"What most credit repair clinics and credit doctors do is dispute all derrogatory credit information to the three major credit bureaus on behalf of the consumer," says Rudy Cavazos, Jr., director of corporate and media relations of Money Management International, a nonprofit debt repayment assistance organization headquartered in Houston.. If the creditor does not respond to the disputed item in an timely manner, usually 30 days, they by law the credit bureau would have to remove the disputed item(s) from the consumer's personal credit history.

That's great -- on Day 30. But what happens on Day 31? "On many occassions, the creditor will finally respond and have the derogatory information placed on the unsuspecting consumer's personal credit history once again," Cavazos adds. "During the next credit solicitation, the consumer will notice that the credit repair clinic or credit doctor did not delivery what they promised. Rule of thumb: Only time can resolve derrogatory credit. Even when you payoff the delinquent account. Today credit bureaus receive millions of pieces of information on a daily basis. Errors and oversights can occur. We recommend that each consumer check their personal credit report at least once a year, especially with the rising credit identity fraud cases involving the Internet."

Another technique used by fraudulent credit repair companies is called "file segregation." The consumer is advised to apply for an Internal Revenue Service "Employer Identification Number," which has the same number of digits as a Social Security number. They are then told to provide the EIN as their Social Security number when applying for credit. Because the new number isn't linked to the consumer's old credit report, that report and any negative information it contains won't pop up in a credit check.

What the credit repair companies won't tell you is that anyone who has two EINs and uses them simultaneously is committing a felony under federal law. Also, having a blank credit history raises doubt in the eyes of many lenders, says Jim Frannea, president of Consumer Credit Counseling Service, a nonprofit organization in Orange County, Calif.

"What if you're a lender and you pull up someone's credit report and there's nothing on it," Frannea says. "What if that person is 40 years old? What would you think?"

Bad credit cleanup
Now let's go back to Cellini's problem. Like most credit and debt situations, the cleanup is complex. A single problem may have several solutions. Here's an excerpt from a staff member's recommendation:

"Have you tried to contact the credit card companies to work out a payment plan? ... Bankruptcy over a $5,000 debt will bruise you for a lifetime and just plain is not worth it. Do all you can to get the debt satisfied ... it may take a lot of imagination, but it will be worth it to re-establish your credit."

Here's a differing opinion from another reader:

"I suggest you do nothing. Certainly the advice not to file bankruptcy demonstrates a firm grasp of the obvious, especially for such a small amount. However, if no one is bothering you, the statute of limitations in which your creditor would have any legal recourse to collect could be as little as three years depending within which state you live. In six years the account drops from your credit report. Paying now will restart the statute of limitations and in certain situations prolong the negative credit reporting, especially if you are offered the opportunity to 're-establish' the account."

So who's right? Actually, they both make legitimate points.

The first response touches upon one of the basic guidelines of credit repair: working out a payment plan with your creditors. In doing so, consumers can often use the same tactics offered by legitimate credit counseling groups. Rather than attempting to pay a little extra on every debt, counselors will often suggest paying off the higher credit debt first to bring down your interest rate as a whole.

Repairing your record
The first step in repairing your credit record is finding out what's on it. You can obtain a copy of your record from one of the major credit checking agencies for less than $10. However, reports are free if you were denied credit, are unemployed or on welfare, or were a victim of credit card fraud. Three of the major credit bureaus are Equifax, Experian, and TransUnion Corp.

Reviewing your credit report will help you determine whether there is any old or erroneous information in your file. Serious errors could cause consumers to be denied access to mortgages, car loans and credit cards. The creditor may have already listed Cellini's debt as a "charge off," which is the worst thing you can have on your credit record, other than a bankruptcy.

A charge off means that even if you pay the debt off now, a record of it will remain on file for other lenders to see for up to seven years. How do you remove that ugly spot? First, keep in mind that there is no charge to dispute mistakes or outdated information on your credit record. Ask the reporting credit bureau for a dispute form and submit it with any supporting documentation. Look in Bankrate's story for more information on how to resolve a credit card dispute.

The reader is correct regarding the statute of limitations for legal recourse against consumers. In most states, the statute ranges from three to six years, but it may be as long as 15 years in others. According to the Fair Credit Reporting Act, federal law says that a delinquent account can remain on an individual's credit record for up to seven years. A bankruptcy will stay on a person's record for 10 years.

So should Cellini just sit back and not worry about the credit card debt? We let CCCS's Frannea have the final word on how Cellini should resolve the problem.

"If the creditor sues and obtains a judgment then the time period to collect the debt is extended even longer," Frannea responds. "Unless the debtor is down and out, filing bankruptcy for a $5,000 debt is far more costly than the savings of not having to pay. The cost of filing for bankruptcy is about $1,500 including court costs, filing and attorney fees. The savings of $3,500 is hardly even worth the agony and the difficulty of renting an apartment, getting a mortgage, a car loan, a job, an unsecured credit card or even renting a car."

"My advice to Cellini would be to either pay the debt in full through a payment plan with the creditor or through a legitimate credit counseling agency," Frannea adds. "He will be in a better position to re-establish his credit sooner."

-- Updated:April 9, 2003