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Dave Ramsey’s opinion on Credit Repair may feel quite radical when compared to the baby steps. But before going into the crux of the matter. Let’s help you make sense of what a credit repair is:
What is credit repair?
Quite often, people use the term “credit repair” to describe the process of finding and correcting errors on their credit report. However, it has a more encompassing meaning, as it means fixing bad credit. It could involve something as simple as identifying any wrong information. Correcting issues of identity theft involve a more cumbersome process.
Credit repair can also mean dealing with issues that result in a bad credit score. Some of those issues may demand a lifestyle change or to start addressing lenders’ concerns.
Some finance companies claim that they can get rid of erroneous information and correct bad credit reports quickly. They shouldn’t be believed as the process takes effort and time. Third parties cannot remove details cited to credit reporting agencies, what they can do is to file a dispute.
Individuals don’t need to use credit repair companies as they can investigate their credit reports themselves. The owner of the account is entitled to a credit report yearly, and when the details of their credit report cause unfavorable decisions to be taken against them. E.g. loan denial due to information on the credit report.
Individuals can file disputes when there is any inaccurate or incomplete information on the credit report. If it involves rebuilding and repairing the credit, the work has to be done by the account owner.
The account owner’s payment history can adversely affect a credit report. As such, if that’s the problem, then the account owner should improve the payment schedule for outstanding debts. You should also limit credit-card usage until it’s very important to use one—because it affects your credit report. How? If you’re using a lot of credit, paying the minimum payments on time still negatively affects your rating.
What does Dave Ramsey think about credit repair?
Dave Ramsey recommends what he describes as a simple way to improve your score. He believes that the solution lies in paying off your debt, and not adding new debt. One of the fastest ways that you can do this is to employ the help of a debt payoff planner that has an innovative credit builder feature. Often these debt payoff planners allow you to maximize your debt payoff each month, thus saving interest and potentially other fees. He even went further by asking people to ditch their credit scores. Let your credit score go extinct he says.
If you do decide to pursue credit repair, my favorite is Kikoff as it’s a total of just $5 per month, and every month, Kikoff reports your accounts to both Experian and Equifax. This is BY FAR the cheapest I’ve found as many are quite expensive. The goal with Kikoff is to add good history, lower your credit utilization, and increase your average account age.
Many people’s credit scores can be affected by missing out crucial details, such as their due date. Banks are pretty strict with this mistake. Although they can provide a leeway when you call to give your reason or email their customer service line, it could be a lengthy process. And, even if there’s a chance it could be rectified, harm has already been done to your credit score.
Rather than focusing on the things that you’ll find difficult doing without a credit score, focus on the benefit of carrying zero debt. Have you ever wanted to go on vacation to Asia? Have you always wanted to have an exquisite tour of Dubai? Or do you want to go on a shopping spree? It’s all easier with zero credit score he says. This is true since you won’t be sending part of your hard-earned income to your creditors.
Life with out a credit score?
In his article titled living without a credit score, Dave Ramsey made some salient facts that are worth considering.
Dave Ramsey said that your bank account becomes your measuring tool when you ditch the credit score. Rather than use the FICO score to measure your financial status, financial institutions will use what you can afford. To know what you can afford they’ll value your assets and liabilities.
Another great point he made is that you won’t overspend, as you’ll only buy what you can pay for. Living without credit helps you live within your means—and motivates you to make a budget.
Not living within your means and splurging on things just because you have plastic in your purse can be dangerous. You can treat yourself with luxurious stuff occasionally, but regularly having a shopping trip so that you can update your OOTD on your socials, for instance, can do more harm than good to your credit score. Your credit card is powerful, but you don’t have to let its power run your life.
He also claims that it’ll help reach his Baby Step 7. While we can’t confirm this, we know that ditching your credit score can help. However, this is quite a sudden and radical approach. As such, we’ll make some modifications to his suggestions.
What About Loans?
With banks ramping up their standards in issuing credit card approvals and being doubly strict in approving loans, many individuals are scrambling their resources and finding ingenious ways to fix their credit standing. What many don’t know, however, is that there are lending companies that grant bad credit loans.
That said, consider interest rates and whether you can be gazelle intense to get out of the debt quickly. And check what Dave Ramsey has to say about debt consolidation loans.
What we think about credit repair
We believe that a good credit score is the hallmark of a good financial life. As such, you should take steps to repair your credit when needed.
We don’t totally believe in Dave Ramsey’s theory on ditching your credit score, as it’ll definitely be needed. Dave Ramsey suggests in the total money makeover that you rent until you can purchase a home without credit. But he fails to mention that most homeowners request for credit score before giving out their house. Also, you’ll need a credit score to sign-up for insurance and apply for a job. If you don’t have a credit score, you may not be hired, and insurance companies will charge you more.
Whether it’s to correct an error on your credit report, or you want a better credit score, it takes time. To repair your credit, you should make use of some financial tools like budgeting.
As an alternative to his methods, we’ll recommend that you repair your credit by doing the following:
1. Check your credit score
A study by the Federal Trade Commission 25% of people found a potential error in their credit report. Going through your credit report is the only way to uncover this mistake and file for dispute.
Your credit will be affected if your report is mixed with someone else’s own or has inaccuracies. Errors can take weeks and months to be corrected.
2. Decide Your Debt Relief Option
If you want to repair your credit due to a poor credit score, then you may consider filing for bankruptcy. This may be a good option if you can’t afford to pay your debt, and you have a poor credit score.
Bankruptcy helps by getting rid of your debt, and giving you a fresh start—you can build your credit score from there.
Note: Filing for bankruptcy if you have a good credit score may be a bad idea. It’ll further damage your credit score.
If you don’t want to file bankruptcy, you should read up on other debt-relief alternatives to bankruptcy. E.g. debt settlement, debt management, etc.
Summary
Dave Ramsey has a great knowledge of personal finance. However, it’s not all his ideas that are perfect for all situations. As such, you should objectively consider the points made above, and apply it to your circumstance.