Scam Alert:
Credit Repair’s Dirty Business
Don’t believe those promises to wipe out your debt
By: Sid Kirchheimer | Source: From the AARP Bulletin print edition | May 1, 2009
Beverly White, 58, a foster mother who lives in Charlotte, N.C., just wanted to provide her “at-risk” children with a stable home to call their own. But with a low FICO score—a measure of one’s credit risk—she couldn’t get a mortgage.
So in the fall of 2007, at the suggestion of a real estate agent, she turned to a credit repair company. “For an upfront fee of $1,400,” says White, “I was told that all negative items on my credit report would be erased and my credit score would be increased by several hundred points in just two months.”
By New Year’s, White, a behavioral therapist, saw no improvement, so she called for answers. But the “credit repair specialist” who took her money had vanished.
It’s a story that’s becoming more common, as banks and other lenders tighten the credit reins. “In the last year, we’ve seen an increase of 50 percent in reports of credit repair scams,” says Steven Baker of the Federal Trade Commission (FTC). “And to date, we’ve never seen a legitimate credit repair company.”
These duplicitous companies, Baker says, make false promises of having inside connections and knowing legal loopholes to “clean” your credit. They claim they can improve a score by erasing bad debt, bankruptcies or foreclosures from your credit history, in a matter of months and usually for an advance fee of up to $2,000.
Most just take the money and run. Others simply flood credit-reporting bureaus with frivolous disputes over your debts, which may make them disappear briefly while they are investigated. “But it only puts your credit file in a ‘pending’ status, and no lender will lend you money,” says Tom Bartholomy of the Better Business Bureau (BBB). “It does nothing to improve your credit score.”
Here’s what to do if you’re in a credit crunch:
• Know the realities. Anyone who promises to remove accurate debt information from your credit history is lying. Under federal law, debt remains in a credit report for about seven years; bankruptcies stay listed for 10 years. And it’s illegal in many states to accept an advance payment for any debt-adjusting service.
• Monitor your file. You are entitled to three free credit reports each year at Annualcreditreport.com. (FICO credit scores start at $10 at Equifax and TransUnion; Experian no longer provides them.) Check for any fraudulent debts resulting from identity theft, which can be legally removed at no charge by contacting those three agencies yourself.
• Get legitimate help. Bona fide credit counseling services usually arrange a structured repayment or consolidation plan for free or for a small fee. The National Foundation for Credit Counseling (1-800-388-2227) operates the largest and most respected network.
• Be like Beverly
. She bought a house last year after paying down her previous debts. She says she raised her credit score after contacting her creditors and stuck to a repayment schedule.For more information, visit the FTC website and type in “Credit Repair Scams.” If you’ve been victimized, contact the FTC, your state attorney general and your local BBB chapter.
Credit Repair Firms Often Fix Nothing
After years of financial problems that often left her unable to pay bills on time, Charlene Blanchard's credit rating was so bad she couldn't even get a loan for a new car.
And so Blanchard did what hundreds of thousands of other Americans with credit problems have done: She turned to a "credit repair" firm that promised to turn things around—for fees that ended up exceeding $700.
"They told me they could clean up my credit in three months," Blanchard, a nursing home clerk in Baltimore, told the AARP Bulletin. "Nothing came off my credit report—not one lousy thing. I got gypped out of my money."
Blanchard isn't alone. According to the Federal Trade Commission (FTC), credit repair firms have bilked Americans out of millions of dollars.
The vast majority of credit repair firms, experts say, promise what they can't deliver—to "erase your bad credit," for example. What's more, they often advertise that poor credit ratings can be fixed—even if they're current and accurate. These for-profit operations aren't to be confused with nonprofit credit counseling services that help consumers reduce their debts and pay bills on time.
The Fair Credit Reporting Act of 1971 gives consumers the right to challenge the accuracy, validity and verifiability of their credit reports—the files compiled by credit bureaus—free of charge. It requires credit bureaus to investigate disputed items and to correct or remove inaccurate or unverifiable information.
Though it's time-consuming, people can improve their credit reports by challenging inaccurate information, says Lydia Sermons-Ward of the National Foundation for Credit Counseling that represents more than 1,300 local agencies. But she cautions consumers to watch out for false promises and fly-by-night operators—advice echoed by the Better Business Bureau and nearly all state attorneys general.
C. Steven Baker, director of the FTC's Midwest regional office in Chicago, goes further, saying that credit repair firms offer little if anything to consumers. "There's no magic bullet to fix a bad credit report," he says.
By law, credit repair companies must provide a written contract in advance that spells out your rights and cannot charge you until they have completed their promised services.