More Harm Than Good: Beware of Credit-repair Scams
"Bad credit? No problem!" You see these puffed up promises all over television and the Internet. For physicians with an overwhelming amount of credit card debt who find their creditworthiness is shot, these quick fixes seem like a godsend, as they will "eliminate" bad credit, bankruptcies, judgments, liens, and bad loans from your credit file. Eradicating a lifetime of terrible credit for a small fee is a tempting offer that lures many consumers. The truth is, according to the Federal Trade Commission (FTC), no one can legally remove accurate and timely negative information from a credit report. Although some legitimate credit-repair firms can help you to dispute inaccurate items, no third party can make debt disappear. "There is no such thing as legal credit repair, and that's the first warning sign," says Rod Griffin, manager of public education at Experian. "An organization that requires up-front payment before providing service or asks that you change your identifying information is violating the Credit Repair Organizations Act."
Modern Credit Swindles
Armed with the knowledge that there's no magical quick fix for your credit, it's easy to spot the wide variety of scams out there. Bankrate.com warns consumers to beware of credit-repair companies that contact you, use hard-sell tactics, and make extreme promises. Some companies may claim that they have an "in" with the credit agencies, but that's simply not possible. If they don't just take your money and run, their most likely course of action will be to flood the credit agencies with frivolous disputes over your debt. If the credit agency investigates, your debts may disappear during the investigation, which the scam company will show you as proof that your debt has been cleared, but this improved credit won't last.
Another scam will lead you to believe that the bogus credit-repair firm can obtain a new, clean credit file for you by having you apply for a new taxpayer identification or Employer Identification Number. This is illegal, and if you fall for it you could get in big legal trouble. Scammers hook consumers into doing this because they don't fully explain the scheme, so the victim doesn't really know what they're getting into. "If a consumer alters or falsifies their identifying information to hide from their true information, they also are committing fraud and could face legal penalties, including fines or imprisonment," Griffin explains. Not only is it illegal, a new file would still have the same information and history because the consumer has to provide the same name and address.
There is even a smaller scam that entices a consumer to call a 900-number for credit-repair help, and the scammer keeps the victim on the line as long as possible to run up the per-minute charges. This is just one example of the myriad ways credit con artists try to pry money out of the wallets of financially desperate people. "Ironically, one of the most onerous threats they will make is to report lack of payment to a collection agency, which would then report the unpaid fees to a credit reporting company, further damaging the person's credit history," Griffin says.
Do Your Own Legwork
In reality, anything a credit-repair clinic claims they can do for you legally, you can do yourself. According to the FTC, every consumer has the right to ask for an investigation of information in their file that they feel is inaccurate or incomplete, free of charge. The Fair Credit Reporting Act entitles you to a free report if a company takes an adverse action against you (eg, denying an application for credit, insurance, or employment), which will provide you with the name, address, and phone number of the consumer reporting company. Of course, you're also entitled to a credit report at no cost once a year from each of the big consumer reporting companies (ie, Equifax, Experian, and TransUnion). Also, you can argue errors or outdated items for no charge by contacting the consumer reporting company and the entity that provides information about you to them.
The first step you need to take in a credit dispute is to inform the consumer reporting company in writing that there is information in your report that you feel is inaccurate, clearly identifying each disputed item, along with copies of the appropriate documents to back up your claim. Send the letter by certified mail and request a return receipt so you can have a record of what the consumer reporting company received. They must investigate your disputed items within 30 days, unless they consider it frivolous. The reporting company forwards your data to the organization that provided the information (ie, the credit card company), and if they find that the disputed items are indeed erroneous, then they must notify Equifax, Experian, and TransUnion so the information in your file can be corrected. If your dispute isn't resolved, you can request that a statement of the dispute be placed in your file and in subsequent reports.