charge a fee for every negative mark they have removed. Most charge a monthly fee, with no timetable for how many months the project will last.

The monthly fee starts at in the $75-$80 range and goes up to $150 per month. There typically is a set-up fee and, again, that could be anywhere from $50 to as high as $200.

If you intend to hire one, ask for the fee schedule in writing and make sure you understand how long the fees will be charged and whether there is a penalty for cancelling the service.

Pros of Using Credit Repair

  • Forces consumers to review their credit reports and understand information in them.
  • Can remove negative marks that lower your credit score
  • Can identify billing issues that you may not be aware of
  • May provide valuable information in disputing debts with creditors
  • Credit repair companies have great experience contesting mistakes

Cons of Using Credit Repair

  • You can do this yourself. You don’t need help to remove the excusable negatives on a credit report.
  • Government agencies warn that credit repair scams are numerous in this industry
  • Cost of service can be alarmingly high
  • No guarantee that results you seek can be achieved

Choosing the Right Option for You

There are far more differences between credit counseling and credit repair than there are similarities, which should make the choice easy.

Credit counseling is an attempt to teach you how to manage your money so you can avoid the debt that may be littering your credit report.

Credit repair is an attempt to wash away “some” of the financial sins you already committed with no attention given to helping you understand and avoid the trouble in the future.

We put “some” in quotes because only “some” negative marks on your credit report can be addressed. Most of the negative marks are simply errors consumers make all the time and there is no way to eliminate them.

Finally, the Consumer Financial Protection Bureau filed a lawsuit against two of the biggest names in the credit repair business – Lexington Law and – for charging customers upfront fees and using deceptive marketing practices to attract clients.

If the federal government says the two biggest names in the industry are doing things illegally, that should be warning enough.

Better you should find a nonprofit credit counseling agency and let them steer you through the rough waters on your credit report. It may take more time, but it will be much cheaper and you should emerge as a more educated consumer when it’s over.

About The Author

Tom Jackson

Tom Jackson focuses on writing about debt solutions for consumers struggling to make ends meet. His background includes time as a columnist for newspapers in Washington D.C., Tampa and Sacramento, Calif., where he reported and commented on everything from city and state budgets to the marketing of local businesses and how the business of professional sports impacts a city. Along the way, he has racked up state and national awards for writing, editing and design. Tom’s blogging on the 2016 election won a pair of top honors from the Florida Press Club. A University of Florida alumnus, St. Louis Cardinals fan and eager-if-haphazard golfer, Tom splits time between Tampa and Cashiers, N.C., with his wife of 40 years, college-age son, and Spencer, a yappy Shetland sheepdog.


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