Fraudulent credit repair companies can make matters worse for your clients
By Douglas Muir
The current credit crisis is hitting close to home. Foreclosures are on the rise and people face tough times when their adjustable-rate mortgages keep climbing. Real estate professionals feel the crunch and know that it’s a buyer’s paradise. However, Americans looking for financing are running into a very restricted loan market.
That’s why having a good credit score is important. The United States has three major credit reporting agencies – Equifax (EFX), TransUnion (TU) and Experian (XPN). These bureaus collect and collate individuals’ personal financial data to determine a person’s credit risk. Each agency has its own way of determining a credit score, but the most common score used by lenders is the FICO score, named after the Fair Isaac Corporation.
For years, mortgage brokers and banks have relied on the FICO score to determine a person’s creditworthiness or the likelihood that that person will pay his or her debts. This score is a statistical representation of a credit report and determines financing qualifications.
A few points on a credit score can be the difference between a good rating and an excellent rating, and a superior rating translates into smaller monthly payments with better long-term interest rates.
It’s obvious that a person needs to get the best possible credit score to reap the many benefits of good credit. However, many people don’t realize that most credit reports contain inaccurate information.
The Massachusetts Public Interest Research Group did a study in 2004 of the three major credit bureaus and found that 79 percent of American credit reports contain incorrect information. It also reported that one in four credit reports were so inaccurate that they were actually turned down for financing.
When real estate professionals have clients with less than perfect credit, it is difficult to help them get the financing they need. This is where a trustworthy credit repair company can be of assistance. Reputable repair businesses help consumers contest inaccurate information by following the guidelines laid out in the Fair Credit Reporting Act. This federal law requires that the three credit bureaus make reasonable efforts to ensure the information contained in a person’s credit report is accurate. That means any individual can contest information and clean up his credit history by himself.
However, this isn’t as easy as it sounds. The credit bureaus have made the dispute process tedious and time consuming. An individual must follow up relentlessly, and must do so in a timely matter. A reputable credit repair company can handle all the frustrating aspects of disputing items.
So why aren’t more people encouraging their clients to take advantage of these credit repair businesses? Over the years, the harmful actions of a few companies have given the credit repair industry a bad reputation. Some companies make it a practice of charging exorbitant fees and delivering few results.
Most Internet repair companies charge clients $79.95 a month without a specific end date. Therefore, it is in the company’s interest to extend the credit repair process. This ends up costing your client a lot of money and could take months and months to complete.
Additionally, according to an opinion letter written by the Federal Trade Commission, any third party sending out dispute letters on behalf of a client can be considered frivolous and therefore discarded by the credit bureaus. So any letter sent out on an individual’s behalf can just be ignored. Therefore, attempts by Internet companies will most likely not be successful.
But there are good credit repair companies that can help consumers fight negative information in a timely and direct manner. Your clients should look for companies that are open and transparent about the credit repair process. These businesses should provide a clear-cut timeline for the credit repair process, generally between 60 and 120 days.
Your clients should also look for a company that will offer a money-back guarantee. This can indicate that the credit repair company truly is focused on helping your client.
Find a company that provides a detailed process for disputing the negative items. The repair company should have your clients review and sign each letter to ensure that the credit bureaus take the dispute seriously.
Another feature of a good credit repair company is that it offers more than just bureau verifications. A reputable company will also give clients additional services, such as negotiation of collections and other debt, as well as identity theft monitoring and clean up. The best repair companies will also have an attorney on staff to understand the complexities of the credit laws and to oversee individual disputes.
Just a little bit of investigation could stop your clients from making the wrong choice when deciding which credit repair company to use. Keep the aforementioned guidelines in mind when seeking out a credit repair company for your clients.
Conversely, watch out for the following warning signs when researching repair services.
Ten Warning Signs of a Fraudulent Credit Repair Company
1. Collects money up front before the work is completed. This is illegal under the Credit Repair Organization Act (CROA). Agents should beware of companies requiring any investments before the work is completed.
2. Charges a monthly fee without a specific completion deadline. Some of these companies are paid monthly, so there is no incentive for them to expedite the repair process.
3. Refuses to show dispute letters sent out on their behalf. Transparency is incredibly important to the repair process, and your client has the right to see any letters sent on his or her behalf.
4. Makes guarantees that an individual’s credit score will increase by a numerical amount or that a negative trade line will be removed. No one should make any guarantees. If a company pledges that a score will increase by a specific number or that a negative item will be removed, then the consumer should be wary. Companies that make these promises are breaking the law.
5. Suggests that your client shouldn’t contact the credit bureaus directly. If a repair company doesn’t want your client contacting the bureaus, then it may not be sending any dispute letters out.
6. Doesn’t inform consumers that they can repair their credit on their own. Anyone can repair their own credit, but it takes diligence and time. The dispute process usually requires three rounds of letters per unwarranted trade line to each credit bureau. That’s nine letters for every inaccurate or negative trade line, and that can require a lot of time.
7. Encourages your clients to falsify or dispute information about legitimate claims. If a company asks a person to falsify the information, then that individual needs to run. These companies may also offer a fake credit account to increase a person’s credit score. Then they report this fake line of credit to the bureaus hoping that it will enhance their customer’s score.
8. Doesn’t inform your clients of their legal rights and the laws that protect them. A good credit repair company will inform your client about all of his or her legal rights under the FCRA. If the repair company doesn’t offer this information, then the consumer should ask for it.
9. Recommends that a person create a “new” credit identity. You can’t create a new identity. Some unscrupulous companies will use illegal ways to get you a new social security number, but this practice is unethical.
10. Offers a “piggyback” to help with clients’ credit scores. Piggybacking occurs when an individual becomes an authorized user on the credit-card account of another person with excellent credit. Over the period of a few months, the unknowing consumer has his or her score used to increase the piggybacker’s rating.
Using a reputable credit repair company can truly enhance your buyers’ credit scores. Beware of the 10 warning signs above, and look for a company that is transparent. Have your client’s credit score cleaned up before the financing process begins, and you’ll reap a happy and loyal customer.
Douglas Muir is the founder and CEO of Credit Justice Services (CJS), which has helped thousands of consumers improve their credit since 2004. Muir speaks nationally to mortgage, real estate and finance professionals about how to increase their clients’ credit scores. Muir also co-founded the National Association of Credit Repair Organizations. visit creditjusticeservices.com, e-mail firstname.lastname@example.org or call 866.380.0067.
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