The COVID-19 pandemic has severely affected small businesses around the globe. According to a January 2022 survey by Goldman Sachs, 82% of small business owners were in favor of the federal government dispersing additional financial emergency assistance to small businesses.
Just like other industries, the pandemic has also significantly impacted the credit repair industry. In the past few years, businesses in the industry have faced unprecedented challenges. However, with every challenge comes opportunity.
The pandemic has led to high unemployment rates, business closures, and economic uncertainty, resulting in an increase in consumer debt and credit issues. Credit repair businesses have experienced a surge in demand but also face challenges in adapting to the new normal.
In this blog post, we will explore the challenges being faced by credit repair businesses in the post-pandemic era. In Particular, we will examine the role credit repair CRM software plays in the success of a credit repair business. Hopefully, this blog will be an insightful read for credit repair business owners who are trying to survive the current economic downturn.
8 Main Challenges Faced by Credit Repair Businesses Post Pandemic
1. Increased Competition
During the pandemic, many people have experienced harsh times and, therefore, had to take the help of credit repair services to muddle through their shaky financial situation.
But as a result, in the post-pandemic era, competition has substantially increased within the credit repair space. There are several businesses that are diversifying and venturing into the credit repair domain. Many first-time entrepreneurs have also entered the arena seeing the increasing demand.
For businesses that are just starting out, or are just now branching out in the space, are going to face a hard time. It is not easy to survive in a hyper-saturated marketplace, but because the demand is still there for credit repair services, there is hope for budding entrepreneurs in the industry.
The best bet right now for anyone entering the industry is to invest in acquiring the best credit repair software for small business. It will give them the necessary edge over competitors, allowing them to capture a bigger piece of the market pie.
2. Economic Downturn
According to a report published by The California Legislative Analyst’s Office, the federal government offered financial assistance through several funding programs, including but not limited to,
- Coronavirus Aid, Relief, and Economic Security (CARES) Act extended approximately $900 Billion in financial assistance to businesses.
- American Rescue Plan (ARP) disbursed $54 Billion to restaurants and small businesses.
These are just two of the several funding programs that the government started just to support failing businesses from going under during the pandemic.
However, now that the pandemic is over, the economy that was still reeling from the adverse impacts of the last few years is finally entering a recession. This is exasperating the damage many households and businesses have already suffered during the pandemic. As a result, they are experiencing financial difficulties, and the credit repair industry is not untouched by the impacts. Businesses have started to feel the heat, and there is increasing pressure from investors to lay off employees.
But there is also a ray of sunshine in all of this. Small businesses that have already mastered the craft of working with small, tight teams will be able to double down on their model. Especially by acquiring credit repair CRM software, businesses will be able to cut their costs significantly.
Processes such as raising disputes with credit bureaus could be automated, limiting the requirement for manpower.
3. Government Regulations
The government has implemented strict regulations on credit repair businesses, which have made it difficult for them to operate. The intent of the regulations is to protect consumers from fraud and scams. But, these regulations pose challenges for businesses that are legitimately trying to serve their customers and offer their services.
A good example of this is seen in the limitations put on credit repair businesses by CROA (The Credit Repair Organizations Act). CROA is one of the most important acts regulating credit repair businesses. The act lays out the protocol that all businesses operating within the industry have to abide by.
The act provides guidelines covering every aspect of a credit repair business, such as:
- How a credit repair business can promote or market its services;
- How it can charge customers and collect payments from them;
- How it can deliver its services to the customers, and so on.
As a result of these guidelines, credit repair businesses can no longer charge upfront fees from their customers. They must provide a detailed contract that outlines the services they will deliver to the customers. They are also required to provide customers with a three-day right to cancel the contract. Failure to follow these regulations can result in fines, legal action, and damage to the business’s reputation.
And this is just one example. There are other regulations as well. Hence, despite the good intent, the regulation has made it difficult for legitimate credit repair businesses to function. But there is a way out. Businesses should invest in custom credit repair CRM software that is in alignment with the existing regulations. It would help businesses stay on top of current regulations and ensure that they are in compliance. It would help them to avoid fines and legal action.
