Would You Pay $100,000 for a Good Credit Score?

Posted 3/17/2010 5:27:13 PM in Credit Score
When you read about credit repair companies in the news, it seems like it's always for the wrong reasons. It usually involves some shady credit repair scam where people have lost hundreds or thousands of dollars because they trusted someone who said they could clean up their credit reports or could get them a new credit file.

When hearing stories like this, a couple of thoughts tend to come to mind. The first is, "why would you believe that someone can repair bad credit?" and the second is "why would you pay so much for credit repair?".

The first question is pretty easy to answer. People believe it is possible to repair a credit score because it is. There are thousands of consumers out there who, through their own efforts or with the help of a reputable credit repair company, have permanently removed negative information from their credit reports and increased their credit score. Granted, you will find people posting in forums or chiming in on Yahoo! Answers who still claim it cannot be done, but when you sit down and talk to someone who has repaired their credit and has the documentation to prove it, it's obvious who is mistaken.

As for the second question, when you crunch the numbers, it again becomes obvious why people are willing to pay so much for a good credit score and why it seems perfectly reasonably to write a 4 figure check out to someone who claims to be able to help them achieve that mythic 800 credit score.
Imagine you are looking to get a $300,000, 30 year fixed interest home loan, which is only slightly higher than the national average home price for 2009. If you have a poor credit score between 620 and 639, as of 3/17/2010 myFICO estimates that you will end up paying $363,220 in interest payments on top of the $300,000 in principal.

If you have an excellent credit score, however; you'll end up paying much less. For the same loan amount, myFICO estimates that someone with a credit score above 760 will only end up paying $255,982 in interest payments. That's a savings of $107,238! So if you are getting a loan of over $300,000 and your credit score is below 640, you would actually see a positive return on your investment if you paid $100,000 for a high credit score.

So when you ask yourself why someone would be willing to pay so much even for the chance at a better credit score, the answer is apparent. The saving of having a good credit score are enormous. There is little wonder why someone would hand over a few thousand dollars today when it could result in them paying tens of thousands of dollars less in the long run.

Which is why credit repair scams get so many people. Like the "Nigerian 419 scams", fake lotteries and other advance fee scams, the possible upside is so great that even when people have doubts and in hindsight should have known better, they are simply unable to pass up on the perceived opportunity.

But the amazing thing about credit repair is that it really can work. You are never going to be given millions of dollars by an African prince in exchange for helping him move his vast fortune and you are never going to win a Dutch lottery you never even entered, but with a little time and effort, you can improve your credit score. Credit repair doesn't work the same for every person and there are no guarantees how well it will work for you, but there are countless cases where people have improved their credit score by hundreds of points in a matter of months.

If your credit needs work and you don't have the time or the desire to work to repair it yourself, there are legitimate credit repair companies who can help. Just be careful not to fall victim to the same type of credit repair scam you hear about in the news. Don't pay in advance for credit repair services (federal law dictates that credit repair organizations can only charge for services after they have been performed) and don't trust anyone who claims to be able to create a new credit report for you.