There are various companies currently operating that make wild and unfounded promises when it comes to credit repair. Several organisations claim to be able to wipe out bad credit, while others, such as payday loan companies, for example, claim that using them can help you on the path to repairing bad credit.
Much of these often sound really appealing options for repairing personal credit, but are they in fact making your credit better?
Wiping Out Bad Credit
The dirty little secret that these sorts of companies do not want to tell you is that they do not actually wipe out bad credit. There isn’t a way you can wipe out bad credit in reality, short of dying or paying off all of your debits. What these companies will do, often for a ridiculously high fee – charging you extortionate sums when you are already in debt, if you didn’t already know – is seek to remove notes from your credit report.
This is a common method and can be easily done yourself. While it will not give you an amazing credit status, just looking up your credit report and asking for incorrect notes placed on there to be removed will help you on the road to repair. Financial services providers are often more sympathetic than they are given credit – no pun intended – for. In some cases, if there were mitigating circumstances that caused you to default or miss a payment, they will often remove a notice.
Beware of clearly shady or even seemingly reputable companies that offer to wipe out bad credit.
More people than ever before are turning to payday loans as a means to get them financially until the end of the month. Most people already know that you can end up paying ludicrous amounts of interest if you fail to pay these loans back on time, so rather than look at that we explored the role of payday loans within credit repair.
Payday lenders almost all claim that by using their service and paying back on time you will be enhancing your credit status. In one, albeit very small respect, this is true, as you will get a better reputation for paying off borrowings on time.
At the same time, however, if you are likely to be seeking a longer-term financial agreement in the future, such as a mortgage or a hire purchase for a car, then payday loans can work against you. Yes, you are demonstrating the ability to pay off a small loan on time, but in the eyes of longer-term lenders you are not a safe bet when it comes to paying regularly.
Ultimately, payday loans are an indicator of poor financial management, and firms with lenders will avoid you.
DealMarket is an extensive global private equity platform aimed at business investors.