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The Truth about “Credit Repair”

With many people concerned about their credit scores, credit repair has become a common activity. However, it is often confused by many as an easy solution or a way to get all negative things removed from their credit. Credit repair can be a real thing; when used appropriately it is a tool to help correct mistakes on your credit report and improve your credit by getting new positive information reporting. You have the right to challenge anything you think is inaccurate on your credit report. However, many credit repair companies challenge all negative items, even when they are known to be accurate.

Most of these credit repair offers are scams. In fact, according to the Federal Trade Commission, attorneys at the nation’s consumer protection agency have never seen a legitimate credit repair firm making those claims. The truth is that there really is no quick fix for credit damage. A credit repair firm cannot remove accurate negative information from your credit report just to improve your credit; the information must be inaccurate. Additionally, credit repair companies are not permitted to lie to the credit bureaus; they cannot dispute accurate information under the pretense that the information is an error.

Credit Repair Companies Investigated

Over the past several years, the Federal Trade Commission has pursued dozens of credit repair companies who have broken the law. These companies are often required to pay hefty fines and in some cases are banned from doing business in the credit repair industry.

A few signs you’re dealing with a shady credit repair company: they ask you pay upfront before any services begin, cite an affiliation with the government or special relationship with the credit bureaus, promise a specific credit score, promise to delete accurate information from your credit report, fail to inform you of your right to dispute information directly with the credit bureaus, or ask you to waive your rights under the Credit Repair Organizations Act.

Still Owe the Debt

Another thing to remember is that even if you get something removed from your credit, it does not mean you do not owe it. Sometimes creditors do not respond when a dispute is filed, sometimes the credit bureau will remove an account for a minor reason, like a name misspelling or the wrong billing address. But, these are not legal reasons you do not owe the debt. If the creditor wanted to proceed with collection of the debt, they likely could. They may even be able to sue you and get a judgment against you.

DIY Credit Repair

At the end of the day, most “repairs” can be handled by individuals. The first step is pulling your credit; Federal law allows you to get a free copy of your credit report every 12 months from each credit reporting company. To access the reports, go to: https://www.annualcreditreport.com/index.action. If you want your credit score (not just the report and information), you may need to pay a small fee.

You are also entitled to a free credit report if a company takes “adverse action” against you, for example, rejecting a credit application, if you make your request within 60 days after the rejection. You can request your free credit reports through the official website for that purpose: AnnualCreditReport.com.

The steps you can take to repair your credit include writing a dispute letter or disputing the account online with the credit bureau. Basically, you review your credit report, determine what is inaccurate and write a letter explaining the issue. Common issues to dispute include accounts that have already been paid, late payments incorrectly reported, debts on your credit report not belonging to you.

If you have any evidence of the dispute, it is always good to include that information, including correspondence with the creditor, proof of payment, etc. The creditor is then given the opportunity to respond to the dispute and try to prove it accurate. The credit bureau will then advise you on the outcome; if the creditor fails to respond or does not provide adequate proof of the debt, then it will be removed. If the creditor provides adequate proof, then the account remains.

The So-Called Credit Privacy Number (CPN)

Another common tactic that may be advertised as credit repair is creating a “New Credit Identity.” Companies sometimes promise a “new credit identity” that can help you hide bad credit history or negative marks for a fee. If you pay them, these companies will provide you with a nine-digit number that looks like a Social Security number. They may call it a CPN — a credit profile number or a credit privacy number. Alternatively, they may direct you to apply for an EIN — an Employer Identification Number — from the Internal Revenue Service (IRS) or an ITIN – an Individual Taxpayer Identification Number. EINs are legitimate numbers, typically used by businesses to report financial information and an ITIN is for individuals who need to report income but do not qualify for a Social Security number. These are not a substitute for your Social Security number, if you have one.

The credit repair companies may tell you to apply for credit using the new number, rather than your own Social Security number. But it is a scam. If these companies provide you with a new number, they may be selling stolen Social Security numbers. Alternatively, if they have you use an EIN or an ITIN to gain credit, you are misrepresenting your information. The ITIN program was created by the IRS in July 1996 to help foreign nationals and other individuals who are not eligible for a Social Security number to pay the taxes they are legally required to pay.

