Credit repair firms can help clean your
credit report -- but do your homework first
By Isabel M. Estrada-Portales • Bankrate.com

Fixing errors on your credit report can be a daunting task. There's red tape to cut, legalese to decipher, letters to send and voice-mail gantlets to run.

You could do it yourself. But if spending hours of your time hearing "press one for this, press two for that" phone menus is more than you can bear, you could -- if you're extraordinarily careful -- hire a credit repair company.

"On many occasions, people don't know exactly what to do, whom to contact or how to write a claim," says Rev. William Miller of Cornerstone Financial Counselors, a Christian organization in Miami, Fla., that offers credit counseling. "The main limitation is the lack of time. The vast majority does not have the time to deal with this kind of bureaucratic proceeding."

It's important to distinguish between fixing erroneous entries on a credit report and erasing accurate notations of real mistakes. You can correct errors yourself, or someone can do it on your behalf. But there is no legal way to make accurate reports of late payments, default and bankruptcies evaporate. Accurate but negative information can't be removed until it's more than seven years old; bankruptcy information stays for 10 years.

"There are no magic fixes," says Steven Baker, a spokesman for the Federal Trade Commission's regional office in Chicago. "The only way to fix a credit report is by starting to build a solid credit history, paying bills on time and paying off debts."

The FTC sees wrongdoing
Too many companies have claimed otherwise, leading to passage of the Credit Repair Organizations Act, which went into effect in April 1997, and a Federal Trade Commission crackdown, Operation Eraser, that began in March 1998 and targeted 31 companies that promised, for a fee, to restore creditworthiness.

The FTC alleges that crooked operators have been promising more than they could legally deliver.

In the FTC's eyes, the worst offenders urge clients to assume a new identity for credit purposes. According to the agency, these companies charge anywhere from $21.95 to $129.95 to establish a new credit record for clients by getting them an Employer Identification Number, which has the same number of digits as a Social Security number, and using that number -- instead of a Social Security number -- on credit applications. Anyone who applies for an EIN under false pretexts, or uses a fake Social Security number, is breaking the law.

"This practice is absolutely illegal," Baker says. "We have worked on 15 cases of people who were doing this type of thing. It's completely illegal and you can be prosecuted for it."

Obtaining a new credit identity doesn't always work, either, because the new identity is in itself a red flag for potential lenders. A 40-year-old who suddenly appears in the credit records with no previous credit history invites close scrutiny.

It may not be necessary to get anyone else involved in your credit repair problems, experts say. If you're up to the task, Bankrate.com has a step-by-step guide explaining the process.

"I have not seen any company that really does anything that consumers can't do themselves," says FTC spokesman Howard Shapiro. "It's probably not as simple as calling for a pizza delivery, but you will save money."

Your credit report rights
The Fair Credit Reporting Act of 1970 and amendments to the law passed in 1996 give consumers the right to verify and correct information on their credit reports. If a consumer challenges an item on the report, creditors have 30 days to prove that the item is correct; otherwise, it must be removed.

"It doesn't matter if the information is right or not," Miller says.

"This has always been the law," says Alex Fornet, a spokesman for Credit Doctors of South Florida, a Miami credit repair company. "The only difference is that before, the verification process had to be done within 'a reasonable amount of time,' whereas now it can take no more than 30 days. Since everything is computerized nowadays, it can usually be done quickly."

Those who decide to seek assistance can expect a credit repair company to pull their credit reports and contact their creditors to verify information and provide evidence to battle errors.

Some firms go beyond error-fixing. "We work with the creditors and get them to agree to wipe out the debt in exchange for a repayment plan," Miller says. "If the credit issuer agrees to the terms, the credit bureau has to remove the outstanding debt from the report."

And a good credit repair service will be diligent in pestering the often-slow bureaucracy of credit bureaus.

The Public Interest Research Group had its own members request their credit reports for a 1998 credit report survey. Twenty-two of the 155 requests were never honored, despite repeated efforts to shake them free from credit bureaus.

A good credit repair service will pressure a slowpoke credit bureau, Miller says. "Credit bureaus represent their clients and their clients are the creditors. They have to defend their clients' interests, which is why they don't want any debts wiped from the report, because they would end up losing money. That's why they put up so much resistance. These claims may seem simple, but they take time and persistence."

How much will it cost?
Credit repair companies charge anywhere from $50 to $1,500 for their services. At the low end of the scale, they'll send you pre-formatted letters that you can fill in and send to the credit bureaus and some one-size-fits-all advice. In the middle, there are "credit monitoring" services that, for a monthly fee, promise to keep you informed of credit report inquiries and correct errors that crop up. There are also law firms that will charge a monthly retainer -- starting at about $100 -- to work on fixing mistakes. At the high end, customers receive a lot of personal service, including in-depth financial analysis and counseling.

Part of the charge often covers the cost of ordering credit reports from the three national credit bureaus -- Equifax, Experian and Trans Union Corporation. Keep in mind that if you do it yourself, at most the cost will be $8 per report, so that if you pay someone else to do it and the price rises above $24, you are paying for convenience.

If you have been turned down for a loan or a credit card, you are entitled to a free copy of your credit report. The rejection letter should contain the address for the credit bureau that issued the report. You can also get one free report each year if you can prove that you're unemployed and plan to look for a job within 60 days, you're on welfare or your report is inaccurate because of fraud.

Check out the alternatives
Before hiring a private credit repair firm, check out the alternatives, including professional credit counseling services available at low -- or no -- cost.

One, the National Foundation for Consumer Credit, maintains1,450 offices and can help people re-establish good credit without the risk of getting snarled in a Web of deceit.

The foundation is a network of nonprofit organizations, which usually operate under the name Consumer Credit Counseling Services. Call 1-800-388-2227 for 24-hour automated office listings or use their online office locator.

Similar low-cost credit counseling is also often available through universities, credit unions and on military bases.

If you suspect that a credit repair firm is doing something underhanded, file a complaint with the FTC's Consumer Response Center at 202-FTC-HELP (382-4357) or 202-326-2502 for TDD users. You can also use the FTC's online complaint form.

Many states offer additional protections. Contact your state attorney general to get information or make a complaint.

Even if everything appears to be going smoothly, you would be wise to check your credit report periodically.

"It could be that someone is using your Social Security number to request credit," Baker says. "In some cases it could just be a mix-up with someone else who has the same name. In any case, checking your report regularly can't hurt, but it can certainly help."

Isabel M. Estrada-Portales is a reporter for Bankrate.com en español

-- Posted: May 31, 1999