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Credit card applications: credit repair companies get your credit to a level where they become approved
For a person who has reached the point that their bad credit is affecting their life too much, the allure of people and credit card applications claiming to be able to help you get out of debt might be a strong one, especially people that offer plans to help you fix your credit.
Fair enough, with the number of commercials, classified ads, online advertisements and websites available advertising such services, nobody would blame you for having those feelings. It really does look like everyone and their uncle have a plan for helping you get out of debt and have those credit card applications approved for a change.
Credit repair companies are a lot like online business opportunities in that not all of them are as good as they advertise, and a lot of them might actually be actively detrimental to your particular situation. In both cases though, they collect fees for providing a service, so if you’re paying money to someone to help you get out of a tight money situation, you need to go into it with your eyes open.
There are a few ways to separate reputable companies from disreputable ones. One credit counselor working for Consumer Credit Counseling suggests that reputable companies should have a mission statement similar to this: “A non-profit organization that wants to financially empower its clients and help them gain control of their life through education and financial management.”
Companies operating on the principles mentioned above will be able to provide advice on how to manage your debt and help you come up with a budget that allows you to help pay down your debt while simultaneously building up your good credit. Credit cards, loans and other aspects are all dealt with by these types of companies, and if they really are reputable, they’ll be willing to offer you a lot of information about themselves and debt management for free.
The same credit counselor mentioned above describes how one of their cases might work. “A person calls in and tells us they have too much debt. We then analyze their situation and provide free budget counseling. If they are in bad shape with creditors, we may offer debt management.”
It is important to note that even amongst reputable companies; there is a fee for debt management services. In the case of the company mentioned above, that fee is an initial application fee as well as a monthly service charge. Some credit counselors might want to charge a fee for analysis – these should be avoided, as very few of the top reputable companies will charge for the analysis.
Debt Management Plans
If you’ve gotten to the point where you feel that your bad credit rating and financial precariousness has taken over your life, you might have heard a counselor suggest a Debt Management Plan (DMP for short) as a possible alternative.
DMPs are a pre-arrangement between yourself, the people you owe money to and your credit counselor. What essentially happens is that the DMP stipulates a pre-determined amount that you are to give to the credit counselor on a monthly basis, which they then use to pay your debts based on a pre-negotiated plan.
These types of plans can help, but it is important to note that most of the time they will be executed over a very long time. If you make your payments on time and are able to stick with it, you will probably find yourself completely out of debt by the end of the DMP period. However, please take note that a DMP will only be suggested by a reputable counselor after all other avenues have been exhausted. They are last resorts, and reputable agencies will also offer money management workshops and budget advice along with the DMP.
Debt Negotiation Programs
In life, always remember the TANSTAAFL principle. There ain’t no such thing as a free lunch. Debt Negotiation/Debt Settlement programs sometimes try to make you believe that TANSTAAFL doesn’t apply. They claim to be able to erase your debt and bad credit report. Credit card applications will be mailed to you left and right they claim, and all the best credit card companies will be falling over themselves to try and give you a credit card once they’re done with you!
Be very, VERY wary of these types of companies.
These companies operate by getting you to stop making payments to the creditors, while simultaneously charging you fees for that period that they’re doing absolutely nothing. Eventually, they will talk to the people you owe money to and try to get them to make your debt defined as uncollectible, making creditors more willing to accept a lower amount (since they’re hoping to get at least some of what you owe them).
This is how they get your debt reduced, but there are two important things to keep in mind here. Firstly, the part of the debt that gets reduced might end up being considered as income by your tax agency, and you’ll end up having to pay at least a portion of that as tax instead of debt. Secondly, your credit score will be shot. If you thought you had bad credit before, just wait till one of these guys gets through with you.
So if this leaves you with such terrible credit, how do these companies claim to fix your credit? Well, what they do is they put in disputes to all the negative points in your credit report. As per the law, credit reporting firms will remove all the disputed points from a report while investigations are done. While the investigations are done, the credit repair company sends the customer a copy of their new report, listing their credit to be clean.
What the companies don’t say is that those negative items get put back into the report once the investigations are done and the information has been confirmed as being true and valid. So you have the same credit you started with, and are overall poorer by having to pay their fees, which you’ve just kissed goodbye.
Conclusion. Do your research. I can’t stress this enough; credit counselors can really help you out of a bind, but they aren’t supermen. They can come up with a reasonable long term plan for assisting you in getting out of debt, and reliable, reputable companies will offer a wide variety of services (some for free) to help you through this.
DMPs and DNPs, especially if they’re being pushed hard by the counselor you’re talking to, should not be used. Just move on and find someone else. With the number of agencies that offer to help you with your bad credit problems around, it won’t be difficult. Once you get your credit repaired, the credit card applications will begin hitting your mailbox again.
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