Consumers need to be cautious when searching for ways to improve their credit history. Some of the credit repair agencies that make these promises are only out to strip consumers of their hard earned cash. They claim they can "clean up" credit, qualify consumers for a loan, improve a credit score or give credit cards to people who have a negative credit history. According to the book, "Solve Your Money Troubles" (2007) by author Robin Leonard and consumer lawyer John Lamb, there is a long list of schemes and fraudulent acts that some bad agencies take part of, in an attempt to get around the law and "clear" a credit history.
The schemes initiated by the unscrupulous credit repair agencies vary, and new ones continue to surface quicker than state and local anti-fraud agencies can get to them. One of the most popular deceptions is obtaining Social Security numbers or credit files of people who have passed away, are under 18 years old or live in other states. The agency steals this data and uses it to build a "new" credit record. Many desperate and unsuspecting people are unaware that these illegal activities are being implemented on their behalf. Using these tactics will neither erase a faulty credit history nor improve it.
Cracking Down on Scammers
The Federal Trade Commission (FTC) strongly enforces consumer protection laws. In March, 2009 alone, the FTC charged seven credit repair companies with deceiving consumers. The organizations were charged with making false promises to remove collections, delinquencies, judgments and late payments while charging upfront fees and failing to provide written disclosures. The agencies were illegally charging consumers up to $2,000 in fees, including an advance fee of $300.
Watch out for ads that offer an overly-simple and quick fix to repair credit. Aggressive advertisements promise anything, from creating a new credit identity to erasing bad credit and removing bankruptcies, liens and bad loans. Often, scammers take part in file segregation. This is the act of creating a second credit file where you can start a new credit history. This is both illegal and does not work.
Steps You can Take to Repair Your Credit
Many of the issues these credit agencies claim they can solve can be resolved by the customer.
A frequent review of the credit report from the three credit bureaus - Transunion, Equifax and Experian - will help pinpoint which issues you will need to fix on your report. Judgments, tax liens, bankruptcies, late payments and suspicious activity are exposed on credit reports. This is the same type of information scammers make customers believe only they can have retrieve. The three bureaus obtain this credit data from department stores, banks, mortgage lenders and credit card companies. In addition, they get information from the court system, which lists pending lawsuits, judgments or bankruptcy filings.
The first step to clearing any of these issues is to request an annual free report, and spot the negative data and dispute any inaccuracies. The Fair Credit Reporting Act (FCRA) allows consumers to remove inaccurate information from their credit files; they don't need a credit repair agency to do it for them.
The accurate negative information some credit repair agencies claim to remove can only be done legally by confronting debt or liens and paying them down. Negative items stay on a credit report for seven years; bankruptcies stay on for 10 years. If a credit agency states they can have this type of item removed, it is only temporary. The creditor will place it back on the credit file once they find out it has been erased.
The FTC gives tips on how consumers can legally improve their credit reports. It advises consumers to inform the credit report company in writing of what information is inaccurate, and include copies of documents that support this. The company is required to investigate the dispute within 30 days. If the disputed information is proved to be inaccurate, it is the responsibility of the information provider (creditor) to notify the three major credit bureaus to correct the erroneous data. Another option is to go right to the creditor that is responsible for the inaccurate information, dispute its claim by providing all supportive information and tell it to correct the information on the files so it's accurately reflected on the credit report.
Ways to Identify Trustworthy Credit-Repair Organizations
According to the FTC, there are various ways that consumers can tell an unreliable credit agency from a dependable one.
- The unreliable agency says it wants a partial or full payment of services up front.
- They don't tell you what you can do for free to repair your credit.
- They don't want you to directly contact the consumer reporting companies.
- The agency suggests you obtain an Employer Identification Number (EIN) to use in place of your social security number.
Legitimate agencies are required to give their clients a copy of the "Consumer Credit File Rights Under State and Federal Law" prior to signing a contract. The Consumer Credit File Rights states that credit repair agencies cannot make false claims about services offered, charge until they deliver on their promises or perform any services the customer did not authorize. It also states clients have a right to cancel a contract within three days without incurring any fees.
The contract that the agency gives clients to sign must show the total cost of the services being provided, describe the services and state the name and address of the company. If these companies do not abide by these regulations, consumers can complain to their state Attorney General or the Better Business Bureau.