The good guys of credit repair

When it comes to finding someone to help you improve your credit, there are good companies and bad. The key is knowing the difference.

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 They typically work in tangent with mortgage companies, and, when successful, can update and remove outdated or inaccurate negative information from consumers' credit reports, lifting their scores high enough to win approval for better, less costly loans.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.

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.

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.

See related: What is credit counseling?, Understanding how credit scores work, Check out credit counselors' credentials first