Credit Repair

What does the law say about repairing your credit?

As the credit bureaus computerized their processes and greatly expanded their reach and influence in the late 1960s and early 1970s, consumer complaints began to pile up at the FTC and state attorney generals’ offices. The credit reporting agencies quickly became huge bureaucracies second only in size to the federal government. Yet, the credit bureaus expressly served only the needs of their clients, the credit grantors.

Many consumers were negatively affected by the credit bureaus, but they had no way to correct or change their credit information. The American consumer lay completely at the mercy of the credit bureaus. The United States Congress enacted the Fair Credit Reporting Act (FCRA) in 1971 to insure that the credit bureaus investigate the credit items disputed by consumers. This federal law set procedural guidelines which gave the consumer the right to challenge the accuracy, validity, and verifiability of the credit listings appearing in their consumer credit report. It also required that the credit bureau repair any credit listing if it was inaccurate or could not be verified.

In theory, the FCRA charges the credit bureaus with responsibility to the consumer as well as the credit grantor. In reality, the credit bureaus resist, resent, and reject consumer disputes. The credit bureaus would rather be left alone to make a profit. And, each time a consumer challenges his credit, profit is lost.

The credit bureaus first defend their profits by erecting walls of stall tactics, including requests for more information, further clarification, and additional identification. The vast majority of consumers give up before they even receive copies of their credit reports. If a consumer manages to get a credit report, decipher the codified information, write a coherent dispute, and mail it, the bureaus may still find some reason to disregard the challenge. The entire dispute system is designed to frustrate and discourage the consumer.

Many consumers have the idea that the credit bureaus must complete their investigation within thirty days or be forced to remove all disputed information. They threaten to sue the credit bureaus if they don’t conclude their investigation in time and repair their credit. In practice, such thinking is delusional. Nobody forces the credit bureaus to do anything.

However, if you manage to submit a valid dispute letter, and the credit bureau investigates your dispute, the chances of success are good – whether or not the negative listings are accurate! Accuracy actually has little to do with the deletion of negative items. If a credit bureau cannot verify an item before completing its investigation, that item will be removed. Many creditor grantors are simply reluctant to take the time to verify the data. While the credit bureaus may be in the business of reporting credit histories, creditor grantors are not.

Many “credit repair” companies claim to remove negative credit with the flick of a wrist. Their advertisements make bold assertions and money back guarantees; “Bankruptcy, tax liens, judgments, . . . no problem!! One hundred percent guaranteed!! Credit report 100% cleared in 30 days!!” Can they really make such sweeping guarantees?

While some credit repair companies are outright frauds, others are not frauds and they use the dispute process to obtain impressive results. In fact, they delete thousands of negative credit listings every day – regardless of whether or not the listings are technically accurate. In truth, credit repair fraud is less common today than five years ago. Vigorous regulatory sweeps by state and federal regulators have cleared away most of the illegitimate (and some of the legitimate) credit repair companies.

Unfortunately, it’s risky to trust anyone to help you repair your credit. It is estimated that credit repair companies have bilked Americans out of more than fifty million dollars. The majority of credit repair companies were started by entrepreneurs with a penchant for marketing. Consumers have flocked to these “credit doctors” only to discover that their advertisements proved far more impressive than their results. Hiring a credit repair company is like playing Russian roulette. Many of them are effective and legitimate, but it is difficult to tell a rip-off from the real article.

Working within the credit bureau maze requires substantial background knowledge; knowledge it takes credit repair companies years to learn. In fact, U.S. District Court Judge J. Wexler entered the following legal opinion in the Federal Supplement. “Since allowing third parties to assist consumers will likely lead to the expedited correction of credit reports, it will further the purposes of the [Fair Credit Reporting] Acts.”

So, can credit repair companies really guarantee results?

Not a chance! No credit repair company is so good that it can guarantee a specific outcome. It would be like a defense lawyer guaranteeing that the jury will find his client innocent. Guarantees are a sure sign of credit repair fraud. A warranty, where the credit repair company promises a refund if certain results don’t occur, is a better, more realistic claim.

Not surprisingly, the credit bureaus have declared war against the credit repair companies and those selling instruction on how to do-it-yourself. The bureaus lambaste credit repair companies in the media and send anti-credit repair literature to anyone whom they suspect of using credit repair services. The bureaus unflinchingly deny that accurate information can be removed from a credit report.

The simple truth is that you don’t have to endure bad credit for seven to ten years. It is possible to repair your credit within a much shorter time.

