Repairing your credit: Go it alone or hire a repair
Every consumer who
uses credit has a credit record -- and is it ever powerful.
Every time you apply for credit or a loan, creditors obtain your
credit record to verify your worthiness. But, the use of these reports
has broadened. Insurance companies have begun to use them to determine
premiums or deny coverage. Potential employers may even want to
check out your credit worthiness.
Rising interest in credit scores
Today, a credit record is more than just a dry report on how many
credit cards you have and whether you made every auto payment on
time. Credit recording agencies often distill consumers' reports
into a three-digit number called a credit score -- and that number
alone can determine whether you get easy monthly payments or loan-shark
rates. It's not surprising that as credit scores become more important,
consumers are taking more interest in these three-digit numbers.
A high score saves you money, a low score costs you. This fascination
with credit scores has led to more interest in repairing credit
to increase scores.
Unfortunately, as the demand for credit repair rises, the opportunity
for scams becomes more prevalent, says Marta Moakley, an assistant
attorney general in Florida.
"As our economy becomes sluggish and debt levels rise, more
people turn to companies that specialize in credit repair for help.
Consumers need to be aware that there is potential for fraud."
The need for such a service is obvious. Practically every consumer
has inaccurate or outdated information on a credit report from one
of the three major credit bureaus, says Steve Rhode, president and
co-founder of Myvesta.org,
a nonprofit agency that counsels people in financial crisis.
These errors can be costly, and it's up to the consumer to get
them corrected. The credit bureaus are not obligated to root out
errors and provide accurate information. Their job is to record
the information presented to them by creditors.
Call for help?
So, if your score is low or your credit report is inaccurate, what
are your options? It's like hanging wallpaper -- do you call a professional
paperhanger, or tackle it yourself?
Useful phone numbers
The Fair Credit Reporting Act says consumers can dispute mistakes
in their credit files for free. But it will take time. Correcting
one error may average four hours, says Rhode. That includes applying
for your credit reports, reviewing and highlighting errors, documenting
the mistake, typing up your letter and mailing it.
Credit repair services offer, for a fee, to do this daunting legwork.
They pull credit reports, review for errors and send out dispute
letters along with documentation. They add professionalism. They
save you time. Some promise to erase bad credit -- 100 percent guaranteed.
Others advertise they can remove bankruptcies from your credit file
These repair services, however, don't have any secret remedies
for erasing bad credit. Neither you nor the credit repair service
has the right to remove accurate and current information from your
credit report. The bottom line is: Credit repair services can't
do anything for you that you can't do for yourself, free.
The mysterious repair shops
Are credit repair clinics fulfilling their promises to improve credit
scores? It's hard to say. We contacted five credit repair clinics
to learn about their guarantees and success stories, but not one
was willing to talk.
The consumer service agencies were more than willing to talk.
Steve Baker, Director of the Federal Trade Commission in Chicago,
says a prevailing myth about credit repair is that there are loopholes
in the federal law that allows poor credit to be erased. It doesn't
He says that in the past four years the FTC has not seen a legitimate
credit repair clinic. "It's possible that these clinics are
providing legitimate services to customers, but I've not seen it
yet. When the law says that bankruptcy remains on your credit report
for 10 years, just how can it be legally removed?" questions
Baker. "And, later when you're asked in a credit application
if you've ever filed for bankruptcy, will you lie?"
He cites an example of one consumer who was told to steal his bankruptcy
record from the county courthouse, so that the credit bureau could
not verify its accuracy.
Dramatic? Yes. But it poses a good question -- how are credit repair
services removing bad credit?
"If the credit repair service offers guarantees within the
Fair Credit Reporting Act," says Steve Rhode of Myvesta.org,
"then it's doing the job. Credit repair services get sleazy
when they promise to do a job that's just not possible. They promise
to remove accurate, but negative information."
"Scams occur," says Marta Moakley, "when consumers
pay fees for services that are never performed, or the consumer
is misled on the services provided. Too often the consumer can't
afford to lose this money."
Worse yet, consumers have paid money upfront -- and the company
"Credit protection and credit repair" scams are one of
the top consumer complaints reported to the FTC. The actual dollar
amount lost by consumers to these scams is difficult to calculate,
says Baker, because many people are too embarrassed to complain.
But, the FTC estimates the loss to consumers is easily in the millions.
"This is an equal opportunity scam. Everyone has a credit
report; anyone can suffer from a poor credit history," says
Steve Rhode knows of consumers who paid $400 to $2,000 for credit
repair services. Do-it-yourselfers can expect to pay $30 for a consolidated
credit report -- a report that provides your credit history from
the three major credit bureaus -- plus the value of their time.
Finding a reputable company
You may still decide to go the credit repair service route. Here's
how to let your fingers cautiously do the walking through the yellow
Do your homework. Research the company before your first visit.
Contact the Better
Business Bureau to see if the firm has had any consumer complaints.
Check with your state
attorney general's office or other state consumer agencies to
find out if there are any pending legal investigations. The FTC
warns against relying on chambers of commerce or other trade associations
where membership is based solely on a fee.
Know your rights. Credit repair services must follow specific guidelines
from the Credit Repair Organizations Act, which are intended to
protect consumers. You should receive an explanation of these rights
before signing a written contract. Read them.
You should receive a contract with all of the following information:
- The payment terms for services, including
their total cost
- A detailed description of the services to be performed
- How long it will take to achieve the results
- Any guarantees they offer
- The company's name and business address
Remember the grace period. The credit repair company cannot perform
any services for you until you've signed a written contract and
completed a three-day waiting period. You may cancel the contract
without paying any fees during this period.
Run, don't walk away from a firm that does any of the following:
- Asks you to pay for credit
repair before services are provided. This is a direct violation
of the Credit Repair Organizations Act, which states that credit
repair companies can't charge you fees until after they have completed
the promised services.
- Advises you to dispute all negative information
in your credit report. The company will flood credit bureaus with
a plethora of letters disputing both inaccurate and accurate information.
The theory being that many times creditors fail to respond within
30 days and that item is permanently deleted. The truth is that
most credit is verifiable, very rarely are credit scores improved
and the consumer has wasted time and money.
- Promises you the moon. Credit repair companies
cannot remove accurate records of bankruptcies, judgments, liens
or bad loans from your file. Most negative information stays on
your credit report for seven years; judgments and lawsuits are
reported for seven years or until the statute of limitations runs
out; bankruptcy for 10 years.
- Offers to help you get a new credit identity. The
company tells you to apply for an Employer Identification Number,
which has the same number of digits as a Social Security number.
Then they instruct you to apply for credit using this and a different
address. This practice, known as file segregation, is a federal
and state felony.
But perhaps your biggest safety net against credit repair scam
is your expectations. Rhode explains that illegitimate credit repair
services exist because consumers believe they are entitled to a
different score. They want to change it, regardless of whether the
negative information is an accurate reflection of their credit history.
This is supply and demand.
"There are no quick fixes in credit repair,"
insists Moakley. "Common sense tells you that a third party
doesn't know your credit history better than you. Through contacting
credit bureaus, making your own corrections, consolidating your
debts and budgeting, you can improve your own score. You don't need
to pay someone to fix it for you. Apply that money toward your debt."