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Find Credible Credit Repair Service Companies

(Image: © Andrew J. Cosgriff)

The Problem

After accidentally overlooking a bill, a concerned Credit Sesame user writes in to find out how badly a late payment will affect her otherwise excellent credit score. John Ulzheimer, credit expert for Credit Sesame, answers.

“John, I have excellent credit and currently have a credit score of 804, according to your site. I’ve never missed a payment in my life. I had so much going on over the holidays that I completely missed my car payment and didn’t realize it until the bank called two weeks later. How badly will this one late payment hurt my credit score?”

With the hectic pace during the holiday season—between holiday shopping,  traveling plans, and wrapping up the new year, it’s easy to see how things can get lost in the shuffle and accidentally overlook paying a bill. Your question is one of the most commonly asked questions when it comes to credit scores, but it’s also one of the most confusing considering the volume of misinformation perpetuated on the web. To clear up some of the confusion, let’s take a look and break it down.

In your case, there are actually two issues at play. A late payment, and a late payment that, according to my math, appears to be of the 14-day variety.

Here’s the good news for you: the late payment isn’t going to show up on your credit reports so you won’t have to worry about any impact on your scores. Lenders are not allowed to report late payments to the credit reporting agencies until the payment is a full 30 days past the due date, and 14 days isn’t 30 days. Consider that a belated Christmas gift, one that you deserve given your history of sterling credit management.

But let’s say hypothetically that you actually went a full 30-days past the due date and the lender reported you as being 30-days late to the credit reporting agencies. That would be very problematic, but not if you relied on a lot of the misinformation circulating the web. There’s a myth floating around that a 30-day late payment has no impact on your credit scores, and there’s actually a little truth to that. But, that only applies to historic 30-day late payments, as in those that happened in the past. When a lender reports you as being 30 days late your credit reports shows that you are currently past due, and that’s a different animal entirely.

An account that is currently past due is considered a serious derogatory item that, incidentally, also has a past due balance of some amount. That would easily turn your 804 into something closer to a 640. That’s the bad news. The good news is that if you’ll cure the account, then the following month the lender will report the account as being paid on time, with no past due amount.

Your 30-day late payment will become a historical late payment rather than a current late payment and your score will recover, but not completely. You’ll get back into the 700s, but not by much. After the late payment turns a year old you’ll be above 760 and after two years you’ll be much closer to 800. So, the answer to your initial question is, “roughly 160 points.” And the answer to the logical follow up question, “how long until my score recovers”, is “around three years.”

Repairing Bad Credit: The Solution

Nothing in credit reporting churns up more polarized opinions than the topic of credit repair. The credit reporting industry is very critical of the practice. Stuart Pratt, the President of the Consumer Data Industry Association, the trade association of the credit reporting agencies, has previously said that credit repair companies attempt to “break the system” by flooding the credit bureaus with dispute letters in an attempt to get negative, but accurate, information removed from a consumer’s credit reports. And, the Federal Trade Commission along with 24 state agencies, closed down 36 credit repair organizations in 2008 with their “Operation Clean Sweep.”

Let’s back up for a moment…what exactly is credit repair? Credit repair is largely recognized as the process whereby consumers hire a third party company, known as a credit repair organization, to attempt to get negative information removed from their credit reports and, thereby, improve their credit scores. Any company that takes money in exchange for services that are billed as “credit improvement” (or any derivative) is technically a credit repair organization per the Credit Repair Organizations Act.

According to Pratt, the volume of credit repair disputes account for “no less than 30% of disputes” received by the credit reporting agencies. And while the credit bureaus don’t disclose the volume of disputes they receive annually, most people believe the aggregate volume across all three credit bureaus is easily in the tens of thousands each day.

Credit repair organizations have a checkered past, to say the least. They’ve been the subject of several class action lawsuits and Federal Trade Commission actions, like this one. So, are credit repair services a scam? What do you think?

Consider this, the Credit Repair Organizations Act lays out how a credit repair company is allowed to bill for their services. It also disallows any guarantees for the removal of negative credit information. And, finally, the consumer must receive clear disclosures that they are able to do exactly what a credit repair company can do, at no cost. If a credit repair company is operating in full compliance with Federal law, it should be very clear to the consumer that they’re paying for something they can do themselves, which consumers choose to do every day by paying for lawn care services, oil changes, and income tax return preparation.

Each year the Federal Trade Commission publishes the Sentinel report, which is a ranking of consumer complaints received by the FTC and several other government agencies over the prior year. Credit repair complaints made up about three percent of the complaints received in 2011. And, “credit repair” services are lumped in with Advance-Fee Loan scams and “worthless” credit card loss protection and insurance programs. Point being, credit repair alone doesn’t make up three percent of the complaints to the FTC and they rank much lower on the list than categories like Banks and Lenders, Internet Services, and Prizes, Sweepstakes and Lotteries.

