Self-Guided Credit Repair

Self-Guided 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 to repair your bad credit. They all make the same claims:

• “Credit problems? No problem!”
• “Bad credit? 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!”

Don't waste your money and time! The fact is that no outside company can do a single thing for a fee that you can't do for yourself for free. The Fair Credit Reporting Act ensures a consumer's ability to dispute old and inaccurate information from a credit report.

This page explains how you can improve your credit standing and gives legitimate resources for low or no-cost help.

The Scam

There are thousands of companies who claim they can clean up your credit report for a fee so you can qualify for a car loan, a home mortgage, insurance, or even a job. The truth is these companies do nothing that you can't do yourself to improve your credit.

The Warning Signs

If you decide to respond to a credit repair offer, look for these warning 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 onannualcreditreport.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 fromwww.ftc.gov/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 www.ftc.gov/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.

How Long Do Negative Items Remain on Credit Reports?

• Late payments – up to 7 years from the time the late payment was reported
• Collections (where a creditor has turned over your delinquent account to a collection agency) – up to 7 years from the time the debt was first assigned to a collection agency.
• Judgments (where a court made a ruling against you regarding a debt) – up to 7 years from the date the court filed the ruling.
• Tax liens – if you pay them off, they can remain for up to 7 years from the date paid. If you don’t pay them, they can remain indefinitely!
• Bankruptcies – Chapter 7 bankruptcies can remain for up to 10 years from the date filed. Completed Chapter 13 bankruptcies can remain for 7 years from the date filed.

Unfortunately, if the negative items on your credit report are valid, there’s nothing you can do to remove them. And don’t be scammed by credit repair companies claiming to make your credit problems disappear – no one can remove a legitimate negative item from your credit report . But if you continue to pay all of your bills on time and manage your credit wisely, the impact of these past negative items will begin to have less of an impact on your credit score. Eventually, they will fall off of your credit report completely and have no impact on your score. The key to improving your score is to continue to use your credit responsibly. Going forward, here are some things you can do to ensure your financial well-being.

STEP ONE: Fix Credit Mistakes

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 reporting company 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.

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 www.ftc.gov/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 www.ftc.gov/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 checkwww.naag.org for a list of state Attorneys General.

Establish A Good Payment History

While you are trying to improve your credit, it is very important that you pay your bills on time. A bad credit history will start to have less of an impact on your credit report as you show, over a period of time, that you are paying your bills when they are due. Keep in mind, most negative credit information will drop off your credit report after seven to ten years including: bankruptcy, civil judgments, collection accounts paid tax liens, and charge-off accounts. While you can’t change a bad credit past, you can change how you handle your credit now and in the future.

Build Positive New Credit References

Try opening new credit accounts, pay them on time and maintain low to partial balances. Use your credit accounts carefully and in moderation. If you have bad credit or no credit and have difficulty getting new credit accounts, try getting a “secured credit card” that requires you to place a security deposit with a lender in exchange for receiving a major credit card with a modest credit limit.

Avoid “guaranteed approval credit cards” that require you to pay hundreds of dollars in fees. Never pay a bill late if you think it might appear on your credit report. Make sure that you are paying more than the minimum credit payments, so you don’t carry large balances, paying only the interest.

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, AAA Fair Credit Foundation can help.

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 atwww.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.

AAA Fair Credit Foundation can advise you on managing your money and debts, help you develop a budget, and provides free financial education materials and workshops. Our Certified Financial Counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Our Counselors will 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.

Check Your Credit Regularly

Even if you don’t have a poor credit history, AAA Fair Credit Foundation suggests you review your credit report periodically for the following reasons:

• 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 Credit Bureau Reporting 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)