If you want to clean up your credit file, stay clear of credit repair clinics. You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail, and maybe even calls offering credit repair services. They all make the same claims:
¡°Credit problems? No problem!¡±
¡°We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!¡±
¡°We can erase your bad credit ¡ª 100% guaranteed.¡±
¡°Create a new credit identity ¡ª legally.¡±
The Federal Trade Commission (FTC) says do yourself a favor and save some money, too. Don¡¯t believe these claims: they¡¯re very likely signs of a scam. Indeed, attorneys at the nation¡¯s consumer protection agency say they¡¯ve never seen a legitimate credit repair operation making those claims. The fact is there¡¯s no quick fix for creditworthiness. You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan.
Recognizing a Credit Repair Scam
Everyday, companies target consumers who have poor credit histories with promises to clean up their credit report so they can get a car loan, a home mortgage, insurance, or even a job once they pay them a fee for the service. The truth is, these companies can¡¯t deliver an improved credit report for you using the tactics they promote. It¡¯s illegal: No one can remove accurate negative information from your credit report. So after you pay them hundreds or thousands of dollars in fees, you¡¯re left with the same credit report and someone else has your money.
If you see a credit repair offer, here¡¯s how to tell if the company behind it is up to no good:
- The company wants you to pay for credit repair services before they provide any services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.
- The company doesn¡¯t tell you your rights and what you can do for yourself for free.
- The company recommends that you do not contact any of the three major national credit reporting companies directly.
- The company tells you they can get rid of most or all the negative credit information in your credit report, even if that information is accurate and current.
- The company suggests that you try to invent a ¡°new¡± credit identity ¡ª and then, a new credit report ¡ª by applying for an Employer Identification Number to use instead of your Social Security number.
- The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness.
If you follow illegal advice and commit fraud, you may find yourself in legal hot water, too: It¡¯s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses. You could be charged and prosecuted for mail or wire fraud if you use the mail, telephone, or Internet to apply for credit and provide false information.
An honest credit repair company will offer you a written contract that spells out their services in detail. They will also inform you that you have 3 days to cancel the contract without paying them any fees. The contract will spell out the company's name and address, a detailed description of the services to be performed, the payment terms for the services, the time period for performance of the services, and any guarantees offered. The reputable firm will not charge you until they have completed the service. They will not make false claims about the services they can provide.
You Can Repair Your Credit For Free
Even if a credit repair company is legitimate, it can't do anything for you that you can't do yourself. What the company will do, however, is charge you between $250 and $5,000 for their unnecessary services.
What Credit Repair Companies Claim to Do
Here's what credit repair companies claim they can do -- and how to do it yourself:
Remove incorrect information from your credit file. You can do that yourself under the Fair Credit Reporting Act. For more information, see How to Dispute Credit Report Errors.
Remove correct, but negative, information from your credit file. Negative items in your credit file can legally stay there for seven years or more (depending on the type of information), as long as they are correct. No one can wave a wand and make them go away.
One credit repair clinic tactic is to challenge every item in a credit file -- negative, positive, or neutral -- with the hope of overwhelming the credit bureau into removing information without verifying it. However, credit bureaus often dismiss these challenges on the ground that they are frivolous, a right that credit bureaus have under the Fair Credit Reporting Act. You are better off getting your file and selectively challenging the items that are incomplete or inaccurate.
Even if the credit bureau removes information that a credit bureau had the right to include in your file, it's no doubt only a temporary removal. Most correct information reappears after 30-60 days, because the creditor that first reported the information to the credit bureaus will report it again.
Get outstanding debt balances and court judgments removed from your credit file. Credit repair clinics often advise debtors to pay outstanding debts if the creditor agrees to remove the negative information from your credit file. This is certainly a negotiation tactic you want to consider, but you don't need to pay a credit repair clinic for this advice.
Advise you to get a major credit card. Credit repair clinics can give you a list of banks that offer secured credit cards -- credit cards used against a balance you deposit in a bank account. (This is the first step to getting a major credit card if you have bad credit.) While this information is helpful in rebuilding credit, it's not worth paying for -- you can find this information yourself for little or nothing.