Credit Reports & Ratings Articles

Do Not Get Scammed by Credit Repair Agencies

If your recent loan application was denied because of your low credit score then you know it is high time for some credit repair. Much as you would want to clean up your credit record, however, do take precautions against being scammed. In fact, the Federal Trade Commission warns consumers against fraudulent credit repair companies and recommends that consumers undertake their own credit restoration.

Going all out in all forms of advertising, these credit repair companies make the same claims and operate very similarly. Here are the most common scams, lies and misrepresentations run by credit repair agencies that you ought to watch out for:
  • 1. Consumer repair companies promise to erase your bad credit with a hundred percent guarantee.
  • 2. They will charge you a fee up front prior to rendering any services.
  • 3. Sometimes, the upfront fee covers your 'credit analysis' or educational materials. They can be very persuasive you might be convinced. And if you want to back out, you'll be surprised that they have already processed the payment and charged your account.
  • 4. Credit repair agencies work by challenging all your negative findings with the credit bureaus. Without an immediate response from the creditor, the credit bureau is required by law to remove the disputed item from your personal credit history. That may work temporarily, but the creditor usually responds albeit late and the adverse information will be back on your credit history again.
  • 5. Do be wary of the so called "file segregation" where the advice is to obtain from the IRS an Employer Identification Number (EIN) as if you are in business. Then, you are to use this in lieu of your old Social Security number when applying for credit. Being a new reference number, it will not yield any derogatory report during a credit check.

What You Should Know about Credit Repair:

  • 1. Nobody can lawfully remove any accurate and timely adverse information from a credit report. The most that you can do is to ask for an investigation and correction of any information in your file that you deem erroneous or incomplete. If unresolved, you may request that your statement be included in future reports.
  • 2. Accurate information including delinquent bills that have been paid up stays on record for 7 years and bankruptcy filing remains active for 10 years. In time and with a conscious effort to repay your debts, you'll be able to improve your credit reputation.
  • 3. The Credit Repair Organizations Act by the FTC prohibits credit repair companies from demanding payment until after the completion of their promised services.
  • 4. Credit repair agencies are mandated by law to disclose your legal rights as well as provide you with a written contract. You also have three days after signing that contract to change your mind and cancel.
  • 5. By law, you are entitled to a free credit report from three major credit bureaus -- Equifax, Experian, and TransUnion -- once a year or anytime your application for a loan, insurance or employment was rejected because of 'poor credit.'
  • 6. 'File segregation' is illegal and you can be prosecuted for fraudulent information, e.g., submitting a different Social Security number to create a false identity. Besides, a blank credit report for a 40-year old person is unbelievable and raises lender's suspicion.