4. Cybersecurity Risks
Finance and Insurance are one of the most vulnerable industries when it comes to data breaches. Hence, it is no surprise that Credit repair services are also highly risk prone when it comes to data breaches. Not only do they fall squarely under the larger umbrella of Finance and Insurance, but credit repair businesses also handle the sensitive information of their clients. As a result, they are highly prone to being cyber-attacked online or experiencing data breaches.
This is a major challenge. Given that many businesses that are just starting out lack adequate cybersecurity measures that would protect them against such attacks. However, there is a possible solution.
Businesses should invest in custom development with an aim to build the best credit repair software for small business. It will give them an opportunity to put a robust security infrastructure in place to protect their data from getting threatened, breached, or, worse, stolen. Many custom development software companies provide security services that address security issues such as identity theft. So credit repair businesses should take advantage of these services to guard their customer’s information. These measures will also have other positive impacts, such as increased customer trust and loyalty, which will benefit the business immensely.
5. Decrease in Discretionary Income
People went through a lot of financial hardships during the pandemic. Many lost their jobs and struggled to make ends meet. In the midst of unemployment and struggling to put food on the table, discretionary spending took an obvious nosedive. People didn’t have any discretionary income left to spend, and credit repair was among the many industries that took a hit because of that. Going forward, with the ongoing recession, this will continue to be a challenge for credit repair businesses.
6. Changes in Consumer Behavior
According to Global Data, the pandemic has caused a shift in consumer behavior. Some of the main trends that have emerged in the post-pandemic era include the striking tilt seen toward ecommerce. Consumers are increasingly shopping at one-stop-shop retailers. Consumers also prefer local and private-label products.
These shifts in consumer behavior have resulted in an increase in credit card debt, missed payments, and lower credit scores. As a result, the demand for credit repair services has increased. More and more consumers are seeking to improve their credit standing. You are probably thinking- “But this feels like an opportunity. Why is this a challenge?”
The challenge lies in the kind of customers that are seeking credit repair services. They are probably already knee-deep in credit card debt. Hence, the possibility of them paying the credit repair business for their services is very low. This poses a challenge as businesses struggle to get paid for the services they have already provided.
7. Changes in Credit Reporting
The Consumer Financial Protection Bureau made changes in credit reporting because of the financial stress the pandemic had put on people. The bureau has made it more difficult for credit repair businesses to access accurate and updated information.
The three main credit reporting agencies in the United States, Equifax, Experian, and TransUnion, have implemented policies to help consumers affected by the pandemic. The policies include:
- Allowing deferred payments
- Placing accounts in forbearance, and more.
This has led to some accounts being reported as “in forbearance or deferred.” That has made it more tricky for credit repair businesses to accurately access updated information.
8. Negative Public Perception
Credit repair businesses have earned a bad reputation, and there are reasons for it. However, this constant association with scams and fraudulent activities has left a very negative impression on the general public. They have come to perceive every credit repair business, even the legit ones, as suspicious and shady.
This is obviously a major challenge. Marketing and promotion are hard for businesses as it is. With this negative image of the industry, it has gotten much worse for businesses that are legitimately trying to help their clients.
Despite the above-mentioned challenges, there are certain credit repair businesses that have successfully navigated the turbulence of the last few years. They have risen to the difficulties posed by the pandemic and are continuing to thrive despite the current economic slowdown.
One such example is The Credit Pros.
A Florida-based credit repair company, The Credit Pros has adapted to the post-pandemic era by prioritizing online operations and remote work. They decided to build a user-friendly and efficient online portal that would enable clients to track their progress. For this, they decided to rely on a trusted development company Dream Cyber Infoway. DCI developed a dynamic portal for The Credit Pros, allowing clients access to their credit information.
This example clearly demonstrates that in order to adapt to the post-pandemic reality, a business requires innovation and flexibility. By prioritizing online operations, focusing on customer service and personalization, and diversifying revenue streams, a business can weather the economic downturn and continue to grow.
Moreover, a business should focus on adopting a proactive approach by investing in technology to improve cybersecurity. And lastly, a credit repair business must also work towards building a positive reputation.
In conclusion, the pandemic has significantly impacted the credit repair industry, but there are also opportunities for growth and expansion. Credit repair businesses must adapt to the new normal, adopt emerging trends and best practices, and overcome the challenges they face to thrive in the post-pandemic landscape. By implementing successful strategies and leveraging the latest technologies, credit repair businesses can navigate the challenges and emerge stronger than ever before.