Credit repair scams
You need to be aware that the only ones
who can permanently remove the debt from your record are the credit
bureau or the creditor.
I have credit card debts around
$5,000. My credit is shot. I haven't been able to make any payments
in over a year. I want to fix this problem. Can you please share
your knowledge on the best way for me to be successful?
Does this problem sound familiar to you? If it does,
your credit rating may be in need of repair. The good news is that
you can probably do
the work yourself with a little guidance. We'll get back to
Cellini's situation a little later, but first let's look at what
not to do when trying to fix your credit record.
First -- credit cards. Don't use 'em. Get them out
of your life. Do you have bad credit but are still getting credit
card offers? Be careful. The National
Fraud Information Center listed fraudulent credit card offers
as one of the top 10 most frequently reported consumer scams. Fraud
artists often get consumers to pay a fee for credit cards that are
Second -- the quick fix. Don't be tempted to run to
one of the many companies saying they will erase your bad credit
for a price. You need to be aware that the only ones who can permanently
remove a debt from your record are the credit bureau or the creditor.
Don't be fooled
Jodie Bernstein, director of the Federal
Trade Commission's Bureau of Consumer Protection in Washington,
D.C., observes that while "there are legitimate, not-for-profit
credit counseling services, the FTC has never seen a legitimate
credit repair company." In the past, bogus credit repair companies
would use clever schemes to get a debt temporarily dropped from
an individual's credit file.
"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
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
Credit Counseling Service, a nonprofit organization in Orange
"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
"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'
So who's right? Actually, they both make legitimate
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,
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