Do Credit Repair Companies & Debt Consolidation Really Help?

You can find ads everywhere selling systems, programs and ways to help you fix your credit in a hurry. Most of these ads seem to enjoy leading with such ludicrous statements like “My credit score jumped 300 points in only 3 hours” or “Smash your debt with only 2 letters” or even “Create a new credit file in only a couple of hours”. It makes you wonder if any of these claims are too good to be true. Well let me say that the answer is both true and false that ALL of these letters seem too good to true.

While many people tend to think that the only thing that can actually fix credit is time, in reality, there are a ton of things out there that can help you to repair your credit score yourself. Time is only one piece in the big puzzle that is credit score repair today. Many different tips and techniques can be applied and all that is required from someone is a little education to fix a credit score or simply raise it to where you want it to be.

Even the Federal Trade Commission states that “anything a credit repair clinic can do for you legally, you can do for yourself at little or no cost”. The key element to anyone’s success seems to be knowing the latest inside techniques and procedures that these credit repair companies use. These involve strategies that have been used for years by credit repair agencies and bureaus to fix consumers credit. Strategies that have become known by names like “Proof of Contract”, “Challenge of Procedure” or “Constructive Notice” are just a few, there are many others.

Even though these terms may sound impressive to the layperson, they are nothing but simple really. What it all boils down to is nothing more than a method of communication that exercises your consumer protection rights and helps consumers to get the results they want. The Federal Trade Commission along with the Credit Rules and Acts set forth by our government are written to aid the consumer and are “pro-consumer” or written for the average person not the Credit Reporting Agencies. Really the rules and acts were written to “Protect” the consumer from these agencies and any unfair practices used by them.

While many people would love to keep you believing that time is the only thing to change your credit score, it is good that obviously you have proved, by reading this article, that you want more information and are willing to educate yourself and fix your own credit score now. Even though the “actual work” for fixing your credit report will take very little of your time, it is vitally important that the information that you use and arm yourself with is good and how you go about it is using the correct techniques.

9 out of 10 courses on restoring your credit will do nothing but lead you into the bureaus snake pit. Once there, it is hard to get out or help yourself at all. Understanding that the Fair Credit Reporting Act, a consumer protection law, which states that “the only negative information which can remain on your credit report is not what is accurate, but what can be PROVED as such” is the first step to understanding what these credit repair companies don’t want you to know.

This is the tool and technique that the 9 out of 10 books will try to help you use, by sending out letters and communication, to try and remove your negative items and improve your score. Under the guidelines of the FCRA, it is definetely hard for these credit bureaus to Prove something as accurate. This works very well for consumers when fixing their scores, but lures people to these self-help books claiming to fix your credit fast, without any real meaningful data. There are books and programs out there that can help you, just make sure you don’t go out and buy the first “cheap” one out there just to find out the information is outdated and never really worked for anyone.

When using one of these credit repair schemes from the wrong book, consumers tend to use the outdated “boiler-plate” dispute letters to help with removing negative items. These letters tend to be outdated and are rarely effective. Nothing more than form letters, these techniques quite frankly may give the credit bureaus and creditors a good laugh at your attempts. Now, don’t get me wrong, there are definetely programs out there which can help the average layperson to fix their own credit and do it the right way. These programs are harder to find, but the good news is that it is for a reason.

The good credit report programs that help you to do-it-yourself are out there, they are just not as cheesy and cheap as the others. If you can find a good program for around $10 on how to fix your own credit, it is no wonder that it is only $10.

Anything that is going to really help you would be worth it and show testimonials from happy customers, have been around for a long time and prove with the information it provides in the sales form, that it is different from the rest and contains some actual knowledge. A good credit report repair program will also offer a money back guarantee and support information as well. More on this article...

How to Repair Your Credit

Improving or repairing your credit is a process that focuses on improving lenders' perceptions of you as a credit risk.

Ultimately, lenders use their own guidelines to make credit decisions. However, your credit score is an important component in shaping those decisions. By taking steps to improve your credit score, you improve your creditworthiness.

You can find your credit score in your credit report. Credit scores generally range from 500 to 800, but can go lower if you're struggling with a poor credit history. Lenders offer the best rates for borrowers with higher scores, usually in the range of 750 and higher. Persons with a credit score in the 500 to 600 range can obtain credit, but will almost certainly pay a higher interest rate.

When you review your credit score, evaluate any disclosed reasons for not having a higher one. Fair, Isaac & Co., a major vendor of the credit-scoring software sold to credit bureaus, indicates that several major reasons for a low credit score are related to delinquencies. A delinquency results from failing to pay your bills on time.

Fair, Isaac estimates that about 35% of your credit score is based on your loan payment history. Naturally, delinquencies adversely affect it. How much you owe, in aggregate, contributes another 30% or so to your score. Other factors that contribute (in roughly equal proportions) to your credit score are:

How long of a credit history you have. Here the advantage goes to adults who have had more time to establish credit.

Whether you've recently obtained other credit. If lenders perceive you as loading up on your credit, they're likely to take a cautious stance in offering additional credit.

Your current credit mix. Your credit mix indicates the types of credit you use. For example, mortgage debt is the loan on your home. Installment debt, which includes auto and student loans, also requires regular monthly payments. Revolving credit includes credit cards and credit lines.

If you determine that your loan payment history needs repair, consider the following steps. Over time, these steps will help to boost your credit score:

List what you owe. Prepare a table of how much you owe each creditor, what the interest rate is and how much you pay monthly. In short, you want to itemize your personal liabilities. Much of this information, in fact, is what's shown in your credit report.

Review your personal cash flow. Prepare a sheet that shows how much you pay out and how much you receive each month in cash. This statement represents your personal cash flow and identifies where you may be able to set aside additional savings to pay off debt.

Prepare a personal budget. You can use a personal budget to augment your personal cash flow statement. A personal budget and personal cash flow statement need to work together: You want to find ways to cut non-essential expenses that identify an extra $50 or $100 a month to repay debt.

Set up a debt workout plan with each creditor. Lenders want to get repaid, even for small debts. If you're unsure of how to set up a debt-repayment plan, visit a representative of your institution or a workout specialist.

Apply for a secured credit card. A secured credit card is backed by deposits or investments that you keep at the lending institution. It may offer only a small credit limit initially, even less than an amount you are required to deposit. Nevertheless, by charging and making payments regularly, you build a better credit history. In turn, your credit score will increase.

To the extent that accurate but negative information remains on your credit report for up to seven years -- and 10 years for personal bankruptcy -- time is a dubious ally in helping you to repair your credit. Instead, real progress comes from diligent and disciplined saving and budgeting, a solid debt-repayment plan and judicious use of credit. More on this article...

Self Help: Debt Repayment & Credit Repair

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/bcp/conline/edcams/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/bcp/conline/edcams/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 reportincompany 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/bcp/conline/edcams/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/bcp/conline/edcams/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/bcp/conline/edcams/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) More on this article...