Want to know how to start a credit repair business?
Then keep reading!
According to the Experian Report, only 1.2% of Americans have a perfect credit score. Further, Experian says about 16% have a "very" poor credit score while another 15% have a "fair" score.
Numbers don't lie. These stats show a potential market where you can cash in.
While starting a credit repair business can be lucrative, it is also essential to note that you'll be competing with over 69,000 other credit repair businesses, according to IbisWorld.
To stand out and get your piece of the pie, you must lay a solid foundation and a well-thought-out marketing strategy.
This article outlines how to start a credit repair business, win new clients, and generate a decent monthly income.
By the tail end of this post, you'll learn the following:
- How to plan your credit repair business
- Credit repair laws that govern the credit repair industry
- How much do you need to start a credit repair business
- How much can you make with a credit repair business
- The best credit repair software
- How to market your business and more.
Let's get cracking;
What is a Credit Repair Business?
While common causes of a bad credit score include a bankruptcy filing, defaulting on loans, charge-offs, and late bills, not everyone with a poor score falls into this category.
Some have bad scores due to inaccurate negative information on their credit reports.
A credit repair business provides fully managed services to help customers raise their credit scores.
Credit repair clients will come to you with bad credit, and you aim to help them improve their overall scores.
Specifically, your job is to dispute the inaccurate information on their credit report. The process involves communicating with credit bureaus, collection agencies, creditors, and lenders on behalf of your client.
You don't have to be a tax professional to start a credit repair business. Still, you'll need training on how credit repair works. I'll tell you how you can get free training later, so keep reading.
Now that you know what credit repair companies do, let's look at how to start your own credit business.
Step 1 - Write a Business Plan
Like any other venture, starting a credit repair business requires adequate preparation. A business plan will help nail down vital specifics to help you set your business for success.
Some benefits of writing a credit repair business plan include:
- Establish if you need training before you start
- You can establish startup and recurrent costs
- You can determine your ideal clients
- You can decide how much to charge your customer
- You can figure out the best business name for your startup
That said, let's go over a few of these pointers.
Get the Necessary Training
You don't need to be an expert in the credit repair process to start a business in this industry.
Still, it would be best to know how credit repair companies operate before taking the plunge.
The good news is that you don't have to pay for training.
Credit Repair Cloud, developers of the best credit repair software, can train you for free.
The company offers a free podcast and eBook to help you learn the basics of starting, running, and growing a credit repair business.
Better yet, you can enroll for the Credit Hero Challenge, a comprehensive 14-day experience where experts show you step-by-step how the credit repair business works.
While the Credit Hero Challenge is a paid program, it costs a reasonable $47.
And according to the developer's website, "This doesn't even come close to covering the cost of our expert coaches, live daily accountability, and Q&A you're getting."
Determine How Much You'll Need to Start a Credit Repair Company
A credit repair business's startup costs are reasonably minimal.
First, you don't need an office. You will be doing most of your work, so you can start a home credit repair business to keep costs down.
Still, you'll need a computer, reliable internet, and a dedicated phone line.
You'll also need a credit repair surety bond to safeguard your customers against potential damages up to your bond's value. Most surety bonds for a credit repair business cost between $200 and $300.
Further, you'll need to open a merchant account. That way, you can accept credit and debit card payments.
Side Note: Most banks are hesitant to shoulder the risks associated with credit repair organizations. You'll want to open a business bank account in a financial institution that understands and supports your business.
Banks that allow credit repair businesses to open a merchant account include:
- Regions Bank
- Bank of America
- Schools First Credit Union
- Wells Fargo
In addition, you'll need to invest in credit repair software.
While there are many credit repair solutions, Credit Repair Cloud is the best credit repair software on the market.
With a near-perfect 4.9-star rating on TrustPilot after 1750+ reviews, Credit Repair Cloud boasts innovative features to streamline how you operate your own credit repair business.
