Good credit is important for so many reasons — to make new credit affordable, and to present a good image to potential employers, insurance grantors, etc. Because of this, thousands of consumers are lured to credit repair clinics each year with the promise of a “quick fix” for their credit problems. Although some of these companies are legitimate, many more are just out to make a quick buck at your expense.
The bottom line is credit repair companies cannot do anything for you that you cannot do for yourself. No matter what they tell you, they cannot make your past credit mistakes magically disappear from your credit reports. And if that doesn’t surprise you — maybe these facts will.
- Fact 1: Consumers often receive little or no help in exchange for the exorbitant fees charged by these so-called “credit clinics.”
- Fact 2: In many cases, these companies skip town with the consumers’ hard earned money, then continue to operate somewhere else under various corporate disguises.
- Fact 3: Credit repair companies have even resorted to criminal acts against creditors, credit reporting agencies and consumers through fraudulent claims and other deceptive practices.
How Do Credit Repair Clinics Work?
Credit Repair Clinics will try to sell you on two questionable repair techniques: frivolous and irrelevant bombardment and file segregation.
- Frivolous and Irrelevant Bombardment:The Fair Credit Reporting Act of 1971 mandates that credit bureaus be given a period of 30 days in which to investigate consumer credit report disputes. If disputes are not settled within the 30 days, the credit bureau must eliminate the item. In the past, credit repair companies have tried to use this time limitation to their advantage by bombarding the credit bureaus with disputes that were too numerous to be handled in the allotted time.During the 1980′s when credit bureaus were less automated, credit repair scams achieved a certain level of success with this fraudulent method. However, major advancements in technology and automation at the credit bureaus have made it ineffective. So if a credit repair clinic tries to sell you on this idea, consider it a waste of time and money.
- File Segregation: With this technique, the credit repair clinic encourages its clients to apply for a new social security number or Employer Identification Number (EIN) in order to start a new credit history. The problem with this method is that it is a federal crime to misrepresent your Social Security number or obtain an EIN from the IRS under false pretenses. In addition, people who change their Social Security numbers could be cheating themselves out of future Social Security payments.
The Law Protects You
In 1993, California imposed strict regulations on credit service organizations and the credit repair industry. The law defines “Credit Service Organizations” as.
“A person or company which, in return for the payment of money or any other valuable consideration, offers to provide or perform any service, or provide any advice or assistance which would improve a consumers credit record, history, or rating, or obtain a loan or other extension of credit.”
Although this definition encompasses many organizations, it does have some notable exemptions such as attorneys, chartered or licensed loan makers, banks and saving institutions, and non-profit organizations such as CCCS.
No “Up-Front Fees” Allowed
Perhaps the most important safeguard built into these regulations is the rule that prohibits credit service organizations from charging you “up-front” money for their services. In the past, credit service organizations commonly required a large payment in advance, usually between $300 and $500, before performing any service. The law now requires that all services be completed in full before the credit repair clinic can charge you a fee.
The law also requires that Credit Service Organizations:
- Refrain from engaging directly or indirectly in any act, practice, or course of business that would operate as a fraud or deception upon any persons in connection with services.
- Provide a complete and detailed written description of the services to be performed and the total amount the buyer will have to pay.
- Complete the performance of contracts within 90 days.
- Print a statement in at least 10-point boldface type stating, “You have the right to sue a credit services organization if it misleads you.”
Should you choose to do business with any credit service organization, make sure they are adhering to these rules. If not, take your business elsewhere!
Beware of Imposters
Although there are some legitimate credit service organizations, many are simply interested in taking consumers’ money with no results. To protect yourself, contact CCCS for advice before you make an agreement with a credit service company. Remember that anything a credit repair company can do, you can also do by yourself – at no cost! The professional counselors at CCCS will be happy to show you how.