Due to job losses and reductions in income, people’s credit scores have been going down. Of course as scores go down, the less likely they will qualify for a mortgage and be able to purchase a house. As a result of this, a new type of scam is emerging. I would call this the quickie credit score improvement scam. I distinguish this from credit repair companies.
Unlike credit repair companies, the quick credit score improvement company will promise an immediate credit score improvement to they can qualify for a loan. A credit counselor will go over a person’s finances and develop a long term plan to improve a person’s credit score. The quick improvement companies do not have the long term interest of the borrower at heart. Here is how the quick credit score improvement scheme works.
Under Federal law, the Fair Credit Reporting Act, a person has a right to dispute an item on a credit report The credit reporting agency, whether it Transunion, Equifax or Experian must remove that item from the credit report until it is validated. The credit reporting agency will remove the disputed item from the credit report and send a letter to the creditor seeking to validate the date. Normally, the creditor will respond to the credit reporting agency with proof of the debt and the item is then put back on the credit report. However there is usually a 30 to 45 day window between the time the item is disputed and the time the validation is received. It is during that window when a borrower’s credit score will go up because a negative item is not used in the calculation of the credit score. If there are several items, a person’s score can go up dramatically. It is during this window that the credit report is pulled showing an artificially higher credit score, allowing a borrower to qualify for a mortgage.
This has no long term benefit for the borrower. There is no planning to put finances in order and build a proper credit history. Fortunately, Fannie Mae and Freddie Mac have gotten wise to this scheme. They have put out rules which say that they will not accept a credit report with disputed items. Hopefully this will put these schemers out of business.
As a loan officer, I often help potential borrowers to devise a plan to improve their credit scores. I will do this a free service. My goal is not to say no to a potential borrower, but when.
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Well, Paul, that about 50% accurate. Yes, there are certainly plenty of scams out there regarding credit repair. There are really shady ones that dabble in "borrowing" someone else's social security number and things of the like. This is, of course, illegal.
However, many companies I work with, like Lexington Law, are perfectly legitimate. They represent the customer to the credit bureau and dispute negative items their customer has identified. It's a 30-day statute of limitation that the credit bureau must work within to 'validate' the negative item with the creditor. If it is not confirmed within that time, it must be removed, according to the Fair Credit Reporting Act.
Where things sometimes get questionable, is what the customer designate as "questionable". I'm sure there are some out there who dispute everything, whether accurate or not, in order to improve their credit score.
I have posted a number of testimonials at Ilovecreditrepair.com.
Thanks.
Rob