An important part of life is your credit score. Oftentimes, many Americans don’t even realize just how much they should be focusing on their score. By the time they notice, it can be too late and their credit score is low thanks to mismanagement. This can leave you feeling helpless.
Luckily, even if your credit score is already low, there are ways that you can improve it! The two most popular ways to do so are credit repair vs credit counseling. But – what do these two separate terms mean? And, which approach to improving your credit score is best for you? You’ve got questions, we’ve got answers. We’ll cover all this and more in our complete guide today. By the end of this discussion, you’ll have peace of mind and confidence knowing what your next step should be.
Before we dive into the main discussion at hand today – credit repair vs credit counseling – let’s go over some basic information on credit in general.
A Brief Explanation of Credit: What is it & Why Does it Matter?
Sadly, a lot of Americans struggle with financial literacy. In fact, as of 2021, 4 out of 7 are financially illiterate. This means that these Americans don’t have a basic understanding of how to best handle their finances. A key part of financial management is a credit score. This is a number that ranges from 300 to 850 and is calculated based on information found on your credit report. There are three main credit bureaus – Transunion, Equifax, and Experian. And, these bureaus are the ones responsible for building your credit report.
A credit report includes data about a person’s borrowing and repayment habits. Your payment history, number of accounts, types of credit, etc., all appear on your credit report. Credit scores rely on a scoring model created by either the VantageScore company or FICO (Fair Isaac Corporation). And, your specific credit score determines the ease at which you can earn financial assistance – whether that be opening up a credit card, getting a small business loan, or buying a house and getting a mortgage.
What Determines Your Credit Score?
Even though credit bureaus may not have the same version of your credit report, there are generally five main factors that will affect your score. These factors are: history of payments, credit usage, length of credit history, mix of credit types, and hard inquiries.
Based on the unique scores and ratio of these factors, you’ll be awarded a credit score. The scoring model that is used by the credit bureau will determine the ranking of your credit score. When looking at the FICO scoring model:
- Poor (credit scores that are between 300-579)
- Fair (credit scores that are between 580-669)
- Good (credit scores that are between 670-739)
- Very Good (credit scores that are between 740-799)
- Exceptional (credit scores that are between 800-850)
At this point, it’s time to get into the real reason you came here today – to learn about credit repair vs credit counseling.
Credit Repair vs Credit Counseling What is the Difference?
Now that you have a better understanding of credit scores, it is time to learn about different ways that you can improve your score! People choose to improve their score with a multitude of tactics – but the two most popular include credit repair and credit counseling. Each of these has its own unique set of pros and cons. So – which is right for you?
In order to accurately answer that question, we need to define and explain each of these methods separately. Then, we can compare and contrast them to help you make the right decision. Let’s start by talking about actively repairing your credit.
What is Credit Repair?
Credit repair is the term used when someone chooses to repair their credit. However, credit repair can happen in plenty of different ways. It’s also important to keep in mind that regardless of the way that you choose, credit repair takes time. Generally, you can expect credit repair to take between three to six months! You can handle credit repair by:
- Improving credit management going forward
- Disputing past errors on your credit report (either yourself or through credit repair services)
Improving Credit Management
One key part of credit repair is improving your credit management. Your habits will make a world of difference as you continue to work on your credit score. While you may not be able to change the mistakes you made in the past, you can make sure you don’t make the same mistakes again! Some good credit habits to get into are:
- Pay your bills on time
- Monitor your credit score frequently
- Keep your credit utilization rate below 30%
- Don’t submit too many hard inquiries onto your account in a short time frame
- Only get more credit when you need it
Disputing Errors Yourself or With a Credit Repair Company
Many people don’t know that they can get a free copy of their credit report every year. A consumer can still get their report more than once a year but it will likely come along with a small fee. Once you get your credit report, you can review it to look for any errors. If you find errors on your credit report, then you can dispute them! Credit bureaus are required to make sure the information on your credit report is accurate.
When submitting a dispute, a good rule of thumb is to submit the dispute to all three major credit bureaus. The credit bureaus then have 30 days to investigate and respond. Under special circumstances they may have more time. If the disputed item is found to be inaccurate then it will be removed from your credit report. That means you should see any negative impact that it had on your score fall off as well.
Getting Assistance from a Credit Repair Company
Another way that people choose to handle credit repair is with a credit repair company. These companies handle the dispute process on behalf of the consumer. While they may offer other services like credit monitoring, debt management, etc., their main goal is handling disputes. They aim to get any inaccurate or unverifiable information off of your credit report. Once these items are removed, any negative impact they have will also be gone.
It’s important to keep in mind that credit repair companies do not provide a service that a consumer can’t do on their own. Like we said earlier, a consumer can handle the dispute process all by themself! However, these credit repair companies advertise that their experience and knowledge can help consumers save time and effort when dealing with disputes.
