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There has always been an unflappable, entrepreneurial spirit in this country. Unfortunately, not all entrepreneurial endeavors have been of an altruistic nature. An early example of this was the unregulated pharmaceutical industry, known for purveying false hope on the public through the sale of "snake oil" remedies that were the cure-all for everything from hangnails to cancer. Not surprisingly, there is a modern-day version of this practice, in which snake oil salesmen prey on those seeking a cure to their credit "ills", the so-called credit repair industry.
Granted, there may be some legitimate companies in the field, but given the typical boasts made by operators that they can clear your file of anything negative and improve your credit score in as little as 48 hours, it's hard to tell who's legitimate and who's using smoke and mirrors. The key for consumers, just as with the original snake oil, is to look beyond the claims to determine what can and can't actually be accomplished when it comes to credit repair. Equally important, individuals seeking such help should determine whether or not they can achieve the same results on their own.
Consumers with poor credit histories are constantly solicited by companies promising to clean up their credit report so they can obtain various types of credit. The truth is, after demanding hundreds or thousands of dollars in fees, many of these companies do nothing to improve the consumer's credit report. Reason being, and despite the rhetoric to the contrary, the Fair Credit Reporting Act dictates what can and can't be reported and under what circumstances reports must be corrected or amended. As such, there are actually few things that can be done to remove accurate and timely negative information from a credit file.
Despite the FCRA, many repair operators continue to claim they can facilitate the removal of any type of negative information from a consumer's credit report. Generally speaking, their approach is to file disputes about every negative item listed within a customer's credit report, whether the dispute is legitimate or not.
This approach can sometimes cheat the system for a short period, resulting in the removal of legitimate negative information. Still, the results are almost always temporary. "Oftentimes, a creditor simply fails to finalize their investigation in time, which can result in legitimate information being removed by the reporting companies," notes Michael Bailey, a Miami-based credit and wealth advisor. "While this may seem like a victory for the consumer, it is generally short-lived. Once the creditor finishes their investigation and notifies the reporting agency that the information is correct, that information is then re-entered into the consumer's files. By the time that happens, the repair operator has been paid and the consumer is back at square one."
So, what can be done when it comes to negative information contained within a credit report? That depends on whether the information is correct or not. When negative information in a 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 a consumer can be reported for seven years or until the statute of limitations runs out, whichever is longer.
On the other hand, the law allows for consumers to request an investigation by the reporting bureaus if they dispute any information contained in their file as inaccurate or incomplete. Once a dispute is initiated, the reporting bureau must investigate the items in question - usually within 30 days - unless they consider the dispute frivolous. Thereafter, it is up to the company reporting the negative information (creditor) to investigate and prove or disprove the claim. If they do find the information they are reporting to be inaccurate, they must then notify the three nationwide reporting bureaus so they can correct the information in the consumer's files.
While all of this may sound daunting and complicated, there is actually little to the process for the consumer. What's more, there is no charge for initiating such a dispute, leaving the consumer with the decision of whether it's worthwhile to pay a company to do something they can do for themselves at little or no cost.
The second major ploy used among many operators is to claim that a person can simply walk away from a bad credit report and actually create an entirely new credit file free of derogatory information. The "new credit identity" ploy, also known as "file segregation," calls for the consumer to apply for an Internal Revenue Service "Employer Identification Number," which has the same number of digits as a Social Security number. They are then told to provide the EIN as their Social Security number when applying for credit. Because the new number isn't linked to the consumer's old credit report, that report, and any negative information it contains, won't pop up in a credit check.
According to Bailey, this sounds too good to be true because it is pure fallacy. "Not only are you likely to be prosecuted for lying on a loan or credit application," he warns, "but it's also a federal crime to misrepresent your Social Security number or to obtain an EIN under false pretenses." He notes that in any event, such a tactic is pointless, given that what you end up with is a file lacking any credit history, which is certain to raise red flags with creditors.
For those still interested in seeking the assistance of a credit repair company, one way to keep from getting taken by a crooked operator is to withhold payment until the company has completed their work and delivered what they promised. Under the Credit Repair Organizations Act, which governs repair operators, credit repair companies cannot require a consumer to pay until they have completed the services they have promised.
Watch out for these tell-tale signs of a scam:
Operators that want you to pay for credit repair services in advance
Operators that won't tell you your legal rights and what you can do for yourself for free
Operators that dissuade you from contacting credit reporting companies directly
Operators that suggest that you try to invent a "new" credit identity
Operators that advise you to dispute all information in your credit report
Operators that advise any action that seems illegal