But how effective are credit repair services? Do they really work? Are they really able to get negative information removed from your credit reports before the 7 or 10-year credit reporting statute of limitations expires? The credit reporting agencies don’t publish stats on the effectiveness of credit repair services. But, some credit repair players do. On one website the credit repair company boasts that they were able to get over 2.5 million items removed from consumer credit reports in 2011 alone.

According to Kelly Wells of Credit Restoration of Washington, “Credit repair services do work to have negative credit entries removed from your credit reports, regardless of what the credit reporting industry may suggest. Having said that, we’re not at war with the credit bureaus, far from it. The Fair Credit Reporting Act mandates that information on a credit report is accurate, verifiable and not outdated. Our services help to ensure the data meets those standards. Everyone wins.”

The bottom line is this:  If you do choose to hire a credit repair organization be sure to hire one that plays by the rules set forth in the Credit Repair Organizations Act.

How to Protect Your Self from Credit Repair Scam

The allure is undeniable: credit repair guaranteed to boost your credit score. With better credit, if you apply for a loan or home mortgage, you’ll get a better rate, which could save you thousands of dollars. However, not all credit repair companies are created equal and scams can waste your time and end up costing you major coin.

Be on the Lookout for Credit Report Scams

Before searching for a credit repair agency,remember, there are many ways that you can improve your credit score. It may take some time and effort on your part, but you have all the tools you need to repair your credit. Repairing your credit yourself is free and there are tons of reputable sites on the web, like Credit Sesame, to take you through the process. However, for those who feel more comfortable with a professional credit repair agent, keep in mind these signs of a scam, according to the Federal Trade Commission (FTC):

  • The company requires you to pay before they’ve provided any credit repair services. Reputable companies will not require you to pay until the service is completed.
  • The company does not tell you your legal rights and what you can do for yourself for free.
  • The company does not recommend that you contact the credit reporting bureaus directly.
  • The company suggests you create a new credit identity—and therefore a new set of reports—by applying for an Employer Identification Number (EIN) and use that instead of your Social Security Number. This is fraud and you may be subject to prosecution.
  • The company suggests that you dispute correct information on your report.

Know Your Rights when it comes to Credit Repair

Credit repair companies are subject to the Credit Repair Organizations Act (CROA), which protects consumers against unfair or deceptive advertising claims. Also, they must provide you with a “Consumer Credit File Rights Under State and Federal Law” detailing your rights and obligations.

Among the provisions are specific protections.

  • The company is not allowed to make false claims about services.
  • The company cannot charge you until the promised services are completed.
  • The company cannot perform any services until it has your signature on a written contract and has completed a three-day waiting period, during which you can cancel the contract without penalty.

The contract will also specify upfront what the obligations are for both parties.

  • The payment terms for services, including total cost.
  • A detailed description of the services to be performed.
  • How long it will take to achieve the results.
  • Any guarantees offered.

Already Scammed?

If you’ve already been taken in by a credit repair scam, you have the right to sue under CROA. The fraudulent company may be found liable for damages suffered or the amount paid to them, whichever is greater. If the violation was particularly offensive, then attorney and court fees may be added to the settlement.

The first step is to contact the FTC regarding the sham credit repair organization by filing a complaint on their website or by calling 1-877-FTC-HELP.

Credit repair is possible, but be wary of claims that are too good to be true, and above all, trusting yourself to repair your credit is a first major hurdle to clear on the track back to financial success.

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4 responses to “Find Credible Credit Repair Service Companies”

  1. Danny.Boyd7@yahoo.com'/ Danny Boyd says:

    Can you give any insight or recommendations for specific credit repair companies that do good work? I would like to know which company offers the best credit repair service and which offers the fastest credit repair service. If you have any user testimonials I think they would add a great deal to this article and make it more relevant.

    • Tyler.schroder355@isbn.com'/ Tyler says:

      Since there is no such thing, by law, as a guaranteed credit repair service I think it is hard to come up with a list of recommended credit repair agencies. Not to mention there are thousands across the US. Like the article said, I think it’s best to just fix your credit yourself rather than paying someone else to do it for you because at the end of the day you’ll have more motivation to get results more than they will. If you are really set on hiring somebody though, perhaps you should look at some credit repair service reviews. Just do a quick Google search and I’m sure you can find someone in your area to help you.

  2. sonyachinchin@msn.com'/ Sonya Chin says:

    I am little confused, is credit deletion service the same as credit repair service?

  3. Madisonbumgee88@sbcglobal.net'/ Maddy says:

    I agree, free credit repair service companies are so questionable!! I’ve never used one myself but that’s because I have heard one too many horror stories about friends and colleagues spending hundreds of dollars and getting absolutely no results! My unsolicited advice? STAY AWAY!

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