Are Credit Repair Companies Legitimate?
Beware credit repair companies! They may claim to fix your bad credit, but it could be a scam. Learn what to look for.
Plastic money has become a way of life for most of us. When our cash is low, credit cards are available to pay for that special dinner out or purchase a new futon. When used with discipline and common sense, credit can make life easier.
But for some, the spending gets out of hand. Before long, ugly past due notices pile up in the mailbox and collection agencies start bothering you at work and at home. The end result could be bankruptcy or at the very least a bad credit rating, accompanied by unprecedented stress levels.
If you're in debt trouble, promises of a clean slate are enticing. It's then the scammers, also called credit repair clinics or credit doctors step in for the kill. Desperate to find a solution and get their good credit (or any credit) back, people fall prey to phony fix-it frauds, spending hundreds of dollars for little or nothing.
Through aggressive radio and TV ads, the repair clinics tout their services. These con artists have been around for a while, but law enforcement agencies don't have the resources to give this problem high priority. They often set up shop, operate for only a few months, and then quietly leave town, after collecting thousands of dollars from unsuspecting customers.
Kim Donahue, an Education Coordinator for the Consumer Credit Counseling Service points out, "these companies usually charge anywhere between $100-$1500. They can have a flat fee or charge on a per item basis. Repairing bad credit has even turned into a work-from-your-home scheme."
The credit repair rip-offs operate by taking advantage of the Fair Credit Reporting Act, a federal law that affirms your right to have reasonable access to your credit report. If you believe there's a mistake in the report, you can notify the credit reporting agency. In turn, the agency contacts the creditor to find out if the information on file is accurate. If the information is wrong, it's deleted. If correct, the information stays on the report. Finally, if the creditor doesn't respond in 30 days, the agency must automatically drop the contested data from the report.
These repair clinics flood the credit agency with verification requests, assuming some are bound to fall through the cracks. There is also the chance items may be removed because the creditors just didn't have time to respond within the allotted period. In this bulk of paperwork things can get missed. However, if the original information is correct, the creditor will likely revivify it the very next month. By that time though, you've been conned out of a chunk of change.
Keep in mind, anything a credit repair company claims it can accomplish for you, you can probably do for yourself. You can get a copy of your credit report usually for about $15 or less. You too, can check for discrepancies and take the necessary action.
A better alternative is taking the bull by the horns and talking honestly with your creditors. Try to work out a payment plan, even if the monthly payments seem miniscule. They are as interested in collecting their money, as you are in clearing your record.
If you do have to file bankruptcy there will be no plastic money, except for low-limit secured cards, for five to seven years into the future. And, your chances of getting a home loan or car loan will be zero to none. In addition, there are court costs and legal fees upwards of $500, payable in cash only of course, to file bankruptcy.
There are legitimate credit counseling services available to help, which are low-cost or free of charge. Call (800) 388-2227 to get an automated listing of the non-profit Consumer Credit Counseling Services in your area.