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Credit Repair: Self Help May Be Best
courtesy of FTC
You see the advertisements in newspapers, on TV, and on the Internet. You hear
them on the radio. You get fliers in the mail. You may even get calls from
telemarketers offering credit repair services. They all make the same claims:
“Credit problems? No problem!”
“We can erase your bad credit — 100% guaranteed.”
“Create a new credit identity — legally.”
“We can remove bankruptcies, judgments, liens, and bad loans from your credit
file forever!”
Do yourself a favor and save some money, too. Don’t believe these statements.
Only time, a conscious effort, and a personal debt repayment plan will improve
your credit report.
This brochure explains how you can improve your creditworthiness and gives
legitimate resources for low or no-cost help.
The Scam
Everyday, companies nationwide appeal to consumers with poor credit histories.
They promise, for a fee, to clean up your credit report so you can get a car
loan, a home mortgage, insurance, or even a job. The truth is, they can’t
deliver. After you pay them hundreds or thousands of dollars in fees, these
companies do nothing to improve your credit report; most simply vanish with your
money.
The Warning Signs
If you decide to respond to a credit repair offer, look for these tell-tale
signs of a scam:
- companies that want you to pay for credit repair services before they provide
any services.
- companies that do not tell you your legal rights and what you can do for
yourself for free.
- companies that recommend that you not contact a credit reporting company
directly.
- companies that suggest that you try to invent a “new” credit identity — and
then, a new credit report — by applying for an Employer Identification Number to
use instead of your Social Security number.
- companies that advise you to dispute all information in your credit report or
take any action that seems illegal, like creating a new credit identity. If you
follow illegal advice and commit fraud, you may be subject to prosecution.
You could be charged and prosecuted for mail or wire fraud if you use the mail
or telephone to apply for credit and provide false information. It’s a federal
crime to lie on a loan or credit application, to misrepresent your Social
Security number, and to obtain an Employer Identification Number from the
Internal Revenue Service under false pretenses.
Under the Credit Repair Organizations Act, credit repair companies cannot
require you to pay until they have completed the services they have promised.
The Truth
No one can legally remove accurate and timely negative information from a credit
report. The law allows you to ask for an investigation of information in your
file that you dispute as inaccurate or incomplete. There is no charge for this.
Everything a credit repair clinic can do for you legally, you can do for
yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):
You’re entitled to a free report if a company takes adverse action against you,
like denying your application for credit, insurance, or employment, and you ask
for your report within 60 days of receiving notice of the action. The notice
will give you the name, address, and phone number of the consumer reporting
company. You’re also entitled to one free report a year if you’re unemployed and
plan to look for a job within 60 days; if you’re on welfare; or if your report
is inaccurate because of fraud, including identity theft.
Each of the nationwide consumer reporting companies — Equifax, Experian, and
TransUnion — is required to provide you with a free copy of your credit report,
at your request, once every 12 months.
The three companies have set up a central website, a toll-free telephone number,
and a mailing address through which you can order your free annual report. To
order, click on annualcreditreport.com, call 1-877-322-8228, or complete the
Annual Credit Report Request Form and mail it to: Annual Credit Report Request
Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from
ftc.gov/credit. Do not contact the three nationwide consumer reporting companies
individually. They are providing free annual credit reports only through
annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request
Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports
from each of the three nationwide consumer reporting companies at the same time,
or you can order your report from each of the companies one at a time. For more
information, see Your Access to Free Credit Reports at ftc.gov/credit.
Otherwise, a consumer reporting company may charge you up to $9.50 for another
copy of your report within a 12-month period.
You can dispute mistakes or outdated items for free. Under the FCRA, both the
consumer reporting company and the information provider (that is, the person,
company, or organization that provides information about you to a consumer
reporting company) are responsible for correcting inaccurate or incomplete
information in your report. To take advantage of all your rights under this law,
contact the consumer reporting company and the information provider.
