Most Americans understand the importance of maintaining strong credit, and yet, many still struggle with their credit scores. Some people just can’t get a good grasp of what it takes to build credit, while others don’t have the time or patience to do it.
Consequently, the demand for professional help in credit repair is very high.
Credit repair companies make it their business to help consumers improve their credit scores by finding inaccuracies in their credit reports and contacting the credit bureaus on their behalf.
Starting a credit repair business can be a profitable venture, but at the same time, it can be a little intimidating if you are not sure where to begin.
Luckily, you are at the right place, as our guide will walk you through the essentials and give you an idea of what it takes to start a credit repair business.
Get a Credit Repair Certification
Even though a credit repair certification is not a legal obligation, and you can become a credit repair specialist without ever obtaining one, it is highly recommended to get certified before you start your own credit repair business.
While everyone is technically capable of fixing their own credit by themselves, getting credentials that will officially recognize and corroborate your expertise can go a long way.
As a credit repair business startup, you will need to build your reputation from the ground up to earn the trust of your potential clients. They don’t know you or your company and need something that will verify your integrity, and certifications are just the thing for it.
And since the law doesn’t require you to get one specific certification, you can choose any training program you want. A quick Google search will get you a number of helpful courses that will accredit you at the end of the program, so look around and find one that fits your criteria.
Understand the Legal Requirements
While the demand for professional help in credit repair is high, consumers are wary of credit repair companies. Reports from the FTC show that a large number of scammers operate posing as credit repair and run frauds on people in need of help.
As a result, there are several state and federal laws associated with starting a credit repair company you want to comply with to avoid legal troubles.
State Laws
Each state creates its own local laws, so they vary from state to state. Some states require special licensing permits for starting a company, other states have registration requirements, some have requirements for running a business from home, etc.
For this reason, you have to contact your state’s general attorney’s office and your state’s department of revenue to learn every detail of your legal requirements, before you start your own credit repair business.
Federal Laws
Unlike state laws, federal statutes apply nationwide, and everyone must adhere to them. While there are multiple federal regulations you will need to understand and comply with, the two most important are the CROA and the FCRA.
The Credit Repair Organizations Act (CROA) is a federal law that directly regulates the work of credit repair companies, so you can’t start a credit repair company without fully understanding it.
In accordance with the CROA, credit repair companies:
- Are prohibited from misleading their clients with false promises and falsely advertising their services by guaranteeing unrealistic results.
- Are legally obligated to provide their clients with a contract in writing that requires their signature before they conduct business together. Furthermore, the contract has to include a cancellation clause that allows the client to cancel within the first three days.
- Are prohibited from charging their clients in advance. For this reason, most credit repair companies offer free examination and consultation and charge for their services only after their work has been done.
The CROA is enforced by the Federal Trade Commission, and it has the authority to penalize, fine, and even shut down credit repair companies that don’t adhere to its rules.
Another federal law you should familiarize yourself with before you start a credit repair business is the Fair Credit Reporting Act (FCRA). It places limitations on how credit reporting agencies can collect and share consumer information, and some of its most important clauses include:
- All consumers have the right to receive one free credit report from each credit reporting bureau per year.
- Only requestors with a legally permissible and compelling reason to view another consumer’s credit report can request it.
- Consumers have the right to dispute inaccurate information in their credit reports, and credit bureaus are obligated by law to investigate faulty reports and correct them.
There are other stipulations and requirements relevant to the credit restoration business proposed by the FCRA, so you should do your research before you get started.
Create a Business Plan
To start a credit repair business from home, you must have some sort of a business plan in place, even if it seems redundant. Although it seems like credit repair is a side job that you will work in your spare time that requires minimal investment, there are still some very important questions to think about like:
- What are the costs for a startup credit repair business, and how much are you willing to spend?
- What will be your target clientele, and how will you reach it?
- What will be your pricing model, and how much will you charge your clients?
Creating a business plan can be tricky, especially if you have never started a company before. Not to worry, we will cover the most essential aspects of creating a credit repair business plan and show you what you need to focus on.
Costs and Expenses
How much are you willing to invest in your credit repair business is entirely up to you. Since it is a business you can run entirely online, you can save a ton of money you would otherwise spend on office space. Of course, you will need your home office to be equipped with a computer, internet, and a dedicated business phone line, but this is equipment you probably already own.
However, there is one cost you can’t avoid when starting a credit repair business, and that’s a surety bond. In some states, credit repair companies are bound by law to obtain a surety bond, but even in states where they are not, getting one is a good idea. They cost between $200 and $300 and will protect your clients from potential damages caused by your company.
Furthermore, you should think about investing in credit repair software. As a startup credit repair business, you may be able to do everything manually, but investing in an automation tool as soon as your business takes off can help you grow much faster. A credit repair software subscription can take you back between $20 and $600 per month, though the more expensive options are usually tailored for large enterprises, rather than startups.
Additionally, you should think about investing in a credit repair franchise. As a startup, you could definitely use the backing of an established industry leader, though it comes at a price. Franchising is a serious investment that requires liquid capital of at least $10,000, so only people serious about starting a credit repair company should consider it.
Finally, calculate your ongoing expenses and get a clear number of how much running your business will cost you on a month-by-month basis. Once you have a detailed monthly expense budget, you can move on to the next section of your business plan.
Target Market and Marketing
Targeting your clientele is a process that should be done in the early phases of your credit repair business startup. Naturally, you will want to find consumers who need help fixing their credit, but it is always advisable to conduct a target market analysis and pinpoint exactly who your marketing efforts should be targeting.
