My take on credit repair is this: there’s no quick fix solution and those who say differently are selling something. It takes time, a conscious effort, and a serious personal repayment plan to increase your credit score. That in mind, let’s talk about what’s out there.

The Scam

There are thousands of companies out there that promise you they can clean up your credit, and they prey on those who have poor credit histories. Here’s the reality of the situation, someone with a poor credit history either isn’t financially educated or they’re not really interested in their credit rating. Most people don’t know what it takes to increase their credit scores and don’t really know where to begin.

Enter the scammers.

These companies have phrases like:

• “Credit Problems? No Problem!”

• “We can erase you bad credit – 100% guaranteed!”

• “We can remove bankruptcies, judgments, liens, and bad loans from your credit file!”

And so on. These are lies! Most companies don’t do anything, they take off with your money and you’re still left holding the bag. Some companies actually do something, but what they do is often illegal and a temporary fix. What’s more, the actual legal tactics these companies use and charge you for, you can do yourself for free.

The Warning Signs

I found an great link from the FTC (Federal Trade Commission) that talks about the warning signs these false companies give you. If you’re considering an offer, consider these tips before jumping in because you could wind up in more trouble than you started with.

• companies that want you to pay for their services before they’ve done anything

• companies that do not tell you your legal rights and the things you can do yourself for free

• companies that recommend you not contact the credit bureaus directly (BIG red flag, folks!)

• companies suggesting you invent a new credit profile by applying for an EIN to use instead of your SSN

• companies that suggest you commit fraud or illegal activities, such as disputing all information on your credit report, whether valid or not, or creating a new credit profile

It is important to note that you have some responsibility in this. Yes, it’s clearly a scam, but the “I didn’t know” excuse won’t get you far. If you commit fraud or participate in any illegal activities, you can be prosecuted. It is a Federal crime to lie on loan applications – phone, mail, web, fax, doesn’t matter – to misrepresent your social security number, or to obtain an EIN under false pretenses.

The other important note is that legitimate companies cannot by law (Credit Repair Organizations Act) require you to pay until they have completed the services promised. DO NOT fall for a company wanting money upfront, they’re not going to be able to help you and it’s a scam. The fact is, NO ONE can legally remove accurate negative information from your credit file…unless you make a deal with the FBI for something, but that’s a whole other story. Just understand that accurate information will stay on your credit report for seven years, there’s no getting out of that.

Know Your Rights

- You are entitled to a free report any time a company takes an adverse action against you. You should be receiving a letter of adverse action (also referred to as a letter of declination) within about 10 business days from the time of decline. Once you receive that letter, it should give you the information from the credit bureau they used and you have the right to request your report. It doesn’t come part and parcel with your score, but you can at least see the information that determined the lenders decision.

- You are entitled to one free credit report from each of the three major bureaus – Equifax, Experian, and TransUnion – every 12 months.

- You can dispute mistakes or outdated information on your report for free. Simply notify the bureau in writing of any errors and if you have documentation to back it up, include it. Once the bureau receives your information, they will notify the company in dispute and the company then has 60 days to follow up. If no response is heard from the company, then the credit bureau is required to remove that information with a notation that it was done so due to a dispute. Unfortunately, the disputed company could put it back on, so keep all records of disputes and contacts. In most cases, if someone disputes something and the company disagrees with the dispute, they’ll respond within the allotted 60 days. Otherwise, it’s removed and that helps your credit.

The Legitimate Credit Repair Companies

There are a few companies out there who are legitimate repair companies. To be honest, repair isn’t the right word, they’re more like credit counseling than anything. But, even still, you can do what they do just as easily for free. But, if outside help is needed, then be sure you find a reputable company to help you.

However, I offer a word of caution here. These companies will help you get your credit file sorted out – all the outdated or disputed items cleaned up – but what they’re mostly there for is to help you consolidate your debt. While that might sound like a good option, keep in mind that going this route can have negative consequences on your credit report.

If all you’re trying to do is repair your credit, then these types of companies, though legitimate, don’t really meet your needs. You can do it yourself for free and accomplish the same thing. But, if you need an outside party to help you with your debt and organize a plan, then these credit counseling agencies might be of value to you.

They’re legitimate because they don’t charge you money until they’ve done what they said they would do. They will also explain your rights, and in most cases, explain the process and how it affects your credit score. Essentially, it works like this. The credit counseling agency gathers all of your debt into one slush pile. They contact all of your lenders and negotiate a deal. If the lenders accept, they’re thrown into the pool. If they don’t, they’re kept separate.

From the pool of lenders that accepted the proposal, terms are set. Late fees are knocked off, interest rates are reduced, whatever it takes to help lower the payment. Once that’s all done, it’s combined into a nice, neat little once a month payment for you. But, here’s where the negative affects to you credit report come in. If the lender accepts the agreement, the account with the lender is closed out. You will not have access to that card or account, and if you’ve had it for a long period of time, you’re closing out that history. Not only are you losing points on the history, but you’re also losing points because your debt-to-limit ratio is all out of whack.

It really becomes a matter of which is of greatest importance to you – getting out of debt, or keeping a fairly decent credit score. Going the route of credit repair and counseling will help you get out of debt, but it doesn’t always help keep your credit score up.

Now, for those credit cards that didn’t accept the proposal, they are not included in the deal and it’s business as usual with them. From my understanding of how the process works, there aren’t too many credit card companies that refuse to make a deal with these agencies, but with the way things are today, that might change. However, if you keep these cards, it’s important that you maintain pristine history with them because they’re all you’ll have for some time.

So, tell me what your thoughts are on credit repair. Have you tried it, or do you throw those offers in the trash?

Related posts:

1. Credit Repair Part I
2. Credit Repair Part II
3. Credit Repair III: The Credit Repair Process
4. The bad credit repair guide
5. Shedding Debt vs. the Credit Score