Credit Repair Organizations
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Many people turn to credit repair organizations to clean up negative financial history and improve personal credit scores. Nearly everyone at some point will have inaccurate information on credit reports. One study estimated that 70% of reports contained errors. Inaccuracies can range from late payments or stolen cards to debt settlements and closed accounts. Most individuals are simply unaware of inaccuracies that can lower financial status with lenders and can affect loan approval and interest rates. They don't know how to check for errors or how to correct misinformation if identified. Although credit repair organizations can help them through the process, many can cause even more trouble, leaving individuals with greater financial difficulties.
Unfortunately, as credit scores have become more and more crucial in determining a loan candidate's financial worthiness, scams to fix reports have risen dramatically. Credit repair organizations know that people in debt are desperate and advertise promises that seem too good to be true - hire us and we'll wipe your credit history clean. However, it's not that easy. Improving financial reports take time. Debts must be repaid and worthiness earned. These organizations can help clients clear errors in personal reports but cannot clear negative information that happens to be accurate. The Bible warns us not to fall prey to these scam artists. "Beware of false prophets, which come to you in sheep's clothing, but inwardly they are ravening wolves." (Matthew 7:15) Many will take a debtor's money and make no changes on the individual's financial history or use illegal actions that leave the debtor with legal problems on top of debt.
Some credit repair organizations encourage clients to apply for an Employer Identification Number (EIN) that could be used in lieu of a Social Security Number in applying for loans. A few claim to use legal government forms to apply for a brand new Social Security Number. This practice called file segregation essentially allows a individuals to create a new identity, free from negative financial history. Sounds like a dream come true to someone having trouble getting approved for a loan. However, it is also illegal. Applying for an EIN under false pretenses can result in heavy fines or time in jail. If the postal, wire or telephone system was used for such actions, other fraud charges could apply. Both the consumer and organization are held liable.
For years, the Federal Trade Commission has tried to regulate and crack down on these scam artists and protect individuals from losing even more money. In 1996, the Credit Repair Organizations Act was passed, prohibiting these clinics from taking money from clients until services have been completed. Under the law, consumers must receive a written contract outlining services and payment terms in detail, length of time until completion, any offered guarantees, as well as company's name and business address. Each client has three days after signing the contract to reconsider and cancel if they have second thoughts. The law also specifies that the organization must provide a copy of the "Consumer Credit File Rights under State and Federal Law" and explain how clients can address the problems themselves for free. These organizations are prohibited from advertising false claim and engaging in illegal practices with their clients. Victims of fraud can report the company to the Better Business Bureau or state attorney's office.
Legitimate credit repair organizations will not hesitate in providing honest information for every person. Advertisements don't include misleading information about quick fixes or magical erasers. Instead, they will help a client work through debt problems and repair their own scores. Representatives will request and review a credit report. If any information is inaccurate, they will contact the credit agency involved and work to resolve the issue. Scammers will try to convince consumers to dispute negative information that is accurate. Neither an agency nor an individual can remove accurate information - positive or negative - from his or her report for seven years (ten years for bankruptcy). However, an individual can add a notation to his or her report if the negative item was incurred during extreme difficult circumstances, like illness or loss of a job. Lenders will take such notes into consideration if the consumer has shown an improvement since the date the negative item was reported.
While hiring professionals for assistance can save time, most of the process can be done without outsourcing, saving much-needed money. Charges for credit repair organizations can vary from $400 to $2,000 while self-fixing can cost as little as $30. The three main reporting agencies (Experian, TransUnion, and Equifax) will provide complimentary reports to individuals once a year. If a discrepancy is found, submit a detailed explanation in writing including appropriate documentation. The agency is required to begin an investigation within 30 days and usually resolves the issue in as few as 60 days. They will submit a corrected form to the consumer and, upon request, to any lender or employer who has requested it within the past six months. Sometimes a small fee is required for this additional service. If negative debt is the problem, financial counselors or a debt consolidation representation can help rework that debt into affordable monthly payments.
Although credit repair organizations have earned a bad reputation in the financial market, there are some legitimate services that can help consumers repair mistakes on their records. If lack of time is a factor, hiring a professional to conduct the research may be the best option. However, also research the company thoroughly. Check with the Better Business Bureau or the state attorney's office for filed complaints. Always read the contract carefully and never sign one that requests payment of fees before services are rendered. Most importantly, know the laws and be aware of consumer rights. Knowledge is power, but it can also protect from much harm.
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