Credit Repair Scam?

Credit Report Repair's Ugly Perception

Credit repair has unfortunately earned a reputation and a fraudulent industry. Far too many unscrupulous entrepreneurs took advantage of the emerging popularity of credit repair and the fact that many people simply were not well educated about the process of credit repair. They created fraudulent credit report repair companies that provided ineffective or illegal credit repair services and bilked people out of hundreds or thousands of dollars in the process.

In response to this unfortunate trend, Federal legislation was enacted to help protect consumers by strictly regulating the credit report repair industry. These laws served to clean up the credit repair industry and resulted in the emergence of many quality credit report repair agencies.

Unfortunately, there is still a perception among many consumers and "expert" consumer advocates that credit report repair is an entirely corrupt business and this is preventing people from getting help with repairing their credit reports. For example, the excerpts below are from an article titled "Credit Repair Scam - How to Avoid Being a Statistic" written by Bill Smith, a "credit counselor for Ameri credit counseling services" with" over 10 years of experience in providing credit consolidation, credit counseling and credit management services". Along with the excerpts, we have provided clarification or a rebuttal to give you an updated and more accurate picture of modern credit report repair.

What Negative Items Can Be Removed From Your Credit Reports

"First things first. Negative information cannot be erased if the information is correct. Only inaccurate information can be corrected in your credit file. Credit file information remains on your record for seven good years from the time it is reported to the bureau. For bankruptcy, the information remains on your record for ten years."

There is a difference in semantics here that is very important to point out. The law gives you as a consumer the right to dispute any questionable negative items from your credit report. Questionable items are defined as items that are "inaccurate, misleading or unverifiable". If a negative item falls under any of these three categories, you have the right to dispute it and if it cannot be verified by the credit bureau, it must be removed from your credit report. For bankruptcy, this means that if it is possible to remove the negative items that contribute to the bankruptcy, it is then possible to remove the bankruptcy from your credit report as well. While this is extremely difficult for an individual consumer to accomplish, it is possible as evidenced by Lexington Law, the leader in credit report repair. According to their results published here, Lexington Law was able to remove almost 3,000 bankruptcies between April and June of this year.

Paying For Credit Report Repair

"Do not pay the credit repair company unless their promises are kept. Remember, the law is on your side. Federal law requires credit repair companies to give you a complete detailed explanation of your legal rights, a completely documented written contract, and above all, 3 days to cancel. This applies to all credit repair services including for-profit services, non-profit services, creditors and credit unions."

The article is mostly correct here but it is misleading. Federal law prohibits credit repair agencies from accepting payment prior to providing service (just the opposite of cable companies that charge a month in advance). This means that they must begin working on your disputes and then bill you for their efforts so a good way to determine if a credit report repair company is legitimate is to find out if they charge fees before starting work or if they require a large initial payment.

The excerpt is misleading, however, because it implies that you do not have to pay unless the negative items on your credit report are removed. It is important to note that the "promises" referred to in the excerpt may be to make a best effort in your behalf. Especially in the case of credit repair law firms, it is not legal for the firm to promise that they will be able to remove negative items from your credit report. Instead, they will work with the credit bureaus on your behalf and may offer a refund policy if results are not obtained.

And while on the subject of promised results, it is a good time to mention pay per dispute credit report repair companies. These are companies that only require payment for negative items that are successfully deleted. While this sounds like a best case scenario for consumers, there are often times hidden costs associated with this payment structure. To learn more about pay per dispute pricing, read this article titled Pay Per Dispute Credit Repair Services.

Repairing Your Credit Report on Your Own

"You don't need a counselor to correct your mistakes in the credit report. Take charge of it yourself. If you were recently denied credit, you can request a free credit report. Otherwise there is a small charge for it. Some states will allow you a free copy of your credit report once a year. It doesn't cost you anything to dispute or question items in your credit report. Get online or follow instructions from your credit bureau."

It is true that you don't need to hire a counselor or work with a credit repair company to repair your credit report. As described in the FTC article titled "Credit Repair: Self Help May Be Best", everything a credit repair clinic can do for you, you can do for yourself at little or no cost. Of course, the same can be said of just about anything you would hire someone to do. There is no law stating that you cannot repair your car, shingle your roof or build your own computer and it would be cheaper in terms of monetary cost to do all of the above yourself. Even so, most people still hire a mechanic or roofer and purchase a preconfigured computer because the true cost of learning the trade and performing the actual task ends up being higher and the product is often times a lower quality when compared to hiring an expert.

Credit report repair is no different. Saying that repairing your credit report is as simple as obtaining a copy of your credit report and sending a dispute letter to the credit bureaus is a glorious oversimplification of the process. When it comes to credit repair, you have to remember that the credit bureaus DO NOT want to help you. The credit bureaus are for profit businesses (not government entities) that make money by collecting and selling your personal information. For the credit bureaus, investigating disputes is time consuming and costly. For this reason, they make it as hard as possible for you to repair your credit reports and the law gives them a valuable tool in doing this. The same laws that give consumers the right to dispute negative items on their credit report also give the credit bureaus the right to dismiss any disputes that they deem "frivolous or irrelevant". The exact definition of what this means is up to the credit bureau.

Credit bureaus take full advantage of the "frivolous or irrelevant" rule by setting up gatekeepers who are tasked with reviewing all incoming disputes and accepting them or rejecting them as they see fit. Getting your dispute past these gatekeepers and dealing with their stall tactics frequently becomes a drawn out time consuming, trial and error process. Established credit report repair companies have composed thousands of dispute letters and have learned what types of letters in which situations work best with the individual credit bureaus.

File Segregation by Credit Report Repair Companies

"Remember that you can't create a second credit file. Some of the fraudulent[sic] companies will offer to provide the consumers with a different social security number (tax identification number if ssn does not exist) in order to create a new credit file for the consumer. Such a practice is called as "file segregation". File segregation is illegal and does not work."

This is absolutely correct. File segregation is illegal and any company that offers the service is in violation of federal law. What's more, by working with a company like this, you may also be prosecuted under the law.

The Myth of the 100 Word Statement

"Whereever[sic] possible, add explanation to your credit report to prove your point. If you have legitimate reasons for not paying certain bills on time (switching jobs, illness), or if you refused to pay because of a dispute, send the bureau a statement to be tagged with your credit report. Each lender who pulls your report will be aware why you fell behind on those bills."

While the law provides you with an opportunity to add a "100 word statement" to your credit report, doing so has zero benefit and may makes the process of repairing your credit report more difficult. Creditors will not read your explanation and it has no effect on your credit score. Instead, an explanation on your credit report typically only serves the purpose of verifying the negative items that are on your report.

Credit Counseling and Credit Report Repair

"Counseling might be a good option. Find a good non profit consumer credit counseling service in your neighborhood. Get online or open your yellow pages to find one. Seek the guidance of friends and family members. Select a counselor, meet them in person to make sure they are right for you. Ask them on tips and advice on how to build a good credit history. If you are still lagging behind on your payments, credit consolidation firms will be able to set up a payment plan with your creditors. If money is an issue, select a non profit credit counseling service. They will offer their service for free or for a very low cost."

Counseling may be a good option if you are having problems controlling your finances because it will help you manage your credit report going forward. Counseling will not, however, be able to do anything about your current credit history. Studies show that almost 80% of credit reports have errors on them that counseling will not impact. Only credit report repair can fix the errors of the credit reporting agencies.

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