Despite many bad apples, some offer a legitimate credit service
By James Peter Rubin
When it comes to finding someone to help you improve your credit, there are good companies and bad. The key is knowing the difference.
Some so-called "credit doctors" charge high upfront fees and fraudulently promise to do what cannot be done legally -- erase accurate but negative credit information from a credit report.
Their "black hat" behavior has made the credit repair industry the subject of consumer alerts and repeated sanctions from the U.S. Federal Trade Commission and given the industry an unsavory reputation for wasting consumer's money and making false claims of quick-and-easy credit repair. These credit repair firms are "savvy operators who know how to market themselves," says Lauren Saunders, managing attorney of the Boston-based National Consumer Law Center. "They take your money and besiege agencies with bogus claims and false reasons for having things taken off."
Because of all the bad apples, consumer advocates often issue blanket condemnations of credit repair firms, and say everything they do can be done by consumers themselves. But just as you can mow your own lawn, you don't always have to. There are legitimate credit repair firms -- though they can be tough to find.
Call them the "white hat" vendors. They often charge less, work through referrals, make use of established relationships with the credit reporting bureaus and, most importantly, don't promise the legally impossible: to remove legitimate dings from credit reports. The white hat credit repair firms, sometimes known as credit resellers or rapid rescorers, tend to work out of the public eye and don't make unrealistic promises. They typically work in tangent with mortgage companies, and, when successful, can update and remove outdated or inaccurate negative information from consumers' credit reports, lifting their scores high enough to win approval for better, less costly loans.
Resellers deal with tangible fixes When applying for a mortgage or other large loan, inaccuracies on credit reports can drastically impact a person's credit, leading to rejection or higher loan interest rates. These inaccuracies can result from identity theft, unsettled disputes with creditors, information that hasn't been updated or administrative mistakes. Resellers (so named because they "resell" credit information to the credit bureaus) regularly help consumers obtain more favorable loans by targeting inaccurate negative items on credit histories by providing supportive evidence from creditors. In some cases, resellers may also request that creditors soften their treatment of debtors who have faced extenuating circumstances, such as illnesses, that may have caused them to fall behind in payments.
Quickly resolving credit inaccuracies is important in the home loan market, where mortgage companies need to make decisions in a few days or less. Consumers who challenge items without help may not receive an answer for 30 days, which is the amount of time that federal law allows credit reporting bureaus to investigate and respond.
Resellers typically contest just a few well-chosen items for a fee of $30 to $50 per item. They usually achieve resolution within 72 hours. The cost for the repairs then become part of the closing costs and may result in saving thousands of dollars over the course of a loan.
5 signs that a credit repair
company is dishonest
It guarantees it can improve your credit history. Federal law allows you to challenge as many negative credit report items as you want; only ones that are inaccurate or cannot be verified by creditors within 30 days must be removed. If items on your history are legitimate, even the most skilled credit repair firm can do little.
It charges upfront fees. The higher the amount, the more you should treat them with suspicion. Under the Credit Repair Organizations Act, companies cannot require you to pay until they have performed their services. Some firms evade this restriction by identifying themselves as something other than credit repair shops.
Its representatives don't tell you your legal rights or what you can do for free. Before you sign a contract, a company must give you a copy of the Consumer Credit File Rights under state and federal law.
It suggests that you create a new credit identity by applying for an employer identification number to use in place of a Social Security number, or advise you to submit fraudulent information. Following advice that leads to illegal actions may result in prosecution.
It advises you to dispute everything on your credit report. If the items are legitimate, it won't improve your credit score.
-- Source: Federal Trade Commission
A legitimate service
This type of credit help differs from the subscription-style credit repair services, which pursue cleaner credit records in return for expensive, long-term monthly fees. Most consumer groups oppose these contracts as unnecessary.
"There's a major difference between credit repair and what rapid rescoring is all about," says Terry Clemans, executive director of the National Credit Reporting Association, a Washington, D.C., trade organization.
Consumer groups that are among the harshest critics of black-hat credit repair firms say that resellers deliver a legitimate service. "It's not a scam," says Travis Plunkett, legislative director of the Consumer Federation of America, a Washington, D.C., trade group of some 300 nonprofit organizations. Joe Rideout of Consumer Action, a San Francisco-based advocacy and education group, calls resellers "the quickest way to eliminate inaccurate information where you may not have time to wait 30 days. They have a track record of achieving results for their clients."
