The Truth About Credit Repair Companies

The Federal Trade Commission (FTC) is the government agency that governs credit repair companies. One of its jobs is to enforce the laws associated with unfair business practices.

The FTC's concerns regarding credit repair agencies address the unethical individuals who have taken advantage of the rising demand of credit restoration by posing as credit repair companies on the Internet or via telemarketing, making promises they either couldn't keep or never intended to keep, and/or charging fees up-front and then vanishing after providing minimal and inadequate services - if any services at all.

Over the years several of these companies have encouraged consumers to use unethical and even illegal tactics to clean their credit reports. In many cases, credit repair agencies attempt to disguise themselves as credible law firms to falsely persuade you that you have retained licensed professionals.

In my book, "Break the Shackles of Bad Credit: 133 Strategies to Fix Your Credit in 2010," I discussed several ways to distinguish between all the scams and illegal tactics being practiced by scam artists in our society.

In an attempt to discourage unscrupulous credit repair opportunists, the government has imposed strict regulations on credit repair agencies. Overall, these regulations are a positive step towards protecting consumers from disreputable organizations. Unfortunately, they continue to exist, especially on the internet, waiting to be discovered by regulatory agencies and extinguished.

You see the ads in newspapers, on television, and all over the internet. You hear them on the radio. You get fliers in the mail. You may even get phone calls from telemarketers offering their services. They all make the same claims:

 "We can erase bad credit! 100% Guaranteed!"

"Credit Problems? No Problem!"

"100% Legal Credit Repair!"

"We can wipe your credit report clean of bankruptcies, judgments, foreclosures, liens, and late payments!

Do yourself a favor and save your money. Don't believe these statements. They're just not true. Effective credit repair takes time, a conscientious effort, and a dedicated plan for repairing your past mistakes. The majority of these companies only want to take your money and run.

These companies promise they can give you good credit for a fee and even guarantee they can remove negative information from your credit reports —even if the negative information is accurate and timely.

Although there are legitimate credit repair agencies and not-for-profit credit counseling services out there, you must understand that no one can guarantee to erase negative credit information if it is accurate and current, and anything that is inaccurate can be corrected at little or no cost on your own.

To avoid being scammed, you should be leery of any credit repair agency that won't provide their complete address or phone number, fully identify who they are (including a verifiable identity), or demand large fees in advance of services rendered. Additionally, you should avoid credit repair agencies that do the following:

* Guarantee results or guarantee the ability to remove a bankruptcy or foreclosure from your credit report.

* Don't tell you your rights and what you can do "yourself" for free.

* Recommend that you NOT contact a credit bureau directly.

* Recommend you attempt to obtain a new/alternate social security number.

* Advise you to dispute ALL the information on your credit reports or give you any other advice that seems questionable.

* Attempt to get you to create a new credit profile using a Employer Identification Number (EIN) from the IRS

* Offer you a second mortgage or home equity line of credit. While these loans may allow you to consolidate your debt, they also require your home as collateral.

Credit repair companies can get you in a lot of trouble. Most credit repair companies use one of two strategies. Their most popular strategy is to dispute everything on your credit report, or at least a majority of it. By law, a credit bureau has 30 days to verify any dispute submitted and by disputing multiple items at once, they are hoping the time will expire and the bureau will be forced to remove it. Sounds good, right?

Not so. Credit bureaus are hip to this tactic and are quick to label your dispute as "frivolous", giving them the right to not have to verify anything for you.

The other most used strategy is to establish a new identity for you using an employer identification number (EIN). The idea is that, with your new identification number, you'll start using it in place of your social security number when you apply for credit. You'll begin to establish new, positive credit and be able to totally walk away from your old credit file. Think again!

Not only is this totally illegal, but companies can usually see right through this trick when they run your credit and see that you have absolutely no credit, or very limited credit but you're in your 30's or 40's.  Unless you've been in prison for most of your life, or are from another country, how can you possibly be a grown adult with absolutely no credit history? What you've basically done is created a false identity and then attempted fraud by trying to get credit under false pretenses. Try explaining that to a judge when they come to prosecute you.

These tactics can be illegal and/or unethical and, if you follow illegal advice and commit fraud, it can result in significant criminal prosecution to you.

In truth, these companies cannot substantially improve most peoples' credit reports by permanently removing bankruptcies, charge-offs, late payments, and other negative information from your credit reports, especially when such information is accurate.

These scams are particularly appalling because they prey on consumers who already find themselves in financial difficulty as a result of layoffs, divorce, or limited financial resources. Credit repair scams literally kick consumers when they are down, fostering and exploiting their false hopes of building a better credit history after suffering through tough times financially.