Credit Cloud Repair costs $179 to $599 per month, depending on your plan, as shown in the pricing structure below:
Credit Repair Cloud offers a 30-day trial allowing you to test drive the software before buying.
Start your Credit Repair Cloud free 30-day trial.
You also read my Credit Repair Cloud review to learn how the software can help you run a profitable credit repair business.
Side Note: Credit repair services that use repair software report a 400% revenue increase in just over a year.
Determine the Recurrent Costs for a Credit Repair Company
Running a credit repair agency isn't expensive.
Besides the standard operating cost, your ongoing business expenses will include the following:
- Credit repair software fees
- Surety bond
- Salaries — you may not need to hire for a home business, especially during the first few months. You may consider getting employees as your business grows.
You may also consider adding ongoing education into your budget for long-term growth and success.
Determine Your Target Market
The primary target for credit repair businesses includes individuals with negative credit history.
However, it is important to note that prospects below 24 years and over 65 don't have a solid credit score or aren't eager to repair their credit score.
It would be best, therefore, to adopt a more direct marketing approach, targeting prospects over 25 and below 65.
The other group of credit repair customers consists of people who've been recently denied a loan because of a negative credit report.
Determine How Much You'll Charge Your Customers
Credit repair fees may vary from one business to another.
To determine how much to charge your customers, you'll want to assess your competitors' rates first.
That said, well-established and experienced credit repair agencies charge between $90 to $125 per month per client.
Others charge a fee for every credit report they successfully repair.
The best approach is to remain flexible with your rates, especially as a startup. Of course, you can adjust your rates accordingly as your business grows.
Establish How Much Can You Generate Offering Credit Restoration Services
The amount of money you can make per month depends on your fees and the number of clients.
If you process and settle 200 dispute letters, each client paying $89 per month, you'll generate a net income of 17,800.
On the flip side, you can generate up to $44,500 monthly with 500 clients at the same rate.
You can improve your bottom line by increasing your rates and the number of clients.
Choose a Business Name
Part of your business plan includes choosing a name for your startup. When choosing a name, pick one that's:
- Easy to remember
- Consistent with your brand
- Easy to spell and pronounce
- Different from your competitors
- Abides by your State's naming guidelines
Step 2 - Form a Legal Entity for your Credit Repair Services
Most credit repair professionals operate their businesses as Limited Liability Companies (LLCs).
You can also run your business as a partnership or corporation.
Why an LLC?
There are several advantages of registering your business as a Limited Liability Company, including:
- Personal liability protection
- Less compliance paperwork
- Easy startup process
- Tax flexibility
- It adds credibility to your business
- Fewer ownership restrictions
- Management flexibility
Step 3 - Register for Taxes
Every new business must register for taxes, and credit repair is no different.
Start by applying for an Employer Identification Number (EIN). You can apply for your EIN online on the IRS's official website.
When registering for taxes, one must remember that your business will be taxed differently depending on its structure.
An LLC tax structure will be different from a corporation and so on.
As a small business, you'll also be liable to state-specific taxes. You can read this guide to learn more about state and franchise taxes.
Step 4 - Open a Business Account and Apply for a Credit Card
You must open dedicated bank and credit accounts to enable you to separate your assets from your business's.
Operating a personal account for your own credit repair business exposes your assets like home and car to possible auction if your business is sued.
Besides, you can leverage your business credit to help you acquire financing, higher credit lines, better interest rates, and more.
On top of helping protect your assets, opening a dedicated bank account also streamline accounting and tax filing.
Step 5 - Set up Your Accounting System
Running a successful credit repair business requires a good accounting system.
You'll, therefore, want to invest in accounting software to record business income and expenditures. That way, you can always understand your business's financial situation.
Besides, having an accurate and up-t0-date accounting system makes filing taxes easier.
Step 6 - Get the Necessary Permits and Licenses
You need a business license to operate your credit repair business.
Operating your startup without the necessary permits and license exposes your business to fines and possible closure.
