Credit Repair: Self Help May Be Best
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)
The FTC works for the consumer to prevent fraudulent,
deceptive, and unfair business practices in the marketplace
and to provide information to help consumers spot, stop, and
avoid them. To file a
complaint
or to get
free
information on consumer issues, visit
ftc.gov or call toll-free,
1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC
enters consumer complaints into the
Consumer Sentinel
Network, a secure online database and investigative tool
used by hundreds of civil and criminal law enforcement
agencies in the U.S. and abroad.
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