Why is credit repair important? Well, there are a few reasons this may be something you need to look into. Wouldn’t it be nice to get better interest rates, unlock more financial opportunities, and enjoy peace of mind? All of this is possible through credit repair.
If your credit report leaves much to be desired, you’ve come to the right place. Today, we’re going to explain why credit repair is important and provide you with actionable steps to get started repairing your credit score with the major credit reporting agencies.
Plenty of Americans can find themselves in need of credit repair. In fact, 18% of Americans have a subprime credit score between 580 to 669. Not only that but 11.1% of Americans have an ultra-high-risk score of below 580. Combining these statistics, 29.1% of Americans have a less than fair score.
And here at Daily Prosper, we’re here to change that. We’re empowering our readers with information on credit scores and credit reports in general, along with important information for enjoying all the benefits that come from high credit.
First – what is a good score and what is a bad score?
What is a Bad Credit Score and a Good Credit Score?
People can choose to work on improving their credit at any point. However, they typically start the process when they see that they have a bad score. You can check your score for free through a variety of different platforms like Credit Karma, Capital One, Discover, etc. Regardless of how you choose to check your score you will find that it falls into a certain category based on the scoring model you look at. For the most popular FICO scoring model:
- Excellent: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
If you look at the VantageScore model then the categories are a little bit different:
- Excellent: 781-850
- Good: 661-780
- Fair: 601-660
- Poor: 500-600
- Very Poor: 300-499
Generally scores that are below 669 on the FICO scoring model are considered “bad”. Bad credit scores can lead to higher interest rates, less flexible agreement terms, or even disqualification from eligibility. A good credit score can help get lower interest rates and better loan terms.
Why Credit Repair is Important: 5 Key Reasons to Invest in Your Credit Score Health!
Credit repair is the process of addressing and fixing errors on your credit report in order to improve your credit score. It is an important process because your credit score can have a significant impact on your financial life.
Here are some reasons why credit repair is important:
Better interest rates:
A higher credit score can lead to better interest rates on loans and credit cards. This can save you money over time, as you will pay less in interest on your debts. This is true whether the interest rate is in relation to a credit card or car loan, or even a mortgage.
For example, if you are taking out a mortgage with a 4% interest rate versus a 6% interest rate, the 4% interest rate will result in a lower monthly payment and a lower overall cost for the loan. Or, if you are taking out a 30-year mortgage for $200,000 at a 4% interest rate, your monthly payment will be about $954. However, if the interest rate is 6%, your monthly payment will be about $1,199 – a difference of $245 per month.
Interest rates can also affect your ability to qualify for a loan. Lenders consider your debt-to-income ratio when deciding whether to approve your loan, and a higher interest rate can increase your monthly payment and make it more difficult to qualify.
Increased borrowing power:
A good credit score can also increase your borrowing power, which means you may be able to qualify for larger loans or credit lines. This can be especially important if you are looking to make a major purchase, such as a home or a car.
But, this also goes back to the last point – because you’re paying less money on interest, you can allocate more capital towards the actual cost of the product being financed, rather than paying your bank for borrowing.
More financial opportunities:
A strong credit score can open up more financial opportunities, such as being able to rent an apartment, get a mortgage, or even get a job. If you have a poor credit score right now, repairing your credit makes it easier to achieve these things. Otherwise, you’ll always be forced to have a cosigner – which is not an easy thing to ask of friends and family.
Peace of mind:
Knowing that your credit report is accurate and that your credit score is as high as it can be can give you peace of mind and help you feel more financially secure. For one, addressing errors on your credit report and working to improve your credit score grants you confidence that your credit report is accurate and reflects your financial history accurately.
It’s also nice to know that you have the ability to make major purchases like a new home or car if needed. Should your car finally break down and you need to buy a new one, you’ll be able to secure financing with ease. If a new job opportunity arises out of state, you can easily move the family and buy a new home. These things are not possible for those with low credit scores – unless they invest in credit repair, of course!
