Why You Should Ignore Credit Repair Ads + 3 Steps to Fix Your Credit Free

Having good credit is critical when you borrow money, rent a place to live, buy car insurance – sometimes even apply for a job. So when you see ads baiting you with a quick “credit repair” fix, it’s hard not to bite. Maybe that’s why a Bing search for “Credit Repair” returns more than 40 million entries.

The logic behind paying for credit repair seems sound: If your car, refrigerator, or practically anything else breaks, you have a professional fix it. Shouldn’t the same logic apply to repairing your credit?

In a word, no.

Money Talks News founder Stacy Johnson explains some of the tricks unscrupulous credit repair agencies use in this video. Have a look, then read on for more.

What’s wrong with credit repair?

There are three potential problems with paying for credit repair. First, in many cases, no services are supplied: You’re simply ripped off. Second, some of the techniques used to “repair” credit are illegal. Finally, even if their work is stellar, there’s nothing any credit repair company can do that you can’t do yourself free.

Will you get ripped off?

The St. Louis chapter of the Better Business Bureau looked at complaints filed against credit repair companies. From their report:

Although consumers paid credit repair companies an average of $816, 85 percent of the complainants said no services were provided by the companies. The companies refused refunds to most of the complainants, while two consumers said they received partial refunds.

The same report says complaints regarding credit services received by BBBs nationwide jumped from 930 in 2006 to 8,070 in 2010.

Is what they’re doing legal?

As Stacy mentioned in the video above, one method used to “repair” credit is to create a clean slate by opening a new credit file. This is done by substituting your existing Social Security number with a new one, often stolen, or a Tax ID number, which is basically a Social Security number for businesses. Once a new number is established, you stop using your old Social Security number and apply for new credit using the new one.

Clever? Sure. Legal? Not even close. From the FTC website:

If you follow a credit repair company’s advice and commit fraud, you might find yourself in legal trouble. It’s a federal crime to:

  • lie on a credit or loan application
  • misrepresent your Social Security number
  • obtain an EIN from the IRS under false pretenses

Another common technique in credit repair is to dispute every negative item within a credit report. By law, disputed entries must be removed from your credit history while under investigation – a process that typically takes a few weeks. While the negative entries are being investigated and aren’t showing up, you quickly apply for new credit.

The problem: Challenging negative entries you know to be accurate in order to temporarily appear to have better credit is also fraudulent.

One simple sign you’re dealing with an unsavory credit repair agency is if they insist on cash up front before services are performed. Under the Credit Repair Organizations Act, credit repair agencies aren’t allowed to accept a dime until they’ve performed services.

3 steps to repair your credit free

The tool that allows you to hammer your history into the best possible shape is the Fair Credit Reporting Act (FCRA). The FCRA is a law that protects your privacy and establishes rules for collecting, reporting, and altering information in your credit history. The companies that collect – and ultimately sell – this information about you are called credit reporting agencies, or CRAs.

The first step is to look at the information that’s in your credit report right now. Since different CRAs may keep different information, it’s a good idea to check with the three biggies: EquifaxExperian, and TransUnion. You can get one free credit report a year from all three by going to annualcreditreport.com.

Step 1: Fix mistakes

Mistakes in credit reports are common. Just a few days ago the FTC reported 1 in 5 consumers had an error on at least one of their three credit reports, and 1 in 20 had errors that could result in less favorable borrowing terms. So go over your report with a fine-toothed comb to make sure it’s all true. If it isn’t fix it. You can complain at the CRA’s website or send a letter. There’s detailed information on the dispute process at this page of the FTC website.

Step 2: Deal with the bad stuff

Eventually negative information in your history will go away by itself, but not for a long time – seven years, unless it’s a Chapter 7 bankruptcy, in which case it’s there for 10.

But here’s the good news. You don’t have to wait years for negative stuff to die a natural death. You can actually get rid of negative things on your credit report anytime, at least theoretically.

There’s no law that says creditors have to report delinquencies or other negatives. In fact, they don’t have to report anything. And anything that has been reported can be removed at the whim of whoever reported it in the first place. And that’s the secret to fixing your credit history.

A friend of mine had a slew of negative stuff in her credit history, all the result of a time in her life when she was a lot less responsible than she is today. She’s been patiently working for a number of years, off and on, to restore her credit history to pristine condition. How? She simply writes a letter to each creditor that reported a negative item and asks them to remove it. This is a particularly effective technique in either of two situations: when you’re still a customer of the creditor or when you have an unpaid balance that you can negotiate with. Following is a letter she wrote to a credit card company that she still deals with:

August 19, 2010

Sally Sample
123 Maple Street
Anytown, USA 12345

BankCard Services
PO Box 12345
Wilmington, DE 12345

Regarding: MasterCard account #1234-4567-8910

Dear People,

As you know, I have been a loyal customer of your company for more than seven years. Over that time period, I have received many offers from other companies for credit cards with lower interest rates or other terms that could have been more attractive, yet I’ve remained with your company.

I recently obtained a copy of my Equifax credit report and was dismayed to learn that your company has reported that I made two late payments four years ago. I’m writing today to ask you to have this negative information removed from my credit history. Having become conversant with the Fair Credit Reporting Act, I’ve learned that this is easily accomplished.