STEP ONE
Tell the consumer reporting company, in writing, what information you think is
inaccurate. Include copies (NOT originals) of documents that support your
position. In addition to providing your complete name and address, your letter
should clearly identify each item in your report you dispute, state the facts
and explain why you dispute the information, and request that it be removed or
corrected. You may want to enclose a copy of your report with the items in
question circled. Your letter may look something like the one on page 6. Send
your letter by certified mail, “return receipt requested,” so you can document
what the consumer reporting company received. Keep copies of your dispute letter
and enclosures.
Consumer reporting companies must investigate the items in question — usually
within 30 days — unless they consider your dispute frivolous. They also must
forward all the relevant data you provide about the inaccuracy to the
organization that provided the information. After the information provider
receives notice of a dispute from the consumer reporting company, it must
investigate, review the relevant information, and report the results back to the
consumer reporting company. If the information provider finds the disputed
information is inaccurate, it must notify all three nationwide consumer
reporting companies so they can correct the information in your file.
When the investigation is complete, the consumer reporting company must give you
the results in writing and a free copy of your report if the dispute results in
a change. If an item is changed or deleted, the consumer reporting company
cannot put the disputed information back in your file unless the information
provider verifies that it is accurate and complete. The consumer reporting
company also must send you written notice that includes the name, address, and
phone number of the information provider.
If you request, the consumer reporting company must send notices of any
correction to anyone who received your report in the past six months. You can
have a corrected copy of your report sent to anyone who received a copy during
the past two years for employment purposes.
If an investigation doesn’t resolve your dispute with the consumer reporting
company, you can ask that a statement of the dispute be included in your file
and in future reports. You also can ask the consumer reporting company to
provide your statement to anyone who received a copy of your report in the
recent past. You can expect to pay a fee for this service.
STEP TWO
Tell the creditor or other information provider, in writing, that you dispute an
item. Be sure to include copies (NOT originals) of documents that support your
position. Many providers specify an address for disputes. If the provider
reports the item to a consumer reporting company, it must include a notice of
your dispute. And if you are correct – that is, if the information is found to
be inaccurate – the information provider may not report it again.
For more information, see How to Dispute Credit Report Errors at ftc.gov/credit.
Reporting Accurate Negative Information
When negative information in your report is accurate, only the passage of time
can assure its removal. A consumer reporting company can report most accurate
negative information for seven years and bankruptcy information for 10 years.
Information about an unpaid judgment against you can be reported for seven years
or until the statute of limitations runs out, whichever is longer. There is no
time limit on reporting: information about criminal convictions; information
reported in response to your application for a job that pays more than $75,000 a
year; and information reported because you’ve applied for more than $150,000
worth of credit or life insurance. There is a standard method for calculating
the seven-year reporting period. Generally, the period runs from the date that
the event took place.
For more information, see Building a Better Credit Report at ftc.gov/credit.
The Credit Repair Organizations Act
By law, credit repair organizations must give you a copy of the “Consumer Credit
File Rights Under State and Federal Law” before you sign a contract. They also
must give you a written contract that spells out your rights and obligations.
Read these documents before you sign anything. The law contains specific
protections for you. For example, a credit repair company cannot:
- make false claims about their services
- charge you until they have completed the promised services
- perform any services until they have your signature on a written contract and
have completed a three-day waiting period. During this time, you can cancel the
contract without paying any fees
Your contract must specify:
- the payment terms for services, including their total cost
- a detailed description of the services to be performed
- how long it will take to achieve the results
- any guarantees they offer
- the company’s name and business address
Have You Been Victimized?
Many states have laws regulating credit repair companies. State law enforcement
officials may be helpful if you’ve lost money to credit repair scams.