Avoiding financial scams:
Credit repair can also help you avoid financial scams and predatory lending practices. If you have a low credit score, you may be more likely to fall victim to these types of scams, as you may be more desperate for financial help. But this sort of goes back to peace of mind – you don’t have to take unnecessary risks when you have a solid credit report.
Are There Downsides to Credit Repair?
The downsides that come along with credit repair are based on the method you choose. For example, you may run into a scam if you try to get credit repair services from a credit repair company. Even though the Credit Repair Organizations Act (CROA) provides laws around credit repair, people can still be scammed. We have an article addressing the most legitimate credit repair companies to help you avoid this, though.
There are also certain limitations to credit repair. For example, credit repair cannot remove student loans. And, credit repair can’t always remove inquiries or collections, either. Sometimes, it makes more sense to go with debt consolidation.
Most of the time, though, you can’t go wrong when you repair credit. And below, we’ll provide you with more insights on how you can get started repairing your credit today.
Getting Started With Credit Repair: All the Approaches You Can Take
Will credit repair work for me? When people see that they need to improve their score, they can handle that process in a variety of different ways. Popular options include:
Focus on Better Credit Management
People can improve how they handle their credit with a variety of different tactics. Good habits include:
- Make payments on time. Credit repair can’t remove late payments always – so don’t let those bills stack up
- Pay at least the minimum amount due
- Don’t allow too many hard inquiries at once
- Keep your credit utilization ratio below 30%
- Consider keeping unused credit accounts open instead of closing them
- Monitor your credit score
- Apply for new credit when needed
Use a Credit Counseling Agency
Sometimes people can be completely lost when it comes to handling their credit situation. Other times, people just want more education to better understand their credit and how to improve it. Regardless of the reason, people can get helpful guidance from a credit counseling agency. These are generally non profit organizations that have trained and certified employees available to help consumers.
People can go to these agencies with questions about their financial situation. Certified counselors can provide a person with a plan of action to handle their credit situation based on what they are dealing with. They can provide a variety of services from:
- Developing a budget for you
- Helping you manage your debts
- Analyzing your credit situation to help you get your plan of action together
- Providing workshops and other education
- Creating a debt management plan (DMP)
Learn more about credit repair vs credit counseling in our blog.
Dispute Errors on Your Credit Report
Another way that people try to repair their credit is through the dispute process. A person can get a copy of their credit report and analyze it for any inaccurate items.
If inaccurate items are found then a person can submit a dispute with one or all of the major credit bureaus. These bureaus generally have 30 days to investigate and respond. If the item is found to be inaccurate it will be removed from the report and the negative impact will be gone!
Get Help from a Credit Repair Company
Sometimes consumers may choose to get help from a credit repair company when handling the dispute process. When you get help from one of these companies, they can provide credit repair services that handle the dispute process on your behalf.
They would be the ones to analyze your credit report, find inaccurate items, and submit a dispute with the credit bureaus. These companies are not free and generally cost between $19 to $149 a month depending on the credit repair services you get. However, the credit repair services they offer can be done for free by the consumer on their own.
Final Thoughts on Why Credit Repair is Important
So, why is credit repair important? In summary, it earns you lower interest rates, increases your buying power, unlocks new financial opportunities, grants you peace of mind, and protects you from financial scams.
Credit repair is important no matter what score you have (but can be especially important if you have a lower credit score). There are plenty of ways that you can repair your credit, whether you decide to do it on your own or get help from a credit repair company.
The best solution for your situation will depend on what you’re dealing with. If you need guidance, you can get help from a credit counseling agency that can give you a plan of action in achieving your financial goals!
Now that you know why credit repair is important, there’s only one thing left to do – get started! We have additional resources to empower you along this journey, including credit repair vs credit restoration, credit repair vs credit sweeps, credit repair for low income families, credit repair vs chapter 7, and even credit repair for veterans. Jumpstart your journey to better financial health today.