CREDIT REPAIR
People who cannot obtain credit because of bankruptcy or past problems with paying bills may be tempted by claims such as "make bad credit extinct" and "credit repair for $100," to use a "credit repair" company or "credit clinic." However, you should think twice before you do. This report explains what a credit repair company can and cannot do for you, federal and State laws that affect their operations, what you can do on your own to clear inaccurate information from your credit report, how to obtain alternative free or low-cost credit assistance, and what to do before signing a contract with a credit repair company. (For information on state regulations governing credit services organizations in states other than California, refer to the laws of the appropriate state.)
FAIR CREDIT REPORTING ACT
If you have been refused credit, you should be aware of your rights under the Federal Trade Commission's Fair Credit Reporting Act. This federal law regulates the reporting of information by credit bureaus and protects you against the circulation of incorrect or obsolete information. (A credit bureau or credit reporting agency gathers records from your creditors that tell whether you are paying your bills, whether you have filed for bankruptcy, etc.) According to the Act: 1. You may obtain a free copy of your credit file from your local credit reporting agency within 30 days of having been denied credit (or for a small fee if you have not been denied credit or if your request is after 30 days). (Check your yellow pages under "credit reporting agencies" or "credit bureaus.") 2. By law, the credit bureau is allowed to report all accurate information for seven years (10 years for bankruptcy). If you believe an entry on your credit record is inaccurate, you may challenge it, in writing, and ask that the credit reporting agency verify the information with your creditor. If the credit bureau takes more than a "reasonable amount of time," usually considered to be 30 days, to verify the information, it must drop the entry from your file.
WHAT DOES A CREDIT REPAIR COMPANY OFFER?
For a fee that can range from $15 to hundreds of dollars, credit repair companies claim to "clean up" or "fix" your credit record even if you have been denied credit because it revealed problems in paying your bills. They often advertise that negative information will be erased from your credit report. Credit repair companies advise you of your right to dispute the accuracy of the credit bureau's file. The firms either dispute the information for you or encourage you to challenge virtually everything in the file, accurate or not. Through this process, the credit bureau becomes so overwhelmed with notices of disputed information requiring reinvestigation on their part, that they may be unable to verify the information within the required reasonable amount of time. Consequently, they must remove it from your file, at least until they can reinvestigate it. You should know, though, that the credit reporting agency will continue to check all questioned entries even after they have been dropped. If the entries are later determined to be correct, they will be re-entered into your file. Neither you nor a credit repair company can have accurate information removed from your credit report until the 7- or 10-year period allowed by law has expired.
CREDIT FILE SEGREGATION
Or a credit repair company may encourage you to create an entirely new credit record by a method known as "file segregation." This usually involves securing an Employer Identification Number (EIN), a number normally used by businesses to report financial information to the Internal Revenue Service. Sometimes the file segregation companies advise you to use a new mailing address and phone number on credit applications as well. Thus your new identity will not be matched up with the old one (the one with the bad credit record). The IRS warns that it is a federal crime to make false statements on a loan or credit application. It is also illegal to knowingly misrepresent your social security number or to obtain an EIN under false pretenses.
NONPROFIT CREDIT COUNSELING ASSISTANCE ORGANIZATIONS
Nonprofit organizations, such as the Consumer Credit Counseling Service and programs sponsored by religious or fraternal organizations, offer counseling assistance to those people who need help organizing their finances. These organizations may offer their services at no charge or for a nominal fee. For the Consumer Credit Counseling Service nearest you, write to the National Foundation for Consumer Credit, Inc., 8611 Second Avenue, Silver Spring, Maryland, 29010, or call (800) 388CCCS.
REGULATIONS GOVERNING CREDIT REPAIR COMPANIES
Federal and state laws govern credit repair services to ensure that they do not misrepresent their services. California law requires credit services organizations to obtain a $100,000 bond and maintain it as long as they are in business and for two years after they cease doing business. They must also register with the Department of Justice and obtain a certificate of registration that is to be available for you to inspect. They are not allowed to accept payment from you until they have completely performed the services they promised to perform for you, which they must do within six months. They are also required to advise you of your rights under the Fair Credit Reporting Act and to provide you a written contract specifying the services to be performed and informing you of your right to cancel the contract without paying anything within 5 working days after signing it.
WHAT TO DO BEFORE YOU USE A CREDIT REPAIR COMPANY
If you choose to do business with a credit repair company, take these steps first: • Contact the Better Business Bureau for a reliability report on the company. • Inspect the company's certificate of registration. This will inform you of any litigation commenced or of any complaints filed with any governmental authority of California, any other state, or the federal government and how they were resolved. • Find out and be sure you understand what the company will and will not do. If you take a copy of your credit report to them, you can ask them exactly what information they will change or remove. Remember that the law requires a written contract, so get these promises in writing. • Also bear in mind that if you are told any accurate information will be changed or erased, you are not being told the truth.
If you are considering using a credit repair company, beware of companies that engage in these practices: • Wanting you to pay for credit repair services before any services are provided. • Not telling you your legal rights and what you can do yourself--for free. • Recommending that you not contact a credit bureau directly. • Advising you to dispute all information in your credit report or take action that seems illegal, such as creating a new credit identity. If you follow this kind of advice and commit fraud, you may be subject to prosecution. Additional information on the Federal Trade Commission's Fair Credit Reporting Act is available from the FTC or the Better Business Bureau.