Beware of Credit Repair
“Repair your credit instantly!” The ads are everywhere – on the internet, in newspapers, magazines, street signs. Credit repair services claim to fix bad credit by removing harmful information from your credit record. You call them, they work their magic, and voila! Your credit is instantly fixed, enabling you to qualify for a credit card, mortgage, or purchase a car.
Or so they claim.
The truth is that there is nothing that credit repair services can do to improve your credit score that you cannot do yourself. In fact, there’s not really anything a credit repair service can do better than you can, except defrauding you. It’s pretty tough to steal your own money!
Credit Reporting 101
Your credit record contains important information about your past payment history with creditors. Creditors use your credit report to evaluate your creditworthiness. For your credit history to be of any use, it must contain accurate information – both good and bad – about your payment history. Lenders and the credit reporting agencies do not want anyone editing your past payment history, particularly you. If everyone could remove all the negative information from their credit reports, there would be no way for creditors to determine who paid their bills and who didn’t. Creditors would never bother checking credit reports! And that’s not fair to responsible consumers, who deserve lower rates commensurate with their lower credit risk. Consequently, the credit reporting agencies maintain tough restrictions for revising your credit history.
Error correction is the only permissible type of revision to your credit history. Just as purging undesirable entries is not fair to consumers, it is also unfair to consumers for their credit reports to contain errors. Both lenders and credit reporting agencies make mistakes. Under the Fair Credit Reporting Act, the credit reporting agencies must correct credit report errors when notified. When you challenge an entry in your credit history, the credit reporting agency conducts an investigation. You must show proof that the entry in question is indeed inaccurate. Overall, the credit reporting system promotes accuracy and fairness for consumers by allowing inaccurate information to be removed.
The Credit Repair Scam
Credit repairs scams have grown in sophistication. The most blatant scams require you to pay upfront for credit repair services. The credit repair company takes your money and does nothing. If confronted, they hide behind claims that results vary and cannot be guaranteed.
The Credit Repair Organizations Act now prohibits credit repair companies from charging you until they have completed the services.
Since credit repair organizations can no longer steal your money outright, they take advantage of a loophole in the credit history error removal system. Here’s how the scam works: The credit repair organization challenges every negative piece of information on your credit report. While the error investigation is pending, the credit reporting agency temporarily removes the disputed items from your credit report until the matter is resolved. During this window period when your bad credit history temporarily disappears, the credit repair company pulls your credit report. They show you the clean credit report and ask you to pay for their services. Sometime after you fork over the money, the credit reporting agency concludes that the negative information is legitimate, and wham! it all goes back on your credit report.
Credit scams prey on individuals with poor credit histories, who generally lack the education and options to make wise credit decisions. If you are a victim of a fraudulent credit repair service, you should report the incident to your state attorney general.
The Truth
As we stated earlier, there is nothing that credit repair services can do to improve your credit score that you cannot do yourself. In fact, you’re better off without the “help” of a credit repair service. No one can remove accurate information from your credit report. But you can dispute incorrect items on your report for free.
If you have been denied credit, insurance or employment within the past 60 days, you are entitled to review a free copy of your credit report. If the credit report contains any incorrect information, you should challenge the items by contacting the credit reporting agency. In your challenge letter, identify the items you dispute, why you believe the information is inaccurate, and request an investigation. If the credit bureau decides not to remove the disputed information, you are entitled to attach your side of the story to your credit history.
Have bad credit?
As you’ve seen, credit repair services are not the answer to credit problems. The only way to re-establish your credit is to pay your bills on time and wait. Time is the only way to let your credit history heal. With few exceptions, credit reporting agencies must remove accurate negative information from your credit history after seven years. Even bankruptcy drops off your record after 10 years!
If you have continuing credit problems that self-help cannot solve, you should contact a local credit counseling service. Just like credit repair services, watch out for scams in the credit counseling industry. Read this related article to learn more about choosing a credit counseling service.
