Do credit repair companies work?

You see the advertisements on the Internet, in your inbox and even on television; “We can fix your bad credit!” All that negative stuff on your credit report—gone in a flash. These companies know how to take your hot mess of a credit report and turn it into a bright, shiny, new credit report with no negative information.

Fine. Dandy. Except that no, they can’t.

First, let’s get our definitions straight: there is credit counseling and credit repair. The first can be a legitimate way to fix the situation you’re in. The fact that you’re in credit counseling shows up as a negative hit on your credit report and will lower your score for a while, but when you’re in over your head, it’s probably worth it.

The second one is basically a sham.

You see, while the Fair Credit Reporting Act gives consumers the right to challenge (and ultimately have removed) inaccurate or outdated items on their credit reports, information that is timely and accurate stays. There is no “secret” method to getting it removed; if you defaulted on a credit card two years ago, that’s going to haunt you for a while. If you’re staying afloat but have a massive amount of debt racked up, that’s going to show up on your report. There’s no way around it.

In other words, any company that’s promising to erase your bad credit history is scamming you.

However, that doesn’t mean your credit can’t be repaired. The thing is, you have to take the initiative to do it yourself, and it takes time—several years, in some cases.

This may not be the answer you wanted, but it’s the only true answer.

So how do you repair your bad credit on your own? First, pay off everything you owe. Don’t take on new debt if you can avoid it. If you have to take on some debt, pay it on time, every time. Visit a credit union, too—many offer small “payday alternative” loans that make those Payday Loans look like the rip-off they are. These loans are for small amounts, with very low interest rates and easy repayment terms. You’ll probably have to verify employment to show you can and will repay the loan—this is why credit unions weren’t a part or cause of Economic Crash-N-Burn ’08—they generally only gave loans to people who could handle them. REGIONAL calls its version of this loan the Step Up Loan, by the way.

At any rate, showing that you can repay a small payday alternative loan will help you re-establish your credit history and start to swing the pendulum back towards “good credit.”

Okay, I know…Dave Ramsey says that all debt is bad debt, so he’d probably bristle at my mentioning this route towards rebuilding your credit. Obviously, the ultimate goal is to not owe anyone and be able to buy most things with cash. However, you’re probably not going to hit that “able to buy a house with a briefcase full of C-notes” point for several years. In the meantime, you’re going to need to rebuild your credit so you can borrow a little here and there. And heck, if you can operate without credit once you’ve got your old debts paid off, more power to you. But let’s stay grounded in the here-and-now reality of most people for the moment.

If you’re at the point where your debts and bad credit are overwhelming, it may be time to call in a good credit counseling agency. Just be sure to remember these points:

  1. Only use credit counseling services that are not-for-profit
  2. Never pay a credit counseling service up front
  3. Make sure the agency is Better Business Bureau accredited
  4. Make sure they have an A or A+ rating from the BBB
  5. Remember that it takes time and effort on your part to fix your credit; there are no free rides.

Misleading credit counseling advertisements on television

I just saw what may have been the sleaziest credit counseling commercial I’ve ever seen.

It appeared on the Weather Channel around 2:30 PM local time (I was watching Full Force Nature; they had some really killer close-up tornado footy).  Now, sleazy ads during daytime television are nothing new, but this one was incredible.

It began with footage of the President giving an address about the economy. I don’t know the date or specific topic of the speech—I know he used the phrase “drastic action.” This was framed by graphics designed to closely emulate the look of a broadcast from a cable news channel. There was a headline at the bottom of the screen about debt counseling, with a ticker underneath that, the kind they normally use to give up-to-the-minute stock prices.

After the (out-of-context) presidential clip, it cut to a woman in front of a photo of either the White House or the Capital Building. She was dressed in a sharp suit like a news anchor, and was telling you to call now for information on debt elimination. The headline and ticker remained at the bottom of the screen. If you weren’t paying close attention, you might easily mistake it for a genuine news item. Naturally, the color scheme of the ad was red, white and blue.

Of course, it wasn’t real. Consider these facts:

  1. Real news broadcasts don’t tell you to call a toll-free number for information on debt counseling
  2. The government does not endorse any such service, nor did it create the advertisement
  3. The President did not create or approve the ad, nor does he endorse any such service
  4. Anyone can create a TV commercial using cheap graphics and public domain footage and, as long as they purchase the time, have it run on television
  5. Ads that run during daytime television are created under the assumption that you are jobless, directionless, desperate and not very intelligent. In other words, they’re insulting. Take them with a massive grain of salt.

