It is hard to overestimate the importance of a good credit score. So if your own credit history is less than pristine, it might be easy to fall under the spell of a so-called credit repair agency, especially one that promises to miraculously restore your standing and quickly erase negative information.
As always, if it sounds too good to be true, walk away. In fact, these companies cannot do anything you cannot do for yourself at zero cost, while some of them make questionable or even fraudulent claims that could actually leave your credit score worse off and your wallet considerably lighter.
Before extending credit, lenders typically consult one of three major reporting agencies to review a borrower's previous pattern of interaction with other creditors. Obviously it is imperative that this data be accurate since it can weigh heavily in determining whether you get a loan, a job or an apartment. Since it is so critical to maintain an accurate profile, the Fair Credit Reporting Act stipulates specific actions to take if erroneous or inaccurate information has been reported about you. The procedures for reviewing and correcting your credit report are outlined at www.consumer.ftc.gov.
Legitimate credit repair companies offer to assist you in correcting false or inaccurate records. For a fee typically ranging from $50 to $100 per month plus an initial set-up fee, they will review your history and write on your behalf the necessary letters to redress incorrect items. While this is an expensive alternative to a process you can undertake for free, there are bona fide firms that can assist you in correcting errors.
Unfortunately, scammers abound proffering magical schemes to erase bad credit or even to establish a new credit identity. These claims are not only bogus but violate federal law.
Under the Credit Repair Organization Act, credit record correction firms must abide by certain rules. They may not ask for payment in advance, must provide a fee schedule, allow customers to cancel within 3 days, and estimate the time to complete the job. Any firm promising to remove accurate information, establish a new identity, or to create a new Social Security or EIN number is a con artist and should be reported to your state Attorney General or the FTC forthwith. Bankruptcies, foreclosures and judgments that are accurate cannot be removed from the credit file, and any company promising to do so is in violation of the law.
If you wish to begin repairing a damaged credit history, there are simple steps you can take at no cost. First, obtain a free copy of your credit record at the three agencies by visiting www.annualcreditreport.com. Note that this is the only site authorized by the Federal Government. Avoid sites purporting to offer "free" reports under the guise of selling credit monitoring or which require a credit card number. Following the procedures outlined at the FTC website, you can then challenge and correct inaccurate information.
If excessive debt is the source of your credit woes, consider consulting a legitimate credit counselor. Contact the National Federation of Credit Counselors at NFCC.org to find an accredited agency in your area. An accredited credit counselor can be a useful source of information and advice on budgeting, borrowing and credit management as well as reliable guidance on improving your credit history the right way.
Don't fall victim to credit repair charlatans. Before engaging a firm, verify its legitimacy with the financial authorities in your state. Or better yet, do it yourself.
Christopher A. Hopkins, CFA, is vice president of Barnett and Co., Investment Counsel.