You want a new home or car loan, but have a bad credit report score. If you think that a credit repair company is the answer, think again. Credit repair scams are on the rise.
Promising miracles, these companies claim they’ll scrub your credit report clean for a small fee. They say they’ll make your late payments, delinquencies, and foreclosures disappear. Don’t believe it. The Fair Trade Commission (FTC) warns these credit repair schemes really are too good to be true.
A prime example is the scam run by a Florida agency called Clean Credit Report Services Inc. In a blitz of TV, radio, and Internet ads, Clean Credit said it would dramatically improve credit ratings by eliminating negative credit information, even if the information was true and current.
But after taking up-front fees of $400, Clean Credit did little or nothing to boost credit scores. The FTC charged Clean Credit with consumer fraud and violations of the Credit Repair Organizations Act. Clean Credit settled the case in September 2010 for $14.4 million.
Beware of any company that wants you to pay a fee in advance to repair your credit. It’s illegal and a sure sign of a scam. According to the FTC, the best way to rebuild credit is to stick with a plan to keep up payments on your bills over time.
The US is in the midst of its worst economic crisis since the Great Depression. As a result, lenders are using stringent guidelines in granting credit. This has come as quite a shock to those who depend on credit to maintain their lifestyle or operate their business. Under the new guidelines, even the most diligent customers are being held to a higher standard. Now is the time to perform a credit self-evaluation. Are you creditworthy?
A lender can consider any factors that shed light on your creditworthiness. If you have good credit, you are usually eligible for lower interest rates and better loan and credit card terms. If your credit is bad, lenders view you as a financial risk, and you probably won't qualify for a credit card, mortgage or loan for that car you were hoping to buy.
Your Credit Report and Score
Your credit report is a resource for lenders to determine your financial trustworthiness. It demonstrates whether you pay your bills on time or have too much outstanding debt. It lists any judgments or liens that are filed against you, and whether you have filed bankruptcy in the past. It also contains personal identifying information and your employment history.
Your credit score is a three-digit number based on the information in your credit report. Lenders review your credit score at various times to decide whether they should take any action, such as raising your interest rate or lowering your credit limit. In addition to lenders, prospective employers and landlords also review your credit report when considering your application.
The most commonly used credit score is the FICO score, which ranges from 300-850. Most people score within the 600-700 range. Generally, scores above 700 are considered very good while people who score below 600 are considered a financial risk.
In 1972, Congress passed the Equal Credit Opportunity Act (ECOA) to make sure credit wouldn't be denied as a result of any type of discrimination and that individuals would have access to credit based on their actual qualifications. By law, when granting credit, a lender can't consider your race, color, religion, national origin, gender and marital status and whether you receive public assistance.
The lender must let you know whether your application has been approved within 30 days after you submit it. If your credit application is denied, the lender must give you a written notice setting forth the specific reasons your application was denied or advising you of your right to request such an explanation. However, you must request the explanation within 60 days of the denial.
Monitor Your Credit Report Regularly
There are three major credit reporting agencies that provide credit reports to lenders upon request:
P.O. Box 9532
Allen, TX 75013
P.O. Box 740241
Atlanta, GA 30374
2 Baldwin Place
P.O. Box 2000
Chester, PA 19022
These agencies obtain information from creditors concerning the payment history of customers and search public records for negative information such as judgments, liens and bankruptcy filings.
It's important to request a copy of your credit report on a regular basis to protect yourself from identity theft and make sure your report doesn't contain any errors. If you plan on applying for credit, you should first review your credit report to make sure it is up to date.
Under the Fair and Accurate Credit Transactions (FACT) Act of 2003, you're entitled to receive a free copy of your credit report annually from each of the three credit reporting agencies. You can access your free credit reports online.
Under the FACT Act, you're also entitled to receive this information at no charge if you certify to the credit reporting agency that:
- You are unemployed and intend to apply for employment in the 60-day period beginning on the date you make the certification
- You receive public welfare assistance
- You believe your file contains inaccurate information due to fraud
- You're a victim of identity theft
Making Bad Credit Good
If you have reviewed your credit report and corrected any errors, and you still have bad credit, you can do something about it. First, identify your problems.
- Late payments - if you have late payments because you forget to pay your bill on time, ask your lender if they have an automated payment option that will deduct your payment from your bank account by the due date
- Maxed out credit limits - if you maintain high balances on your credit cards, try to reduce the amount you owe. Pay off your high interest cards first and pay more than the minimum amount due each month
- Too many hard inquiries - a hard inquiry is placed on your credit report when you apply for credit. If there are too many hard inquiries on your credit report, it looks like you're applying for too much credit and risk going into debt. This can lower your score. You can reduce the number of inquiries by limiting the number of credit applications you make
It may take some time, but you can improve your credit score and become "creditworthy" if you pay your bills in a responsible manner, maintain reasonable balances on your credit cards and regularly monitor your credit report.
Questions for Your Attorney
- What can I do if a credit reporting agency won't correct items on my credit report?
- Are there any restrictions on a lender's power to change borrowing terms, like on a credit card account or home equity line of credit?
- Is it harmful to my credit profile if a lender lowers my credit limit, like on a credit card account, and can I do anything about that?