I didn’t catch the name of the company, but I wish I had. I’d gladly post it here, along with their BBB rating and the advice to not use their services. If I catch the commercial again, I’ll make note of this information. If it is a legitimate, non-profit counseling service, they need to be told that their advertisements are misleading and unbecoming. If they’re not, they need to be called out on it and run out of business.

There are real, non-profit credit counseling services available for those who need them. REGIONAL has a relationship with Consumer Credit Counseling Service of Northwest Indiana. They’ve got an excellent BBB rating.

If you’re in a different area, start with the Better Business Bureau, and don’t use any service with anything less than an A rating.

The Internet is just crawling with these people

Just as an illustration of how careful you have to be when it comes to credit repair/credit counseling/etc. on the Internet, after I posted yesterday’s article I also updated the FPU Twitter feed. The update contained the words “credit repair,” because I was stating how many of them were scams.

This morning I had three new followers on Twitter.

Every one of them was from a credit repair scam business. The first one was obvious…every post contained the same URL, they were following a thousand people but had three followers. The second was from a place with a D- rating by the BBB. The third had a big, fat F.

Needless to say, I blocked all three. Then I found a few that I’d missed, hiding out in my list of followers. I’m not allowing these criminals (which is what they essentially are) to follow the FPU on Twitter.

They’re watching Twitter for the words “credit repair” and latching onto anyone who mentions it. Not on my watch.

I may start calling them out by name every couple weeks if it happens enough to annoy me. I’ll just post their Twitter names, their business names, and their ratings from the BBB. And a warning that the Fraud Prevention Unit recommends you do NOT contact these businesses.

If they are contacting you first, it’s a scam. Pure and simple. There are legitimate credit counselors in your area. Do the research if you need their services. You can’t afford not to.

Credit Repair Scams

They’re out there.

They’re waiting for you.

They say they want to help you. They say they can fix your less-than-perfect credit history.

What they really want is to rip you off.

Big time.

First off, it is important to know that there are legitimate agencies that can help you get your financial situation back on track. I’ll talk about some of those later.

However, there are also a lot of agencies looking to help themselves to your cash. Here are a few things to remember:

  1. You should never pay an upfront fee for any type of credit counseling service. This is a major warning sign that they are up to no good.
  2. They must (by law) provide you with a copy of your rights as a consumer. This tells you what you may and may not do in regards to your credit history. If they do not provide this information, it is another warning sign.
  3. If your credit history has accurate negative information, it’s there to stay for seven years (ten for bankruptcy). There is no legal way to have it removed. Are they offering to delete records of a credit card you actually defaulted on? Warning sign.
  4. If there are mistakes on your report, know that you can correct them yourself for free. If an agency is trying to keep you from contacting a credit bureau yourself, that’s…you guessed it: a warning sign.
  5. It is illegal to try to create a new Social Security number or Employer Identification number for the purpose of creating a clean credit file. It doesn’t work, and it can get you into far worse trouble (we’re talking about the kind of trouble that could involve handcuffs and mugshots).
  6. Check out any credit reporting agency with the Better Business Bureau before you even consider using their services.
  7. The minute they use the term “piggybacking,” walk away. It doesn’t work. Warning sign.
  8. There are advertisements everywhere for credit repair services—email messages, on the radio, even on television. I’m just going to throw this out there: ignore them all. Maybe some of them are legit, but many are not. Do your own research and make your own decision. A flashy commercial that makes big promises is a definite (say it with me) warning sign.
  9. Legitimate credit counseling agencies are non-profit organizations. Every single one of them.

So…now that you know how to avoid a scam, where can you go for legitimate credit couseling?

REGIONAL Federal Credit Union works with Consumer Credit Counseling Services of Northwest Indiana (http://www.cccsnwi.org/), a non-profit agency. REGIONAL partners with CCCSNWI because they’re trustworthy, and they do exactly what a credit counseling service should do.

You can also find information about legitimate services nationwide from the National Foundation for Credit Counseling (http://www.nfcc.org/). They don’t work with scammers.

As always, before you use any credit counseling service, check them out with the Better Business Bureau (http://www.bbb.org). If they’re not BBB accredited, and if they don’t have a pretty spotless record, look elsewhere.

Personally, I’d never use an agency that had anything less than an “A+” rating.