Should I hire a credit repair agency to “fix” my credit?
Most experts would say “NO.” Credit repair agencies charge hundreds or thousands of dollars for simple services that you can do for free, on your own or with help from a trusted community organization. Worse, they sometimes do things that are illegal, which can get you into serious trouble. Many people wind up in worse financial shape after using a credit repair agency than they were beforehand.
Beware of these common claims made by credit repair agencies:
CLAIM: “Only we can remove old or inaccurate information.”
TRUTH: If there are mistakes in your credit report, or if there is old information that should no longer be there, you can correct it yourself.
CLAIM: “The information on your report is accurate, but we’ll erase it anyway.”
TRUTH: It is illegal to lie to credit reporting agencies in order to remove negative information that is true, and it can result in prosecution.
CLAIM: “We guarantee to get you a credit card or loan.”
TRUTH: These companies do not always honor their guarantees, or they may get you a card with high fees and interest rates.
CLAIM: “We’ll give you a new credit identity — legally.”
TRUTH: Creating a new credit identity is illegal and can result in prosecution.
What are some telltale signs of credit repair scams?
- Companies that want you to pay them before they provide you services
- Companies that do not tell you your legal rights and what you can do for yourself for free
- Companies that recommend that you do not contact a credit reporting agency directly
- Companies that suggest that you create a “new credit identity” 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 to take any action that seems illegal, like creating a new credit identity
Know Your Rights!
Under the Credit Repair Organizations Act:
- Credit Repair Organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign any contract.
- You have three days to cancel a contract without paying any fees.
- Credit repair agencies cannot:
- make false claims about their services
- collect fees from you until they have completed the promised services
- perform any services until you have signed a written contract
What should I do if I think I’ve been scammed?
Call the Federal Trade Commission at 1-877-FTC-HELP (1-877-382-4357) to file a complaint, or file a complaint online. Call your state’s attorney general. New York residents can call the Consumer Complaint Helpline at 1-800-771-7755, or file a complaint by mail or online.
What steps should I take to improve my credit report and score?
Step One: Order your credit report and identify any outdated or incorrect information.
Step Two: Following the instructions on this site, dispute the outdated or incorrect information, or send the credit reporting agencies a personal statement to include when it distributes your report.
Step Three: Address public records. Try to get housing court and default judgments vacated, then removed from your credit report.
Step Four: Talk to your creditors that have reported negative information, and ask them to remove it from your credit report.
Step Five: Add positive information to your credit report. If you have accounts in good standing that don’t appear on your credit report, request to have them added.
Step Six: Develop better credit habits that will show new creditors that you are responsible. Remember – your credit report and score are constantly changing. The sooner you improve your credit habits, the sooner your credit rating will improve.
Step Seven: Rebuild your credit with a secured loan from a trusted source. For example, some credit unions offer small loans secured by your savings account, or credit cards with low limits, to help rebuild your credit.
Step Eight: Deal only with responsible lenders. Turn away credit card offers and lenders promising “fast cash.”
Step Nine: Don’t Panic!
- Shop around for credit. Don’t assume that just because one creditor tells you that you are a poor credit risk, others will do the same.
- Explain why you had credit problems directly to the lender to whom you are applying. Federal law requires that creditors at least consider your explanation. We recommend that you explain why you had temporary credit problems, what steps you have taken to resolve the problem, and why your finances are now more stable.
- Remember, most negative information will disappear from your credit report with the passage of time. And new information counts for more than old information in your credit score. By developing better credit habits, you can see a change for the better in only a few years.
Should I cancel some of my credit cards?
It depends on your circumstances. If you are going to apply for a loan soon, think twice about closing your credit accounts. Having more credit available to you than you actually use benefits your credit score. And closing older accounts can make your credit history appear shorter than it is, which can hurt your score. Consider keeping two or three accounts open, even if you don’t use them often.
On the other hand, if you find yourself getting into trouble because you use more credit than you can afford, you might want to consider cancelling some of your credit cards, especially those with high credit limits. Think about keeping one longstanding, unsecured credit card, with the best terms possible. Keep in mind that missed payments and defaults do more damage to your credit score than closed credit accounts. Also, the negative effects of closing credit accounts disappear with time.
Where can I go for trustworthy advice and assistance?
Community development credit unions are member-owned financial institutions serving specific neighborhoods. They offer members a broad range of services, including basic bank accounts, low-fee loans, and financial counseling. Here is a list of community development credit unions (PDF) in New York City.
Sources: Consumer Action, “Credit Repair Scams: They Make Your Money Disappear”; Federal Trade Commission, “Credit Repair: Self Help May Be The Best”; National Consumer Law Center, Guide to Surviving Debt; New Economy Project.
Disclaimer: This site provides general information for consumers and links to other sources of information. This site does not provide legal advice, which you can only get from an attorney. New Economy Project has no control over the information on linked sites.
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