Bad credit? Fix it yourself and save

Steve Bucciq_v2.gifDear Debt Adviser,
I'm considering paying a credit repair company for its services, but I don't know much about the firm other than it charges $100 to join and $30 a month for erasing bad credit items from your credit report.

I also have a personal loan. I was desperate for money, and my lender was the only one to approve me. The loan was for $6,000, and I'm paying $255 a month. The interest is about 60 percent. Is it illegal in California for the interest rate to be that high?

Thank you for your time.
-- George

a_v2.gifDear George,
I wouldn't pay 5 cents to join, or a penny a month for a service to remove bad credit from your records. Why? Because what they are selling does not exist. In my book, "Credit Repair Kit For Dummies," I state unequivocally that paying a credit repair company to remove bad information, specifically "accurate," bad information, from your credit report is a waste of your money. Accurate negative information cannot be removed from your credit report until a specific time period has passed. Generally, that's seven years from the date of the first reported delinquency. What little the company can actually do to improve your credit report, you can do yourself easily -- and for free.

Inaccurate information, as in someone else's information, and those items that are past the reporting date can be removed by you, without paying a fee to anyone. To begin, I suggest that you get free copies from all three credit agency reports at to find what bad credit you have. Yes, these reports are actually free, unlike the ones you can get from the company with the funny commercial that has "free" in its name, but which will actually charge you for your credit report.

Review the reports carefully and dispute any items you believe are inaccurate or should have been removed due to the reporting time frame. You have the option of disputing bad credit claims with the original creditor or with the credit bureau. I'd start with the credit bureaus since they will give you instructions on disputing, along with your report. If you already have used up your free annual report from each of the three credit bureaus, you can pay for the reports at Equifax, Experian and TransUnion.

Keep in mind, going forward, that making all your credit payments on time, and as agreed, is the best and cheapest way to avoid bad credit and to ensure that your credit report and score improve.

As far as your personal loan is concerned, you used the operative word in your question, "desperate." You appear to have understood the agreement you signed and the nose-bleed rate they charged you. I'm less concerned with the legal niceties of a loan between consenting adults than I am with your need to do business with this kind of lender in the first place.

You can check with your state attorney general's office to determine the usury laws that might apply to your loan, but my guess is this will be unsatisfying. A legal dispute with a subprime lender can be like wrestling with a pig. As the old saying goes, the pig has the fun, and you get all dirty. I believe the most important thing for you to do is to step back and take stock of your financial life.

Start by setting some short- and long-term financial goals. Then create a spending plan that will get you where you want to go. Most likely, getting the personal loan paid off will top your list of near-term goals. Let's hope you don't have an early payment penalty and can put any extra money toward that goal. Don't forget to include saving in your financial plan. We have all made financial decisions that were not in our best interest. The trick is to turn the pain and expense of financial embarrassment and bad credit -- and a 60 percent interest rate -- into positive momentum so you can move forward and become a wiser consumer and user of credit.

The best way to avoid being "desperate" in the future is to be prepared with a plan that works for you, goals to keep you on course and, oh yes, cash in the bank.

Good luck!

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