– Steven Bake, Director of the Federal Trade Commission’s Chicago regional office.
"We've Never Seen a Legitimate Credit-Repair Operation"
Despite the phenomenal claims made by most credit repair companies, all they do is dispute trade lines in the name of the consumer. The filing of a consumer dispute is the only method anyone other than the creditor, a credit reporting agency or the repository itself has to affect change in any repository file. A credit repair company cannot do anything the consumer cannot do themselves for free and faster, in fact, they cannot even obtain a copy of the consumer’s credit report, as, credit repair companies are prohibited access to Experian, Trans Union and Equifax.
Consumers can obtain free copies of all three repository files in minutes at AnnualCreditReport.com, and if errors are found, dispute them online at no cost. There are three methods to obtain your credit reports:
Except for credit rescoring, this is the fastest method possibly of updating a consumer’s credit file.
A Warning For Mortgage Professionals
Over the years, we have seen many audits conducted by the repositories that result in the termination of that broker or lenders access to credit data. These audits are often triggered by borrowers, who at the recommendation of credit repair companies, frivolously dispute items contained in a credit report provided to them by a mortgage broker. The repositories monitor patterns on disputes received, matching them to recent inquires into that consumer’s credit report.
Each individual repository (Experian, Trans Union and Equifax) regularly publishes its own “alerts” list of mortgage companies and individuals which are barred access to that repository’s database of consumer credit files. Due to the predominant requirement of the three bureau merge credit report within the mortgage industry, all mortgage company end-user should be acutely aware of the ramifications of engaging in prohibited credit repair activities. Engaging in such activities may result in you or your company being added to any or all three repository alert lists, preventing access to a tri-merge credit reports and severely hampering your ability to originate mortgage loans.
Before recommending your applicant disputes items on his/her credit report (either directly or through a credit repair company)—it’s important that you first talk to your credit reporting agency. Here are a few reasons why:
It is possible that removing an item (even if that item contained derogatory data) can cause a drop in the FICO score, or worse yet—that item might have been part of the minimum required to produce the FICO score. Once removed—you’ve lost your FICO score entirely. You can’t un-ring a bell, unless you are certain of what you’re dealing with and the resulting change (if any) on the credit score, it’s best to have your credit reporting agency confirm your actions will provide the expected results.
- If you are looking at a tri-merge report, you do not know what is being reported by each repository. In many cases, you can’t even tell which items to dispute through which repository. The merge logic used to produce the tri-merge report might be responsible for the error you are viewing, in which case no dispute of the repositories is needed.
- If your borrower disputes any trade line, that item is locked from any further actions until the dispute is resolved. It might have been possible through rescoring tools to correct the item in as little as 24 hours. This would no longer be an option once a dispute is lodged.
- There are other options that are much faster than filing a dispute (such as e-Oscar whereby the trade line can be updated in minutes).
Unforeseen Credit Repair Dangers for Consumers
Besides the monetary risks associated with credit repair, the actions of a credit repair company can damage your credit score. Most credit repair companies simply dispute every derogatory item appearing on your credit report. Those creditors that verify the disputed items often update the data reported to the repositories including the reporting dates. The result of frivolously disputing trade lines often results in lowering your FICO scores. The dispute process also means you are providing your current address to creditors, which can also result in new collection contacts and phone calls. Other credit repair warnings signs include:
Charging Up-Front Fees in Violation of Federal Law
Many credit repair firms violate federal law by requiring up-front fees often disguised as “account set-up” or analysis fees. Some require you to purchase a training manual for hundreds of dollars just to access “free” credit repair.
Credit Repair Organizations Act, Public Law 90-321, 82 Stat. 164 SECTION 404,
“PROHIBITED PRACTICES: (b) Payment in Advance—no credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.”
Does Not Accept Credit Cards
(or attempts to disguise Paypal as a merchant account)
This is an important warning sign, it often means the firm is unable to gain approval to process credit cards (a physical inspection and positive financial history is required). Companies with questionable pasts or practices instead will often require you to pay using a third party credit card processing company, check by phone, ACH/direct debit or other means which may provide less protection in the event of fraud. Some will demand post-dated checks before providing any service (you’re expected to trust them with your confidential credit and banking information, but they don’t trust you for payment).
*PayPal® is a registered trademark of PayPal, Inc.
Web Based, No Physical Location or Allows Contact by Email Only
Any company can provide a few positive references, do some homework on any credit repair firm before sharing any confidential credit data or credit card information with them. You can verify how long their website has existed using any domain lookup tool. You will often find that although they may claim to have been in business for ‟decades,” in reality their websites are newly formed. Many credit repair companies found on the Internet are simply re-selling services provided by other companies—so you’re often unable to determine just who will have access to your personal information.