As you are well aware, my record of paying on time is unblemished with those two exceptions. Since even one negative item in my credit history is one too many, please repay my loyalty and responsibility by helping me have these items removed.

Thank you in advance for your timely response. I look forward to continuing our mutually beneficial relationship for many years to come.

Sincerely,
Sally Sample

Believe it or not, this simple letter, or a variation thereof, worked for her in some, but not all, instances. Still, it doesn’t hurt to try.

If you have an unpaid balance, you might also use that to negotiate. You can offer to settle the debt completely by paying part of what’s owed, along with getting any and all negatives removed from your credit history. Crucial, however: Get a written agreement that it’s going to occur before you pay. Some creditors will happily tell you anything to get your money, then refuse to follow through on their promises. Make notes of any phone calls, including dates, times, and names. And always, always get everything in writing.

These examples rely on using leverage – being a current customer or owing money – to negotiate from a position of strength. How can you get negative items removed when you’re not a customer and don’t have an unpaid balance?

Well, you can and should still write your creditors. Simply build a case that you shouldn’t have to suffer for years simply because you made a few mistakes, especially since you’re now a new, responsible citizen. If you had problems that caused the delinquencies way back when (medical bills, lost job, etc.), don’t be shy about playing a little verbal violin music.

While it’s sometimes hard to believe, the readers of these letters are actual human beings just like you, which means they’re susceptible to the powers of persuasion. And you have nothing to lose, except maybe a stamp and a few minutes.

Step 3: If all else fails…

If you’ve got negative items that simply won’t go away, you still have one option left. You can explain them.

This isn’t nearly as good as having them removed, of course, but it’s better than nothing. The law (FCRA, 168i, (b)) allows the consumer to include a brief explanation of disputed items.

“Brief” means keeping the wording to 100 words or less. But don’t make excuses. Give explanations and resolutions. For example, let’s say you show one late payment on your credit card. You could say, “Payment late due to lost mail. Account brought current immediately upon being informed.”

Or you might say, “Defective merchandise required withholding payment. Payment made immediately upon resolution.”

What if you had three late payments in a row? You might say, “Late payments due to severe injury and loss of job. Accounts subsequently brought completely current.” That sort of thing. Of course, I’m not suggesting you lie. But if you paid a bill late, there must be some explanation that you can add to soften the impact.

That’s all there is

Fixing mistakes, begging for a break, or explaining what you can: Those are the only ways to improve your credit history. It’s not rocket science and there’s no magic fix. So there’s no reason you should risk a rip-off or part with cash by paying for credit repair. Just say no.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • Daniel Sater

    I have long enjoyed reading Money Talks News. You have a lot
    of good information that you provide.

    However, after reading this article, I would like to point
    out errors in your statistical reporting and mis-characterization of the Credit
    Repair Industry as a whole.

    Supposedly you were quoting the National BBB statistical
    ranking for Credit Repair Company complaints. The US BBB 2010 Statistics Sorted
    by Complaint ranks legal credit repair companies – with no advanced fees as
    #694 on their list. Throughout the US there were only 151 complaints that year
    out of 67,079,058 total complaints filed. This is a “little less” than the 8070
    complaints quoted by you. Hardly a dramatic jump. Even if adding companies with
    advance fees the totals come up to 845. These complaints are minuscule in
    comparison to Collection Agencies with 14,966 complaints and Banks with 22,609.

    It may be accurate to state that, “85 percent of the complainants said no
    services were provided by the companies”, but that obvious does not represent
    the thousands of legitimate companies that help their clients achieve the best
    credit profile that is possible for their circumstances. This give a skewed
    image of the industry without comparing it to the companies without complaints.
    It only reflects on one reason why someone complained over a small number of
    complaints. How many complaints did they have in St Louis? 15 or so? You have a
    responsibility to put statistics in context for the benefit of your readers.

    I have advised and coached many Credit Repair Companies across
    the country and I find most are honest, responsible and dedicated to helping
    their clients achieve the best credit scores they qualify for. Sure any
    consumer can do their own repair, but they can slaughter their own cow too, cut
    it up and get rid of the carcass, but I suspect that they won’t get the most
    meat for their time and may end up without a few fingers. The reason Credit
    Repair Companies exist is due to the fact that the credit bureaus, collections companies,
    and creditors to a lesser extent don’t always do the right things or follow the
    laws and procedures. Just look up the penalties and fines that have been paid
    over the years due to lawsuits by the Federal Trade Commission. Yes, there are
    some bad actors in the industry, but aren’t there bad actors in almost any
    industry?

    Daniel Sater

    • http://www.moneytalksnews.com/ Stacy Johnson

      In my experience, Daniel, which is about 20 years worth, there are way more bad actors in the credit repair industry than in most others. I’ve personally had friends ripped off with credit repair and I’ve done more than one negative story about them. Are there reputable companies in this business? I’m sure there are. But since there’s nothing a credit repair agency can do for you that you can’t do yourself, I see no point in either taking a chance or paying to have these services performed.