Thanks to the recession and its aftermath, millions of people suffered foreclosures, bankruptcies and job losses that tanked their credit. Given how much bad credit can cost — in higher interest rates, more expensive insurance premiums and bigger deposits for utilities — many want to rehabilitate their credit as quickly as possible.
But real credit repair doesn’t happen overnight, and it can take even longer if you fall for any of these myths:
No. 1: Credit bureaus have to investigate disputes within 30 days.
Federal law typically requires credit bureaus to investigate consumer complaints of errors on their credit reports and report the results of that investigation to the consumer within 30 days.
But there’s a pretty big exception. Under the Fair Credit Reporting Act, bureaus don’t have to investigate disputes they consider “frivolous or irrelevant.”
“The bureaus can look at it (the dispute) and refuse to investigate. They can even do it based on the format of the dispute letter,” said Barry Paperno, community director at Credit.com and a former operations manager at Experian, one of the three major credit bureaus.
Credit firms often reject the techniques used by many credit repair firms, such as using cookie-cutter forms, disputing the same information over and over again or disputing a bunch of items. You can reduce the chances of your dispute being discarded out of hand, Paperno said, by using your own words when writing disputes and including copies of relevant documents that support your position.
No. 2: Disputing information will remove it from my credit reports.
If the credit bureaus do investigate your disputes, they won’t remove the negative information in question while they do so. The bureaus wait to hear back from the company that supplied the information about whether it’s accurate.
Sometimes these companies don’t respond to disputes in time. In that case, the credit bureau may delete the disputed information.
Credit repair firms often claim victory when these deletions happen, but if the creditor doesn’t remove this data from its own records, it could pop back up on your reports, said Gerri Detweiler, another Credit.com blogger and author of “Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.”
“They last long enough for (the credit repair firm) to cash your check,” she said.
Temporary deletions are a problem even when you get a legitimate error removed, Paperno said. That’s why it’s important to check your credit reports frequently and keep paperwork that proves you’re in the right.
No. 3: Credit repair firms know secret ways to fix things.
Credit repair outfits love to tout their special industry knowledge and insights, Detweiler said, and people often assume the firms can do things that individuals can’t.
“They’re led to believe there are loopholes in the law and that if you take advantage of these loopholes, you can get things off your credit report,” Detweiler said.
But what credit repair firms know is secret only in the sense that their customers don’t realize they can get the same information for free at their local library or from reputable Web sites.
“People think the only way to get better credit is to pay someone to do it for them,” Detweiler said. “They don’t really understand how much they can do on their own.”
One place to start is the FTC’s page on credit repair. You can get your free annual credit reports at AnnualCreditReport.com and a free “credit report card,” based on your Experian credit report, with personalized advice how to improve your standing at Credit.com.
No. 4: Paying off an old debt will help my credit scores.
Some people think that paying off a debt somehow removes it from their credit reports. That’s not true. But even people who understand that may assume that reducing the balance of a past-due debt to zero will help their credit scores.
That’s often not the case, said Paperno, who also worked for FICO, the leading credit score creator, for 12 years. If the debt shows up as a collection account, the balance owed is usually irrelevant for FICO credit scoring purposes, so paying it off won’t help unless you convince the collection agency to stop reporting the debt — something that’s typically hard to do, Detweiler said.
Balances matter more when the debt is still held by the original creditor. Even then, though, the credit scoring formula starts to ignore the balance information after a certain length of time. FICO doesn’t disclose how long that time might be.
“Paying off an old charge-off isn’t going to help you like (paying off) a new one,” Paperno said.
If you’re trying to improve your credit scores, consider paying off your most recent defaults first and see how much that moves your numbers. (If your accounts are all current, pay down your credit card debts to improve your scores.)
No. 5: It’s impossible to get errors removed from my credit reports.
As I have reported, the credit reporting system is highly automated and favors the “data furnishers” the creditors and other companies reporting information about you. Some people with legitimate beefs get ignored or trapped in a seemingly endless loop of information being deleted and then reappearing.
It’s no wonder so many people are discouraged about the possibilities of fixing problems in their credit reports.
The reality is that people can and do get errors removed. A recent FTC study found that four out of five consumers who filed disputes “experienced some modification to their credit report.”
“The dispute process is not fun,” Paperno said, “But you can get erroneous information removed.”
If the error recurs, you can take the dispute directly to the creditor. If that doesn’t work, you can sue the credit bureau in small claims court or take your case to a higher court, perhaps with the help of a credit-savvy attorney (you can get referrals from the National Association of Consumer Advocates).
No. 6: A new credit identity will help me get approved.
If a credit repair firm is offering you a fresh start via a new credit identity, you know for sure you’re dealing with scam artists.
Sometimes these outfits are selling stolen Social Security numbers, often swiped from children who haven’t started using credit yet. Other times they encourage you to apply for a federal employer identification number or EIN and use it in place of your Social Security number in credit applications. Either way, you’re committing fraud, according to the FTC. When you use someone else’s Social Security number, you’re committing identity theft as well.
Even if you don’t get caught, you often wind up with a completely blank credit history. Depending on the state of your current credit, you may find it harder to get credit with no credit history than with a troubled one.
No. 7: Credit repair is always a scam.
Given all the nasty things you’ve just read about credit repair outfits, you might conclude all of them are rip-off artists. But that’s not actually true.
“They’re not all bad 100% of the time,” is how Paperno put it in a less-than-ringing endorsement.
Detweiler typically doesn’t recommend hiring someone, but understands why people do.
“Reading a credit report can feel like reading something in a foreign language you’re not fluent in,” she said. “You get the gist of what they are saying, but you feel like you’re not quite sure you understand it completely, and you may be missing out on important subtleties.”
You may be able to educate yourself using the following resources:
• For $30, Experian Credit Educator offers a 20 minute, one-on-one phone call with an agent who offers “a detailed walk through your credit repair components” and “insight for future decisions in credit management.”
• Credit counseling agencies sometimes offer credit report reviews. You can find an agency near you via the National Foundation for Credit Counseling.
• Buy your FICO score at MyFICO.com for $20 and you’ll get a report explaining the reasons behind the number as well as suggestions for improvement.
If you still want to hire a credit repair company, get referrals from mortgage professionals or real estate agents and check the companies out with your local Better Business Bureau. Don’t sign up with any company that wants to charge you in advance or fails to provide you with a written contract.
The federal Credit Repair Organization Act makes it illegal for credit repair companies to lie about what they can do for you or to charge you before they’ve performed their services. They must detail in writing what they plan to do and explain your legal rights, offer you three days to cancel without charge, tell you how long it will take to get results and detail the total cost you’ll pay.
There’s clearly a lot of fraud in the credit repair field. There are plenty of companies that will charge you a lot to do very little, or nothing at all. But some can provide a legitimate service, Paperno said, by helping people through a process that they could do themselves, but may not want to.
“I can change my oil,” Paperno said. “That doesn’t mean I wouldn’t want to hire someone to do it for me.”