When reviewing credit repair companies to go to for this option, you will want to make sure you pick the right one. A good credit repair organization should follow the rules set within the Credit Repair Organizations Act (CROA). This act details what a legit credit repair organization cannot do like:
- Make false claims about their services
- Request payment from a consumer upfront before services are performed
- Make a consumer waive their rights
- Lie to credit bureaus about a consumer’s information
Pros and Cons of Credit Repair
Whether you decide to dispute errors on your own or get assistance from a company, there are a few pros and cons of each approach.
- Pros and Cons of Disputing Errors on Your Own: It’s free to do on your own and can help you spot identity theft. And, you can easily remove inaccurate or unverifiable items from your credit card for free. With that said, it takes time and effort – and may be outside of your skillset. Moreover, there’s really nothing you can do if you’re denied – you just wasted your time.
- Pros and Cons of Getting Assistance from a Credit Repair Company: The obvious benefit to going with a credit repair service is to save time and effort. And, these guys are skilled and experienced in what they do – so you’ll get better results. However, these type of companies aren’t cheap – and they can’t actually guarantee results, either.
What is Credit Counseling?
Credit counseling consists of consumers getting education, guidance, and advice on their credit situation. Generally, credit counseling services can be provided by credit counselors for free through programs offered by organizations like:
- Military Bases
- Credit Unions
- Housing Authorities
- Branches of the U.S. Cooperative Extension Service
Credit counselors that provide this information are typically trained and certified in areas of consumer finance like:
- Credit management
- Money management
- Debt Management
How Can Credit Counselors Help?
Credit counselors can help in a variety of different ways! The exact way that they can help a person will vary but can include:
- Giving you advice on how to handle your money and debts
- Helping you make a budget
- Helping you better manage your credit
- Providing free educational workshops
- Getting together a “debt management plan” for your debts (like credit card debt)
Pros and Cons of Credit Counseling
The benefits of credit counseling will depend on the credit counseling services you get. For example, getting help with a debt management plan will have different benefits than getting help with managing your credit. Either way some general benefits include:
- You get free guidance on your current situation
- Generally these services are free
- They have a great resource of information from professionals
- They can help with a variety of different issues
While there are some nice benefits of credit counseling, there are some drawbacks to be aware of. However, the disadvantages of credit counseling shouldn’t be too much compared to the benefits:
- You may not get advice that’s new to you
- It can be hard to find a credit counseling agency you like
Credit Repair vs Credit Counseling: Which is Right For You?
We’ve talked all about repairing your credit history using these two tactics. At this point, there’s only one thing left to discuss: which method makes the most sense for your unique financial situation? In summary, each of these tactics can help you improve your financial standing and improve your credit reports going forward. Ultimately, it comes down to your needs.
Are you simply looking for guidance and resources for improving your credit in general? A credit counselor probably makes the most sense for you. On the other hand, if you need help actively improving your credit – through error disputing on your credit reports – you may need to go the credit repair route. And if you do that, you’ll need to choose between the DIY route vs the professional route. When it comes to your credit, we believe that investing in professional help is worth it – but we also recognize that everyone’s financial situation is different.
Commonly Asked Questions About Credit Counseling vs Credit Repair
When comparing ways to improve your credit situation, you have two great options at your fingertips: credit counseling vs credit repair. And now that you know the key differences between each of these, you should feel more confident in improving your financial standing going forward.
However, if you still have questions, you may not feel ready to take that first step. Luckily, others have had questions when working on their credit! That’s why we’ve compiled some of the most commonly asked questions on credit counseling and credit repair down below. We also have a wide range of other helpful resources related to repairing your credit – such as our guides on credit repair for low incomes families and individuals, credit repair for veterans, debt consolidation vs credit repair, and more. Explore our blog to learn everything you need to know about credit!
Can Credit Counseling Impact Your Credit Report?
While the act of getting credit counseling won’t hurt your credit score directly, there are ways that it can still affect it! For example, if they recommend that you file for bankruptcy (which should be a last resort) then that can stay on your credit report for up to 10 years.
What is the Best Option for Handling Credit Card Debt?
Between choosing a credit repair or getting help from credit counseling services, you should choose credit counseling first. If the professionals believe that you should get help from a credit repair organization they can point you in the right direction. They can also help you handle the credit repair process on your own by providing support for your situation.
Final Thoughts on Credit Counseling vs Credit Repair
At this point, there’s nothing left to say – you know all about credit repair and credit counseling. It’s time to figure out a plan of action to regain control of your credit reports.
Your credit score is an important part of your finances. That is why you will want to make sure you do everything that you can to get a good one! There are ways that you can work on improving your credit. Common ways are through credit repair and credit counseling. The best option for your situation will depend on what you are dealing with. Our advice would be to get help from a credit counseling company first. Generally, a credit counselor is non-profit so the services they provide through credit counselors are usually free. After that, you can determine if you still need additional help from a credit repair service. We hope this guide helped clear up any confusion you had in the credit repair vs credit counseling debate – best of luck!