Credit repair is a subject that has been on our back burner for a long time, but
a piece of spam received a few days ago brought it to the forefront.
It was a cleverly crafted piece of email - addressed to me, not only in the
heytheirfriend @ yayada.com sense but also personalized with my name in really
big, red letters.
Harold, it said, more or less, this is your credit score - 450.
And Harold - it said - here is what it could be - 750.
Now, fortunately, I know what my credit score is or I might have had a heart
attack. And I also know that if it were 450 it would take a lot more than this
particular correspondent could do in a few weeks or even several years to boost
my credit score to 750.
"Credit repair" is a big business in this country. You can't
watch cable TV after midnight without seeing ads for companies that guarantee
to eliminate the bad news being broadcast about your past by TransUnion, Experian,
and Equifax, the three major credit bureaus. Look on the Internet and there
are dozens of companies dangling the many rewards that clean credit will bring
- instant auto loans, lower interest rates, increased prestige in the eyes of
the world.
Negative entries such as repossessions, charge offs, and accounts which have
been turned over to collection agencies can legally remain on your credit report
for seven years. A bankruptcy will be part of your credit history
for ten. These black marks will carry less weight with prospective creditors
over time IF they are followed with subsequent responsible use of credit, but
it is very hard to make them disappear altogether.
Credit repair companies, however, claim to be able to shortcut
the process, speed up the clock and, for a price, get many of these black marks
removed.
The Federal Trade Commission says "The scam artists who run these ads
not only don't deliver - they can't deliver. Only time, a
deliberate effort, and a plan to repay your bills will improve your credit as
it is detailed in your credit report."
At their worst, credit repair companies may suggest they can open new, pristine
credit files under a new Social Security (or Employee Identification) number
- which is patently illegal - or they may intimate that they have a special
"in" with the credit reporting companies or have found loopholes
in the credit laws that no one else is aware of. Some say they can convince
the creditor that you don't even owe them money.
Other companies are legitimate - some are law firms which have to be
especially careful about keeping their bar status - and they proceed along
legal paths to challenge inaccurate or unverifiable entries both with the credit
bureaus and with the creditors which provided the negative information.
Repair companies charge fees that vary wildly. In our brief survey we found
one company that charged $40 for the first four months of work and then $20
for every deletion of negative information thereafter. Another charges $19 to
set up an account and then three monthly payments of $80 and promises results
in 45 to 60 days. There are reports of companies charging as much as a flat
$500 for their services.
Some companies demand the money up-front and disappear; others offer guarantees
- even a bonus rebate - if they are not successful. We have no information
on the validity of or the success of anyone trying to collect under these guarantees.
Most ads contain claims that credit will improve in 45 to 60 days; one says
that scores will go up at least 100 points in 6 months. FICO,
the company that provides the most popular credit score, states that it is difficult
to move the score more than a few points in less than six months, so these claims
are inflated at best.
The reputable subset of credit repair companies may actually be able to improve
your credit reports and your
credit scores, at least marginally. Experts estimate that the majority of
credit reports contain factual errors and these are fairly easy to get removed;
some creditors will not bother to respond to challenges of completely accurate
information so the credit bureaus are obligated to drop those entries. However,
sometimes negative entries disappear temporarily only to reappear the next time
a big creditor such as Sears submits its data to the credit reporting bureaus.
Sears may not have responded and verified the initial bad report, but it is
still in the computer.
But the bottom line is - even the best of the credit repair companies cannot
do anything for you and your credit that you cannot do for your self and do
for free.
The Fair Credit Reporting Act requires that both the credit bureau and the
entity that provides the credit information be responsible for correcting any
inaccurate or incomplete information that appears in an individual's credit
report. It is not necessarily easy or quick to request these corrections, but
the Federal Trade Commission offers many suggestions for challenging inaccuracies
as well as a sample letter for doing so on its website.
Also, the three major credit bureaus have procedures and telephone numbers for
resolving credit disputes (Equifax.com,
Transunion.com, Experian.com).
Just as an aside, there appears to be a lot of confusion in the minds of the
public about credit repair and credit counseling. Credit counselors,
many of whom are certified and may even be licensed in some locations, assist
customers in reorganizing and paying off debt. For a fee (although many are
non-profit with sliding fee scales) the counselors will contact creditors, try
to set up reasonable repayment plans, perhaps negotiate lower interest rates,
help clients set up a budget, identify and deal with spending problems, and
so forth. While all of these steps will slowly and surely result in improved
credit, most counselors do not offer to "clean" reports. The FTC website also
offers information on identifying and choosing legitimate credit
counselors.