If you’ve had a problem with a credit repair company, don’t be embarrassed to
report it. While you may fear that contacting the government will only make your
problems worse, remember that laws are in place to protect you. Contact your
local consumer affairs office or your state Attorney General (AGs). Many AGs
have toll-free consumer hotlines. Check the Blue Pages of your telephone
directory for the phone number or check www.naag.org for a list of state
Attorneys General.
Need Help? Don’t Despair
Just because you have a poor credit report doesn’t mean you won’t be able to get
credit. Creditors set their own credit-granting standards and not all of them
look at your credit history the same way. Some may look only at more recent
years to evaluate you for credit, and they may grant credit if your bill-paying
history has improved. It may be worthwhile to contact creditors informally to
discuss their credit standards.
If you’re not disciplined enough to create a workable budget and stick to it,
work out a repayment plan with your creditors, or keep track of mounting bills,
consider contacting a credit counseling organization. Many credit counseling
organizations are nonprofit and work with you to solve your financial problems.
But not all are reputable. For example, just because an organization says it’s
“nonprofit,” there’s no guarantee that its services are free, affordable, or
even legitimate. In fact, some credit counseling organizations charge high fees,
or hide their fees by pressuring consumers to make “voluntary” contributions
that only cause more debt.
Most credit counselors offer services through local offices, the Internet, or on
the telephone. If possible, find an organization that offers in-person
counseling. Many universities, military bases, credit unions, housing
authorities, and branches of the U.S. Cooperative Extension Service operate
nonprofit credit counseling programs. Your financial institution, local consumer
protection agency, and friends and family also may be good sources of
information and referrals.
If you are considering filing for bankruptcy, you should know about one major
change to the bankruptcy laws: As of October 17, 2005, you must get credit
counseling from a government-approved organization within six months before you
file for bankruptcy relief. You can find a state-by-state list of
government-approved organizations at www.usdoj.gov/ust. That is the website of
the U.S. Trustee Program, the organization within the U.S. Department of Justice
that supervises bankruptcy cases and trustees.
Reputable credit counseling organizations can advise you on managing your money
and debts, help you develop a budget, and offer free educational materials and
workshops. Their counselors are certified and trained in the areas of consumer
credit, money and debt management, and budgeting. Counselors discuss your entire
financial situation with you, and help you develop a personalized plan to solve
your money problems. An initial counseling session typically lasts an hour, with
an offer of follow-up sessions.
For more information, see Knee Deep in Debt and Fiscal Fitness: Choosing a
Credit Counselor at ftc.gov/credit.
Do-It-Yourself Check-Up
Even if you don’t have a poor credit history, some financial advisors and
consumer advocates suggest you review your credit report periodically
because the information it contains affects whether you can get a loan or
insurance — and how much you will have to pay for it.
To make sure the information is accurate, complete, and up-to-date before you
apply for a loan for a major purchase like a house or car, buy insurance, or
apply for a job.
To help guard against identity theft. That’s when someone uses your personal
information — like your name, your Social Security number, or your credit card
number — to commit fraud. Identity thieves may use your information to open a
new credit card account in your name. Then, when they don’t pay the bills, the
delinquent account is reported on your credit report. Inaccurate information
like that could affect your ability to get credit, insurance, or even a job.
Sample Dispute Letter
Date
Your Name
Your Address
Your City, State, Zip Code
Complaint Department
Name of Company
Address
City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute the following information in my file. The items I
dispute also are encircled on the attached copy of the report I received.
This item (identify item(s) disputed by name of source, such as creditors or tax
court, and identify type of item, such as credit account, judgment, etc.) is
(inaccurate or incomplete) because (describe what is inaccurate or incomplete
and why). I am requesting that the item be deleted (or request another specific
change) to correct the information.
Enclosed are copies of (use this sentence if applicable and describe any
enclosed documentation, such as payment records, court documents) supporting my
position. Please investigate this (these) matter(s) and (delete or correct) the
disputed item(s) as soon as possible.
Sincerely,
Your name
Enclosures: (List what you are enclosing)
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