Improving your credit

There are many ways to improve your credit ethically. First, you must understand how credit bureaus calculate your score. Basically, there are five elements that they weigh when determine your credit score: Payment History, Amounts Owed, Length of Credit History, Types of Credit, and New Credit. Each element is considered. The best scores will be those with 100% of accounts paid on time, no new accounts recently, various types of accounts (i.e., credit card, car loan, mortgage, etc.) with minimal usage and a long history of many years.

First place to start is pulling your credit. Usually, you want to start with one of the credit bureaus directly: Equifax, Trans Union, Experian. These give you the most accurate credit scores and are what banks use in their analysis. Other companies, like Credit Karma or Credit Sesame, are great tools to help monitor your credit and see when your credit shifts up or down, but they are not always providing the same scores the bureaus will.

Most of the time, when you pull your credit, the system will give you your credit score and tell you the biggest factors impacting your credit. This will usually give you the information you need to figure out what you need to improve on.

Payment History

Most importantly, start paying everything on time. If you have accounts like medical debts or collections on your credit, getting those paid off or settled can help a lot. Even if you have a missed payment or two, just makes sure you keep back on track. The older something is on your credit, the weight it factors in on your credit.

Utilization

If you have plenty of credit history, but your accounts are maxed out, then you need to work on paying things down. Utilization is how much of your available credit is being used. Most of the time, you want no more than 30% of your credit being used. This means you should never be using more than 30% of your credit limit on your credit cards. Even if you pay off your credit card every month, the statement balance is reported to the credit bureaus; as a result, you may carry no debt month to month, but the credit bureaus will see a different story.

Credit bureaus also consider using 75% of your credit or more as maxed out.  If you have any cards with balances over 50%, it is where you want to focus your payments first. If you are building credit and only have one credit card with a low balance, remember you can also pay multiple payments throughout the month. As an example, if you have a credit card with $500.00 limit and you use all the limit every month, you may want to make two $250.00 payments or three $170.00 payments per month to ensure you are never reporting a high balance.

Age of Accounts

The one thing that is difficult to change is the age of the accounts. You must let the accounts age to get a longer history. One trick to help with the age of accounts is to be added to a friend or family’s older credit card account as an authorized user. While this will not help for places that do a manual underwriting, it often will help for things like credit cards and car loans. It is also important to note that you need completely trust this person to make their payments on time and to be sure the account has always been in good standing. All payment history, both good and bad will be reported on the account.

If you have little credit history or a lot of negative credit history, opening a new account can help. Just must make the decision to start small with a low limit credit card or a secured credit card. Credit is like a muscle, it starts small, but the more you keep using it, the more it keeps growing.

Other tips

There are some services that try to help people with little to no credit history but regularly pay bills add account history to their credit. This includes services like Experian Boost, which may be able to add positive payment history by tracking payments you make to cellphone, utility, and streaming services.

Alternatively, some creditors can use manual underwriting in their analysis of your credit history. This most often applies to people with little to no credit looking to buy a house. If you participate in manual underwriting, the lender might ask you for proof of past payments. Records of on-time rent, utility and even insurance payments can boost your chances of approval during a manual underwrite. This is not an option for people with bad credit, but those who may have little to no credit history or work on a mostly cash basis with no open credit card or loan account – and no negative or collection accounts either.

Bankruptcy

Sometimes bankruptcy is necessary to clean up credit; it can also be quicker sometimes. Since Chapter 7 usually brings debtors to a credit score of 600 to 650 after discharge, those with low credit can get a jump start on improvement. Post-bankruptcy it is also easier to improve credit. When you are either behind on debt or maxed out on credit cards, opening a new card can help, but every good payment is being balanced against missed payments and other high balances. After bankruptcy, usually no other accounts are showing, which means your credit payment history and utilization is only based on the accounts you just opened.

There is no perfect way of repairing credit. But you should determine what way works best for you. Understanding all the options is the first step in choosing the right path.

If you are dealing with improving your credit, make sure you understand all your options. Ashley F. Morgan Law, PC helps many individuals manage their debts every month. Attorney Ashley Morgan has experience dealing with issues related to credit and debt. She understands good credit is important, and she wants her clients to completely understand all the tools at their disposal before taking action.