Credit repair: Friend or foe?

Credit repair: Friend or foe?

People with bad credit scores and reports generally struggle. They struggle to borrow what they need. And, when they are approved for a loan, they struggle to pay the higher interest rates they're usually charged. Worse, they may find themselves turned down for jobs or promotions as employers increasingly check credit reports before confirming appointments. For years, unscrupulous predators have relied on this desperation to con people out of their last few hundred dollars by promising unrecognizably better credit -- and then delivering nothing.

In November 2012, the Federal Trade Commission reported the reality: "No one can legally remove accurate and timely negative information from a credit report."

Do credit repair companies ever work?

At least in theory, it's possible that a credit repair company could help you. By law, your credit reports, mostly maintained by the Big 3 credit bureaus (Equifax, Experian and TransUnion) can contain only accurate information, and it's up to the lender to prove that accuracy by providing paperwork. Many lenders are so disorganized they couldn't prove that the sum of two and two is four.

So a credit repair company that's on the ball might theoretically know the buttons that need pushing to make a credit bureau delete something that's wrong -- or even something that's true, providing nobody can find the paperwork to prove it.

'60 Minutes' of reality

All that theory sounds promising. But, last year, a "60 Minutes" report suggested that virtually every attempt to correct a report error is dealt with in the most cursory way, and is ultimately submitted to the original lender as a very brief summary of the complaint.

Unless that lender chooses to devote resources to following up a complaint (yeah, right), it goes nowhere. The strong implication of the "60 Minutes" report was that very few such requests are ever proactively investigated, an assertion backed by Ohio Attorney General Mike DeWine.

No advantages to using credit repair organizations

Maxine Sweet, Experian vice president of public education, says she finds such allegations painful, and speaks of her company's "commitment to providing accurate information and excellent service to all of our customers."

Sweet says she isn't aware of any benefits to consumers using credit-repair companies.

"If a third party dispute is received, we verify the dispute with the consumer before processing it, so it actually slows down the process," she says. "We make every effort to make the dispute process as easy and convenient as possible so that consumers don't need to pay for services that we provide for free.

"In my experience, consumers are often promised much more than is delivered by a credit repair organization and pay a very steep price in hopes that they can get negative, but accurate, information removed from their history," she says.

See you in court

Consumer advocate and attorney John G. Watts of Birmingham, Alabama, disagrees that credit bureaus provide a good service, and claims to see people who suffer from their alleged inaction on a regular basis. He recommends that those who have genuine grievances send a letter by certified mail to each bureau that's reporting inaccuracies. You should describe precisely what's wrong, and provide copies (keep originals) of all documents that support your claim. Also, maintain a log of all the calls you have with bureaus' and lenders' staff.

This probably won't make much difference to how the bureaus treat your case, but the file you build up may form the basis of a court case. Talk to an attorney who specializes in debt law, and who's prepared to work on a contingency (no win, no fee) basis.

Back in the real world…

If you, like most people with bad credit, legitimately deserve the score you have, then there's only an outside chance that anyone other than you can sort out your problems. Your first step is to sign up for a free credit score service that lets you track your progress. Then, according to Anthony A. Sprauve, a senior consumer credit specialist with FICO:

  1. Get up to date with past-due accounts -- and stay current." You want to pay all your bills on time, every time," he says.
  2. "You want to keep the balances on your credit cards below 30 percent [of your credit limits]," he adds.
  3. "You only want to open new credit when necessary," he concludes.

Getting a credit repair organization to game the system may work very occasionally. But it's a long shot. If you insist on making that outside bet, at least first check for complaints about the company on online forums, and through the Better Business Bureau's website. And don't part with any money (or sign a document that commits you to do so) until the organization's fulfilled its promises.