'You can hire a professional'
Despite the bad rap, some credit repair firms operate lawfully and with good intentions. For example, Texas-based Repairmycreditnow.com has posted a $10,000 security deposit with the Texas Secretary of State to cover potential consumer complaints. Jim Kemish, co-founder of Florida-based Sky Blue Credit, says that his firm saves clients time. "Credit repair is the same as repairing your own auto," says Kemish. "How much time do you want to put into it? You can hire a professional to take care of your car or your credit." He adds: "We're not selling removing legitimate derogatory credit items, but just removing the items that shouldn't be there."
Consumer groups say even if consumers find good credit repair companies, it's less costly to challenge items on their own. Consumers can download sample letters and templates to challenge inaccurate information. It's not all that difficult, but it does take time, effort and follow-through.
No big promises, no big fees Resellers differ from the black-hat credit doctors because they don't claim to guarantee success or charge upfront fees. They don't even market directly to consumers and rarely have contact with them.
Their methods also differ from those of some credit repair firms, which use software programs to dispute a high volume of negative items, even those that are accurate, in hopes that the credit bureaus will slip up. At best, the barrage of challenges from an illegitimate credit repair company can cause negative items to temporarily slip off a consumer's credit report, if the credit bureau can't verify all the information within the 30-day deadline mandated by federal law. But once verified, the negative, accurate items will reappear.
Resellers' methods are target-specific. They wait for lenders with whom they've often had ongoing relationships to recommend their services to customers who need just a few extra points on their scores. For example, Los Angeles-based Conquer Credit has built its business entirely through referrals. "We've never spent a penny on marketing," says Angela Setters, Conquer's founder.
High success rates Moreover, resellers' success rates are high because they analyze credit histories thoroughly before challenging items and work regularly with rapid resolution units within the three major credit bureaus. They also frequently have evidence in hand in the form of letters from creditors acknowledging mistakes.
Ruth Koontz, vice president of Lenders Credit Services, a Maryland company that provides rapid rescoring services, says her firm rejects about 50 percent of the candidates presented for rapid rescoring. She touts an 82 percent success rate of removing inaccurate items leading to score increases. "We identify things that can be changed legitimately and get those changes made," Koontz says.
Still, resellers are not the answer to all problems. They cannot erase accurate negative information or items currently in dispute. Even when they successfully challenge an inaccuracy, they can't guarantee a score change. That depends on the credit bureau's computer models. Also, resellers say they may need more time to resolve a dispute if the customer doesn't have proof, usually a letter from the creditor, that an error has been made. It can take weeks to obtain such a document, although resellers will frequently take care of this task.
What to look for when hiring someone
to improve your credit score
Resellers recommended by mortgage brokers or mortgage lenders are most often legitimate. If they operate unethically, they risk losing their relationship with credit bureaus' rapid resolution divisions.
Avoid companies that charge upfront fees and make bold promises of success, particularly if they guarantee that they can have any negative items on your credit report removed. No organization can permanently delete an accurate negative item.
Choose companies that carefully explain their products and services. They are required to do so by federal law.
Useful when speed is required
Nonprofit credit counseling agencies that create debt management strategies and offer other financial advice say consumers should save rapid rescoring only for emergencies, such as sudden purchasing decisions or unexpected problems on a credit report. They say that under normal circumstances, potential homeowners can avoid paying the extra fees for rapid rescoring by checking at least one of their credit reports every four months, paying down debt and challenging inaccuracies months in advance.
"Resellers are kind of like the FedEx of credit repair," says Natalie Lohrenz, counseling administrator of Consumer Credit Counseling Services of Orange County. "If you're going to send something, the U.S. Postal Service is fine." With all the services available to track credit reports, consumers should be able to quickly spot and fix mistakes or problems in them. "It's sad that people can challenge items but they don't plan ahead," says Lohrenz.
Resellers say that the system for reporting credit events is imperfect, overly dependent on creditors' record-keeping and lines of communication with bureaus. An updated file that doesn't arrive on time, if at all, data that is input into the wrong file, or creditors who simply fail to reflect new information promptly may lead to drastic scoring decreases.
For example, one of Koontz's recent clients saw her nearly impeccable credit drop about 200 points into the subprime 500s when a creditor failed to note a payment. Recently divorced, she saw her loan application stall while her ex-husband's went through painlessly. Koontz was able to resolve the issue for the woman. "That's how damaging one item can be," she says.
We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.
Three most recent Credit scores, credit reports stories:
5 steps to a mortgage-worthy credit profile – You've decided it's time to make your dream of owning a home a reality, but are you financially prepared? Here are five steps to getting your credit and finances in tiptop shape ...
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!