If credit repair cost has you thinking twice about the process, get ready to feel much better about it.
When you repair your credit yourself, the expense is far more manageable than you might think. Though there are costs ranging from the price of postage to paying off debt, you do not need to pay for credit repair services or some other things associated with the process. Get the facts about expenses you can expect and ones you can avoid.
Costs you can expect
Mailing credit repair letters
If you have bad credit, it is because of negative listings on your credit reports. So, a critical step in the credit repair process is identifying these negatives and doing what you can to address them through credit repair letters. In some cases, this may mean having an inaccurate listing removed. In other cases, it may mean negotiating a settlement for old debt.
We have free templates you can tweak to your specific circumstances, so you need not pay anyone to write these letters for you. In fact, the only cost associated with this step is the price of printing out the letters and mailing them to the appropriate recipients.
It is recommended that you send your credit repair letters via Certified Mail with Return Receipt so that you have proof of when they are received. This comes to a total of $6.67 per letter. That’s $3.45 for Certified Mail, $2.75 for the Return Receipt (green card you get back confirming when they received it), and $.47 for the regular cost of first class mail. Add $.21 for each additional ounce added by supporting documents.
As for the type of credit repair letter you use, it will depend on the nature of the listing, but common examples include:
- Dispute letter to the credit bureaus*
- Debt validation letter
- Pay for delete letter
- Zombie debt letter
- Goodwill letter
*Note, the credit bureaus offer online credit dispute options. Don’t do it. Mail your letters so that you create a paper trail.
Paying down debt
The amount you owe represents 30 percent of your FICO Score. This includes:
- How much you owe on all accounts
- How much you owe on different types of accounts
- Credit utilization ratio on revolving accounts (e.g., credit cards)
- How many accounts have balances
- How much you still owe on installment accounts (e.g., mortgage, auto loan, student loan, etc.)
This makes it very important to pay down your debt as soon as possible.
Your financial situation will determine just how aggressive you can get with paying down this debt. Obviously, you want to make all of your installment loan payments as agreed and stay current on your credit cards. Beyond that, though, you should use the debt snowball or avalanche method to pay off outstanding credit card debt completely.
Once you’ve returned your credit card balances to zero, keep it that way. This is not to say that you shouldn’t use your credit cards; only that you should only charge as much as you can afford to pay back right away. And, at the very most, you should never use more than 10 to 30 percent of your available revolving credit at a time.
Settling old debt
Collections and charge-offs for unpaid debt are among the most damaging of listings you can have on your credit reports. Fortunately, it is possible to negotiate a pay for delete, which means exactly what it sounds like: in exchange for paying what you owe, they remove the associated listing from your reports.
Just one note of caution.
Before you pay any debt to a collection agency, request debt validation and, if it’s several years old, check the statute of limitations first.
If the debt cannot be validated, you are not responsible for it and the associated listing must be removed from your reports. If the statute of limitations has expired, you are not responsible for it, but it will still stay on your reports for up to 7 years. If you are nearing those 7 years, it may be better to wait it out rather than pay the debt.
Getting a secured credit card
Addressing negative listings on your credit reports is only one part of the repair process. Equally important is adding positive credit that will help raise your score. One good way of doing that is through the responsible use of credit cards.
Unfortunately, when you have bad credit, it often comes on the heels of having your credit cards cancelled and charged off. In this case, you may not have any credit cards to use responsibly…and you don’t have the good credit to qualify for one. This is where secured credit cards can be so helpful.
You don’t need good credit to qualify for a secured credit card. What you need is the ability to pay a security deposit that is usually equal to the line of credit they extend to you. After using it responsibly for 12 to 18 months, you will likely be eligible for an upgrade to a regular credit card, at which time your security deposit will be reimbursed.
Managing credit freezes
After all the hard work of repairing your credit, the last thing you want is for an identity thief to come along and undo all of your hard work. Thus, the importance of credit freezes to keep anyone from opening an account in your name.