However you decide to address your credit challenges, realize that regardless of what you may hear in the news media, thousands before you have sought help and repaired their credit. They can show you their homes, cars, and credit cards. Despite the newspaper articles, TV reports, and other credit bureau propaganda to the contrary, you can repair your credit.

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On this issue, there is much confusion. Almost every so-called credit repair expert has a different opinion regarding the actual credit reporting period allowed by law.

Most negative listings may be kept on your credit report for a period of 7 years beginning on the date that you were last reported late before they repair themselves. This means that if you were late every month from March to August of 1995, that your date of last activity would be on August of 1995. In this case, the item would be due to repair itself on August of 2002. You don’t have to live with 7 years of Bad Credit!

There are several exceptions to the seven year rule. Bankruptcies may be reported for 10 years from the date that the bankruptcy was discharged. Liens and judgments may be reported for seven years or until the statute of limitations in that state (usually between seven and ten years) runs out, whichever is longer. However, credit bureaus usually keep these listings on the report for the seven year period regardless of the local statute of limitations, unless you repair them first.

The other interesting exception is in the case of a negative listing that has been sent to collections or has been charged off. The seven year limit begins 180 days after the last late payment before the account was charged off or sent to collections. In other words, if you didn’t pay a certain bill from January to March, and the creditor sent the account to collections in June, then the negative listing could remain on your report for 7 and 1/2 years from that last payment in March unless you repair your credit first.

Under the most recent version of the Fair Credit Reporting Act, the credit bureaus must complete a re-investigation within 30 days of receiving a dispute letter from the consumer.

However, the credit bureau still has the right to consider a dispute letter “frivolous and irrelevant” at their own discretion, if they feel that someone is attempting credit repair. While the credit bureaus are careful not to overuse this privilege, they may deem virtually any dispute frivolous or irrelevant without having to justify their decision or point to credit repair methods. Learn how to get the credit repair companies to take positive action on your dispute.

While the credit bureau is required to complete their reinvestigation in 30 days or less, the consumer has little recourse against them if they don’t. Many consumers assume that the credit bureau must repair all disputed credit if the investigation isn’t completed within the required time. This is not the case. The credit bureau may take as long as it likes to repair the credit. The only real recourse a consumer might have would be to gather a class-action lawsuit to penalize the bureau for taking too long. At Trans Union, for example, it is common practice to receive the credit repair dispute letter, take a week or two to process it, then send the consumer a letter saying that the reinvestigation will begin on the date that the credit repair dispute was finally processed. This often gives them a total of six weeks from the date of receipt of the dispute to complete the reinvestigation.

Your Credit Score is used by anyone loaning you money. Credit card companies, home equity lenders, auto loan lenders and finance companies all use a model created by Fair, Isaac and Co, the San Rafael, California company that pioneered credit scoring 40 years ago and dominates the field today. This score is most often known as FICO and serves as a snapshot of your credit history. A low score can raise the price of your loan and a very low score can mean denial of your loan completely. Here are the approximate percentages that determine your FICO Score.

• Payment history (35%). The largest factor determined on your FICO score is your basic payment history. The number of unpaid bills you have, any bills sent to collection, bankruptcies etc… The more recent the problem, the lower your score.
• Outstanding Debt (30%). Are your cards maxed out? High balances or more precisely, balances that are close to your credit limit can negatively affect your score. Keep your balances below 30%.
• Length of your credit history (15%). How long have your accounts been open? The longer, the better.
• Recent inquiries (10%). Every time you apply for credit of any kind, you create an inquiry on your credit report. Lots of Inquiries negatively affect your score.
• Types of credit in use (10%).Current loans from finance companies. How many and how much.

Your score will range between 300 and 870. The higher the better. As your score increases, your credit risk decreases. Exact numbers differ by lending institution but the average high approval score is 680 or above. Often times your score is taken from all three credit reporting companies and the middle score or average score is used.

Depending on the lending institution, your score can cost you. Some lenders will charge a higher interest rate if your score is below 600.

When you apply for credit your score does not come directly from FICO. Instead each bureau has its own version of the rating system with its own name.

Equifax is called Beacon
Trans Union is Empirica
Experian is Experian/Fair Isaac

A credit score of 680 or above can save you money, especially for home loans. If you are considering a significant loan you will want to be sure to check your credit reports first. If negative items appear on your report you have two choices. Live with it for 7 to 10 years or dispute these items. For more detailed information on repairing bad credit click here.