Federal law requires that you obtain licenses at local and State levels. Check with your state office to determine which licenses you need when starting a credit repair business.
Side Note: Legal requirements may vary from State to State.
Apart from licenses and permits, you must be well acquainted with the applicable laws regulating the industry.
The two prominent credit repair laws are:
Credit Repair Organizations Act (CROA): This is a federal law passed to keep credit repair business operators in check.
More specifically, CROA ensures that credit fixing agencies;
- Have a written contract outlining how they'll repair the client's credit
- Don't demand payment before they can repair credit for their clients
- Customers can terminate their contract if the agency goes against the terms of the agreement
Fair Credit Reporting Act (FCRA): This law ensures that credit reporting agencies submit correct client info in their online databases.
On that note, getting well acquainted with all credit bureaus is crucial as part of starting your own credit repair business.
That way, you can know how they operate regarding receiving and processing dispute letters.
Step 7 - Get Business Insurance
You must buy insurance whether running a credit repair business online, at home, or in a rented office space.
Business insurance safeguards your company against unforeseen events that might lead to financial loss.
While the type of insurance you purchase may vary on your business risk, starting with general liability insurance is advisable.
You will also need workers' compensation insurance if you have employees. You can consult your insurance brokers to determine which cover you may require for your business.
Step 8 - Launch and Market Your Business
At this point, you've laid the groundwork and are ready to launch your credit repair business.
The first thing you'll want to do is launch a business website as follows:
- Buy a domain name. This will be a web extension of your business.
- Find an affordable hosting service. Bluehost is a great option.
- Install a Content Management System. WordPress is the best option.
- Choose a theme. Thrive Suite offers a collection of tools to help you create a responsive website for your business.
- Create and upload helpful content that targets your audience. The idea is to help you generate leads through content marketing.
Speaking of helpful content, you can leverage tools like Grammarly to help correct grammatical errors in your copy.
How to Market Your Credit Repair Business
Credit repair companies can leverage several strategies to showcase their business and win customers.
Many businesses across multiple industries use email marketing to generate leads. This strategy is affordable and allows you to reach an already engaged audience.
On top of that, it is easy to measure, has a quicker impact, and enables you to reach a global audience. And then there's the impressive ROI of $36 for every $1 spent.
You can build affiliate relationships to help you grow your credit repair business.
You'll set up an affiliate program that allows affiliates to earn commissions for every converting lead they bring to your business.
You only need to make the program attractive enough to draw affiliate marketers.
Other strategies you can use to create awareness about your new venture include:
- Hiring remote sales reps
- Leveraging word of mouth
- Offering free consultation sessions to rope in potential customers
- Content marketing
- Distributing placards and flyers etc.
Frequently Asked Questions (FAQs)
How profitable is a credit repair business?
The business of fixing credit can be lucrative if you get the basics right.
First, you need to determine your rates. The higher the rates, the more revenue you'll generate. Also, you need to look for clients aggressively. Again, the more clients, the more revenue you'll amass.
That said, you can make $5,000 to $10,000 a month one year after launching your business based on your number of clients and your charges.
How much should I charge for credit repair?
You can look at your competitors' charges to help set your rates. While you can charge higher fees, you want to stay within the industry standard. That way, you can attract clients and upsell them as you nurture relationships.
Most businesses in this space charge $90 to $125 per month per client.
Is credit Repair illegal in Georgia?
Yes. Georgia doesn’t allow people to own credit repair businesses in the state. Operating such a business in Georgia is considered illegal and a misdemeanor.
You can follow this link to check if credit repair business is allowed in your State.
So, there you have it. That is how to start a credit repair business. As a rule of thumb, be sure to offer exceptional services to your clients because that is how you grow your business.
In addition, make sure you stick to the legal requirements while taking charge of the day-to-day operations of your business.
Credit repair is lucrative, but you must build the proper foundation to succeed. You can consider engaging an expert's advice to help you figure things out whenever in doubt.