Things You Should Never Pay for When it Comes to Credit
__By Ben Luthi
If you’re trying to improve your credit, there are countless services that promise help, often for a fee. Whether you should pay for it or not, however, is kind of a trick question. There are very few absolutes when it comes to building credit
, and while some paid services may not be necessary for most consumers, they can be helpful in certain situations.
Whether you’re considering credit repair, credit monitoring, pay-to-delete agreements and more, here’s what you should know about each, and whether it’s worth it to fork over your hard-earned cash.
Can you pay to improve your credit score?
It’s impossible to directly improve your credit by paying money to the credit bureaus or the credit scoring companies. However, there are some paid services that can indirectly affect your credit score.
The key question, however, is whether you should spend money for this kind of help. In many cases, you can do the same work on your own for free, and there’s never a guarantee that paying a fee will bring results.
As such, it’s crucial that you take the time to consider your options before you spend your money.
What should you (and shouldn’t you) pay for to improve credit?
If you’re trying to improve your credit history, you’ll likely come across various services that make promises to help you get to where you want to go. Here’s what to know about each.
The term “credit repair
” can feel a little misleading because it sounds like a lot more than it really is. Credit repair companies can’t fix everything that’s wrong with your credit history.
Instead, they can help you get inaccurate, unverified and unfair information removed from your credit reports, which can have an effect on your credit score.
Depending on the service, you can generally expect to pay about $100 per month
and, in some cases, an upfront fee. But here’s the thing: these companies don’t do anything you can’t do on your own.
If you find something wrong with your credit report
, you can dispute it directly with the credit bureaus and the creditors listed on the tradeline. The process can take time, especially if you need to provide evidence that it doesn’t belong to you or it’s inaccurate.
But if you have the time and it’s a relatively simple case, it’s likely worth it to avoid the costs and skip the additional monthly payment. If, however, it’s a mess from the start and you feel like you’re in over your head, it may be worth trying out a credit repair service to get some help. Just make sure you know what to watch out for
when choosing the right service.
The three credit bureaus and other companies offer credit monitoring services for a fee. And while it’s possible to check your credit score and report information through free services like Credit Karma and NerdWallet — or possibly even through your credit card issuer — it may be worth it for some to pay.
“Paid credit monitoring services can be beneficial because many of them offer FICO scores as well as your credit reports from all three credit bureaus,” says Shanté Nicole, a financial educator and credit coach. “Many of the free services are good for monitoring your reports, but they offer VantageScores, which are calculated much differently than FICO scores.”
Also, free services may not give you the full picture. If you’re just looking for a way to keep track of your credit score, a free service may be enough. But if you’ve been a victim of identity theft and are trying to rebuild good credit, a paid monitoring service that offers real-time alerts and a bigger picture may be a better choice.
You can get one free copy of your credit report
from each of the three national credit bureaus every 12 months, and that’s usually enough to check in every now and then and make sure nothing is amiss.
If, however, you’ve already used up your free copies and need access to your report for another reason, it may be worth it to pay the credit bureaus to get another one. Just be sure to rely on AnnualCreditReport.com
for the free versions first.
If you have an account in collections
, it could have a significant negative impact on your credit score. Fortunately, some debt collectors may be willing to not report the past-due account if you pay off the debt in full. There are pay-to-delete letter templates
online that you can use to request this kind of agreement.
“Pay-to-delete letters are legitimate, but whether they are honored or not all depends on the collection agency,” says Nicole. “Many will reply stating that, by law, they have to report accurate information. Many will agree to your terms, and there are quite a few that will automatically delete the item upon receiving payment with no letter required.”
It’s always a good idea to pay off past-due debt, and the latest FICO credit score model, FICO 9
, even excludes paid collection accounts from its scoring. But if you can get this kind of agreement, it may be worth getting the debt paid sooner rather than later.
New credit accounts
Using credit wisely over time
is the best way to get your credit back on track. But when you apply for new credit, there may be some costs involved.
Some credit card companies, for instance, may charge a processing fee just to open a new account in your name. If you see this kind of charge, look elsewhere. There are plenty of credit cards for bad credit that won’t assess this unnecessary fee.
Note, however, that some personal loans may charge an origination fee, and this might not be avoidable if your options are limited due to bad credit.
If you’re applying for a secured credit card
, you’ll need to put up a security deposit to get approved, typically $200 or more. This isn’t ideal, and if you can get an unsecured credit card, there’s no need.
Learn about the Self Visa® Credit Card
, a different take on the secured credit card.
But using a secured card regularly and paying your bill in full could help you build credit without ever paying interest. And as long as you don’t default on your debt, you’ll get your deposit back when you close your account (and sometimes sooner).
Another cost you might come across on a credit card is an annual fee. These fees can be avoidable with some credit cards, but many credit cards for bad credit charge them. Take your time to shop around to see if you can find a card that allows you to build credit for free.
The bottom line
It can be tough to know whether it’s worth paying for a service that can help you get your credit back on track. But it’s important to understand that you don’t have to pay to repair credit and you don’t have to pay to improve your credit score.
There are plenty of other ways to build your credit history, and a lot of the paid services provide things that you can access for free on your own.
If you do decide to pay a fee or deposit to work on improving your credit, take your time and research all of your options before you commit. You may end up finding an option that won’t cost you anything or will cost you less than what you found initially.
Whatever you do, it’s important to keep in mind that establishing a great credit history takes time
, and it’s mostly driven by your everyday credit habits. As you develop and practice good financial and credit habits, you’ll be on your way to where you want to be.
About the author
Ben Luthi is a personal finance writer who has a degree in finance and was previously a staff writer for NerdWallet and Student Loan Hero.