CREDIT REPAIR True and False

There is lot of information available about credit repair, but so much of it is conflicting, it's easy to get confused. The credit bureaus themselves would like consumers to believe that there is nothing they can do to improve their credit ratings. There are unscrupulous credit repair companies that guarantee miraculous, instant jumps in credit scores… and then there are legitimate credit repair agencies that provide services that give consumers realistic and reasonable results.

To help clear up some of the confusion, here are five facts and fallacies about credit restoration:

1. Only Time Can Change The Information on Your Credit Report.

The purpose of the Fair Credit Reporting Act is to give consumers the right to challenge the accuracy and fairness of information on their credit reports. Congress recognized that credit bureaus have a vital role in accessing the creditworthiness of consumers. The act was designed to ensure that consumer reporting agencies exercise their responsibilities with fairness, impartiality and a respect for the consumer's privacy.

The result is a federal law that gives consumers the right to challenge the information in their credit reports. The FTC has warned consumers to avoid using credit repair services. Why? Because in the past so many Americans have been deceived by them. Due to the number of people desperate for credit repair, inflated offers of overnight credit restoration target a large and eager audience. Most of these companies promise impossible results and fail to deliver after they have the customer's money. In an effort to protect the public from being preyed on by such companies, the FTC has issued the sweeping statement that "Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost." However, this isn't entirely true.

2. Accurate Information Cannot be Removed from your Credit Report.

The Fair Credit Reporting Act provides in part that a "consumer reporting agency is not required to remove accurate derogatory information from a consumer's file, unless the information is outdated under section 605 [§ 1681c] or cannot be verified." Section 609(c)(2)(E).

Did you notice the wording, "not required to remove"? There is nothing that prohibits credit agencies from removing accurate information. In fact, the Fair Credit Reporting Act lays out EXACTLY the situations in which credit bureaus are REQUIRED to remove an accurate item from a consumers report.

Why does anyone say otherwise? The banks want to know every derogatory event in a potential borrower's credit history and the credit bureaus are in the business of selling negative information.

Congress recognized that consumers are bombarded with offers of easy credit and that good citizens should not be punished for every mistake they've ever made. Since the purpose of the law was to give consumers the right to challenge information in their credit reports, Congress left room for reporting agencies to remove even accurate information under certain circumstances.

3. Credit Reporting is Subjective.

There is no one number or report that defines your credit history. There are three nationwide consumer reporting companies, Experian, Equifax and TransUnion. Each of these companies has its own sources of credit information as well as its own method for calculating a consumer's FICO score.

FICO is short for the Fair Isaac Company. FICO scores range from 365 to 840. The higher the score, the better credit a consumer has. Anyone with a score of 720 or lower might benefit from credit repair services.

The way that FICO scores are calculated is shrouded in mystery. However, it is generally accepted that FICO scores are calculated on a scorecard on which several factors are given varying degrees of importance. These factors include: delinquencies, the number of new accounts, length of the credit history, the amount of unused credit available, and inquires requesting the credit report.

Since each of the three credit bureaus uses its own formula to arrive at a FICO score, they usually have different FICO scores for the same person. While some banks rely on only one FICO score, others look at all 3 and average them together.

4. Credit Repair can be Instant and Guaranteed.

There are no instant fixes when it comes to credit repair. Even if you were to pay off all of your current debts, it would take at least a month for that action to be reflected on your credit reports.

So what is a reasonable period of time for a consumer to expect to see an improvement in his or her credit rating? Of course, it depends on the situation. And the consumer has to keep their credit in good standing going forward. Getting a new late payment reported will send credit repair efforts back to square one. A consumer's goal is to convince the credit bureaus that the bad history is old information, and the new information accurately represents their current financial picture. Since credit bureaus tend to weigh most heavily the events of the last 12 or 18 months, depending on a consumers specific history, it is reasonable to expect that it may take 3 to 12 months to significantly impact a consumer score.

There is also an unpredictable aspect to credit repair. Of course, the skill of the person repairing the credit is one variable. But part of credit restoration depends on what each of the individual creditors and credit bureaus do. For this reason, the same type of request regarding the same kind of derogatory credit information can have very different results from one creditor to the next.

5. Lenders are the Only Ones Who Look at your Credit Report.

Running a credit check has become a common practice among a lot of businesses that deal with the public, not just lenders. More and more, insurance companies are pulling their applicants credit reports before making a decision to issue or not issue coverage. The insurance industry justifies the practice by pointing to its finding that the likelihood a customer will file a fraudulent claim rises if that customer had a bad credit history. Of course, even if a consumer convinces an insurance company to issue a policy in spite of his or her bad credit rating, that customer is very likely to pay a higher premium that someone with a good credit.

Employers frequently check on their prospective employees histories. It's very disturbing to think that a couple of derogatory reports on your credit report could keep you from landing a job, but it's true. It's not much comfort that any employer who rejects a job candidate because of his or her credit history has to notify that candidate in writing and provide him or her with a copy of their credit report.

There is now a law that requires insurance companies and employers to get written consent of the consumer before running their credit history. But this isn't much protection. A potential employer can claim that a job candidate hasn't completed their application until they sign the consent to have their credit report checked.

A bad credit report can negatively affect many aspects of your financial life. With something this important, it makes sense to get professional help with your credit repair. The result of any credit restoration effort depends in large part on how well a consumer complies with the repair program as well as the skill of the credit repair professional hired.

6. Anything a legitimate Credit Restoration Company can do for you legally, you can do for yourself at little or no cost.

Since Credit Restoration Companies work with numerous clients, the reputable ones have much more experience in dealing with creditors, the credit bureaus and collection agencies. As an analogy, credit dispute strategies can be much more complex than simply changing the oil in your car. Automobile mechanics can check the more technical aspects of your vehicle, such as your brake pads, rear differential fluid, etc. Another comparison would be representing yourself in court. It's not impossible, but one small mistake could cost you. What if I were to say to you…

"Anything a legitimate attorney can do for you legally, you can do yourself at little or no cost." The same goes for a mechanic. In the end it comes down to the "cost to benefit ratio." How much can I do myself based on my current skills and experience, and would I benefit by hiring someone to handle the more technical aspects of my credit report. The answer is almost always a resounding "yes." A skilled credit restoration expert lives, breathes, and eats their work. They always have light bulbs going off in their head as to additional angles that can be used to get you the results you need, and as quickly as possible.

For example, some collection agencies can be very uncooperative. You just can't "shake them". They might ignore your dispute letter, and the credit bureaus might verify the account as accurate. What next? A skilled credit restoration expert will be able to bring you the persistence you need in getting negative items removed, as well as helping you add positive primary unsecured accounts to your credit report to immediately boost your credit score. This is why all consumers should consider hiring a professional.