Credit Repair Scam

Credit repair is a general term often applied to the controversial practice of improving or rehabilitating one's financial reputation (credit worthiness) among creditors.

To improve a credit rating damaged by poor credit reports, in the long run only one thing will work: changing those habits who tends to create poor credit reports.

Making arrangements with the creditors to repay them is often one of the steps in improving one's credit habits. Creditors may accept slow payment schedules, as an alternative to writing off the debt. In some cases, creditors may accept a less-than-full repayment (pennies on the dollar). The key here is contact with the creditor and taking action to retire the debt.

At the same time, reviving an old debt that is no longer collectible can actually do additional damage to one's credit reputation. It is best to be aware of the circumstances regarding the debt's collect ability, statute of limitations, and legal and illegal collection practices, before contacting a creditor on a very old debt.

In December 2003, Congress passed the Fair and Accurate Credit Transactions Act (FACT Act), which included the right to a free annual credit report on request and a number of provisions designed to improve the accuracy of credit reports.

Inaccurate credit reports could damage 1 in 4 consumer's ability to buy a home, rent an apartment, obtain credit, open a bank account, or even get a job.

U.S. PIRG surveys from adults in 30 states who reviewed their credit reports for accuracy. Key findings include:

1. 25% of the credit reports contained errors serious enough to result in the denial of credit;
   
2. 79% of the credit reports contained mistakes of some kind;
   
3. 54% of the credit reports contained personal demographic identifying information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect;
   
4. 30% of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.

It is possible, for example, that a bad debt of a previous tenant could be associated with a current tenant, merely because of the common address.

A credit repair campaign is most likely to show results if credit worthiness has been damaged due to incorrect or misleading information in a credit report.

In summary, such a credit repair campaign involves obtaining copies of one's credit reports and formally disputing erroneous or misleading information there found.

The process in the United States can be quite complex and time consuming, thus spawning the credit repair industry. Both for-profit and not-for-profit organizations have formed to assist individuals in the credit repair process, always for a fee, though governments have repeatedly increased oversight and regulation of this industry because of predatory practices.

In addition, much self-help information on credit repair has become available, providing the motivated individual the tools and knowledge to proceed with their own credit repair campaign. Just as an organization hired for this purpose, the individual would initiate the credit repair process by first obtaining copies of their credit report, reviewing the credit report for errors, omissions, and misleading information, and requesting corrections to such information by means of a formal dispute.

Fraud:

Many companies offer fraudulent schemes for personal credit repair, offering to wipe out legitimate records and give a person a "clean slate". In many cases, these are either fraudulent scam's or schemes which may cause a person attempting to use them to violate more serious laws. It is very important to note that this is not only the case.

Such schemes are primarily identified by unrealistic promises, such as the following:

1. We want you to pre-pay even though we are not a bank or a non-profit as defined in CROA.
   
2. We will erase bankruptcies from your record.
   
3. We can erase tax liens from your record.
   
4. We can issue you a new Social Security number.
   
5. We can clean up your credit in [any amount of time less than a 30-120 days].

Additionally, if you do sign up for a credit restoration/repair service, you should ask them the following important questions:

1. Is their company authorized by CROA, as a bank or non-profit to pre-charge for credit repair? Even an attorney cannot pre-charge for credit repair.
   
2. Is there a monthly fee? If so, then there is no incentive for them to quickly and efficiently clean your file.
   
3. Is there a lawyer or a legal department on staff? If not they are unable to deal with issues like tax liens, wage garnishments, and bankruptcies to the fullest extent.
   
4. Is the name "credit counseling" in the name? Credit counseling firms are simply tools of the banks and creditors, and leave your credit report in worse shape than when you started.
   
5. Is the company involved in "debt consolidation" at all? Debt consolidation is worse than a bankruptcy for your credit report.
Legitimate approaches which may correct erroneous, misleading, or outdated entries on a credit file, negotiate with creditors, and teach better debt habits, take months if not years to accomplish significant results.