Investing in marketing can become quite pricey, particularly if you don’t have a specific audience in mind. This is why establishing certain goals and deciding your marketing budget should be a part of your business plan. Think about how much you are willing to spend on supply and demand analysis and developing marketing strategies.
Additionally, word-of-mouth marketing is vital in the credit restoration business, so consider implementing referral or affiliate programs for your company. After you determine your marketing budget and come up with a precise figure, you can start reviewing pricing options.
Pricing
Now that you know how much it costs to start a credit repair company and what your ongoing and marketing expenses are, you are in an ideal position to think about what you will charge your clients for your services.
You can start by researching the competition and see what the already established credit repair companies charge their clients and base your number off of theirs. Generally, credit repair service providers use one or more of the three pricing options:
- Flat fee – every customer pays the same regardless of how much work you have done
- Per deletion fee – you only charge the customer for the negative items you removed
- Monthly subscription – your customers pay for your services every month and get a specific list of services
Consider offering multiple pricing options that will allow clients with different needs to get exactly what they are looking for. Moreover, flexible pricing will enable you to scale the company over time and restructure your models as you grow.
Deal With the Financial Side of Things
Creating your credit repair business plan is a huge step forward, though you are not quite out of the woods yet. A few more boring but important financial details still need sorting out.
Legal Business Entity
When starting a new business, even a small business like a credit repair company you will run from your home, you have to establish a business entity to legitimize it. The most common business entities in the US are:
- Sole proprietorship is an informal business structure in which there is only one owner, and they have any protection from legal allegations against their company.
- General partnership is very similar to sole proprietorship, but it is used when the business has multiple owners.
- Limited Liability Company (LLC) gives the owner some protection from legal allegations against their business. When the company has multiple owners, it can also be a Limited Liability Partnership (LLP).
- Corporation (S-Corp) is a formal business structure in which the owner’s liabilities are separated from the business liabilities.
For a credit repair business startup, it is recommended you register your company as an LLC. It will only cost you between $50 and $200 and protect you from personal liability in case of an unwanted scenario like bankruptcy or potential lawsuits.
Taxes
After establishing a legal business entity, you must also register your newly formed credit repair company for taxes. Depending on which business entity you went for and which state you live in, you may have multiple options on how your company will be taxed.
In any case, you will need an Employer Identification Number (EIN) to register for taxes. It is a unique nine-digit number that you can get at the IRS website for free.
Business Bank Account
Just one more important financial step, and we will move on to the next chapter of starting a credit repair business.
While establishing a business entity will help you with liability, you will still need to create a business account to protect your personal finances and separate them from the company’s assets.
In addition, a business account will open the door to business-specific financial services, such as business credit cards, higher credit limits, lower interest rates, etc.
Lastly, a business bank account, separate from your personal one, will make your accounting and tax filing much less complicated.
Utilize Software Solutions
If you have made it this far, we have good news for you. The preparation for your credit restoration business is almost done. The only thing left is to digitalize your business and go live.
Website and Branding
Some experts recommend you start your own credit repair business without a website and utilize social media to promote your company and engage with your clients. While it sounds like a viable approach and might even work for someone, we firmly believe that running a website is imperative for creating a successful business. After all, all legitimate businesses have a website.
Since you will start a credit repair business from home and operate solely online, you should think about your website as a storefront. All your potential clients will get their first impression of your company when they land on its home page. For this reason, your business website should be professional, user-friendly, and show your brand in the best light.
There are plenty of tools available online that will allow you to create a website in a few hours, even if this is your first time creating one. With a minimal investment in a host and domain, you can have your website up and running in no time.
That being said, we strongly suggest you hire a professional, or get courses on building websites and branding to get the best results.
Automation
Starting a credit repair company and working completely manually may be an option at the beginning, but as you start to land more and more clients, you will need automatization.
There are plenty of credit repair software solutions available online that will help you streamline the process of repairing credit for a large number of customers. They can help you find negative items in reports, generate dispute letters, and do other menial tasks that will help you work faster and more efficiently.
Furthermore, as your credit repair business startup expands, you will need help managing all your customers’ files and information. At this point, you should be looking into CRM and project management tools, allowing you to scale your company and work with hundreds of clients effortlessly.
Marketing
CRM tools can additionally help you determine the right target market for your business and develop a more efficient marketing strategy to reach new potential clients. However, there are plenty of other software solutions that can improve your marketing efforts.
In addition to a strong social media pressence, your new credit restoration business could use all types of digital marketing like SEO, affiliate and email marketing, etc. Consider investing in software that will help you reach your target market more effectively, or hiring professionals to help you grow your brand.
The Bottom Line
The decision to start your own credit repair business is a big one, and there are plenty of things to think about before jumping the gun. Repairing credit may seem like a casual side hustle, but it actually requires high levels of responsibility and integrity as it involves working with the private financial information of other people.
On the other hand, if you believe that you have what it takes to start a credit repair company and handle the legal and financial requirements, it can also be very rewarding. You can make serious money from it and, at the same time, help other people achieve their financial goals.
FAQ
Is credit repair a good business to start?
The credit restoration business is in demand and has a high profit potential. Additionally, repairing other people’s credit can be very rewarding.
Do you need a license to start a credit repair business?
Starting any business in the USA requires a license or some sort of special permit, and the credit repair business is not an exception.
What is the average credit repair business salary?
According to the latest credit repair statistics, the salary of a credit repair specialist working at an agency is $46,040 per year. However, credit repair specialists who run their own companies make significantly more money than that.