In the wake of the Equifax hack, it is recommended that you keep credit freezes on your credit reports indefinitely. The cost of this varies. Placing the freeze is free if you are a victim of identity theft. Some states also offer free credit freezes under certain circumstances. Otherwise, you should expect the cost of a freeze to range from $3 to $15, depending on where you live.
Just keep in mind, this is per freeze, which you will need to place with all of the credit bureaus, including Equifax, TransUnion, Experian, and Innovis. Note, however, you can place a free credit freeze on your Equifax credit report until June 30, 2018).
In addition to the potential cost of placing the freeze, you may also need to pay to have it lifted when you want to apply for new credit. Because the freeze not only prevents other people from opening credit in your name; it prevents the same for you, too. The only way around it is a temporary lift, which you may have to pay for, too.
Costs you can avoid
Paying for credit monitoring
Keeping an eye on your credit is an important part of the credit repair process from beginning to end. You not only need to see your credit reports in the beginning, to know what needs to be addressed. You also need credit monitoring to track how well your credit repair efforts are working. Beyond that, credit monitoring should continue once your credit is improved so that you can act quickly to address errors or identity theft so as to minimize future credit damage.
Fortunately, credit monitoring isn’t something you need to pay for. Yes, there are plenty of companies out there that will charge you for it – including the credit bureaus – but as long as you know the right places to look, you can get the job done for free:
The law entitles you to see your credit reports for free every 12 months. The place to make this request – of Equifax, TransUnion, and Experian – is AnnualCreditReport.com.
2) Credit Karma
There are numerous sites out there that monitor aspects of your credit for free. Unfortunately, your use of these sites is limited if you have credit freezes on your credit reports; many simply will not work if a credit freeze is in place. Credit Karma is an exception.
To sign up for Credit Karma, you will have to temporarily lift any freeze you already have in place so that it can be granted access to your credit. But once the sign-up process is complete, you can reinstate the freeze and Credit Karma will be able to continue monitoring your credit for you.
This free monitoring includes access to your TransUnion and Equifax credit reports, as well as the VantageScores based on these reports.
3) Experian CreditWorks Basic
Since Credit Karma only monitors TransUnion and Equifax, you’ll need something additional for Experian. Fortunately, Experian has its own free monitoring option – CreditWorks Basic, which allows you to see your Experian credit report every 30 days.
4) Credit card issuers
Many are including credit scores in customers’ monthly statements. If you’re not sure whether your credit card issuer does this, or you don’t know where to find your score, give them a call and ask.
The only time we recommend you paying for credit monitoring is if you are getting ready to make a big purchase, on a house or car, for example. In those cases, it’s a good idea to pay to see the specific FICO Scores lenders will see when making those decisions. In those cases, consider the FICO Score 3-Bureau Report ($59.85 for one-time access) or FICO Ultimate ($29.95 a month).
Paying a credit repair company
There is nothing that a credit repair company can do for you that you cannot do for yourself. They do not have special relationships with creditors, or collections agencies, or credit bureaus. What they do have are fees – money you could be putting toward paying off debt instead.
That said, if you have zero interest in learning how to repair your credit on your own, you may be considering a credit repair company anyway. At the very least, do your homework first. Get the facts about what to expect from a credit repair company, including how their fees work.
Paying a debt relief company
As with credit repair companies, there is nothing a debt relief company can do that you cannot do yourself. Learn how to DIY.
Paying for credit counseling
While credit counseling agencies do have services you can pay for, they also have plenty of free help that won’t cost you a thing. Any reputable credit counseling agency will offer a free initial consultation, free information and resources, and free workshops and classes.
It’s only if you set up a debt management plan through them, or seek bankruptcy counseling, that a credit counseling agency will charge you. And these are both options that should only be entered into after considerable deliberation.
The best way to minimize credit repair expenses?
Do your homework and do it yourself. Sure, it may feel overwhelming and intimidating at first. But credit repair is actually pretty straight-forward. It’s just a matter of delving in and committing yourself to the process. This comprehensive guide will walk you through it every step of the way.