The credit repair industry preys upon consumers desire for better credit. Last year, the industry had revenues of approximately $4.4 billion. This is up from $3 billion in 2019. A credit repair company is a third-party service that will typically charge a monthly fee to contact the credit reporting bureaus on your behalf to attempt to remove inaccurate or negative information. The goal of the service is to improve your credit score over time. Errors on your credit reports may result in lower credit scores which will impact your ability to obtain loans or open new credit accounts.
In low-income communities, delinquency rates on credit cards, auto loans and mortgages are approximately twice the average. All of these delinquencies will lower credit scores. It is these communities that are often targeted by the credit repair industry, and they can least afford to pay the high fees charged by credit repair companies. If you have negative information listed on your credit report that is factually correct, for example, you have stopped making payments on a credit card, there is nothing you can do legally to remove it quickly. Such negative information will typically remain on your credit report for at least seven years.
The Consumer Financial Protection Bureau (CFPB) warns that you should beware of anyone who claims that they can remove accurate negative information from your credit report. This cannot be done legally. However, there are “credit washing” frauds perpetrated by the credit repair industry, in which false claims of identity theft are lodged with the police or Federal Trade Commission (FTC). Then, often without the knowledge of their clients, they will submit those police reports as documentation with dispute letters to produce deletions from credit reports. Any such deletions are only temporary, as accurate information will find its way back onto your credit report.
The CFPB has sued credit repair companies, including Lexington Law and CreditRepair.com. They allege that the companies illegally charged customers an upfront fee for credit repair services in violation of the federal Telemarketing Sales Rule which prohibits companies charging fees for credit repair services until they document their promised results. The companies used misleading methods, by paying an affiliate to advertise nonexistent home loans with little to no down payment. Consumers who responded to the ad were then required to enroll in credit repair services, even though the loans were non-existent.
The FTC has also targeted the credit repair industry for violating federal law. Turbo Solutions Inc., which does business as Alex Miller Credit Repair, was sued by the FTC for illegally demanding that consumers pay a $1,500 fee up front for credit repair. The company would then file false reports, usually without the customers’ knowledge, claiming that negative items on consumers’ credit reports were a result of identity theft. Those reports used the FTC’s own identitytheft.gov website.
The FTC also sued Financial Education Services (FES), and five related companies, for bilking consumers out of more than $213 million. The FTC alleged that FES used social media, telemarketing, and a nationwide network of sales agents to promote its deceptive credit repair services. To remove negative information, FES would send clients non-editable form letters to print, sign, and send to credit bureaus. These letters would challenge all, or most, negative items on a consumer’s credit reports. However, the challenges had no supporting documents and would rarely result in any removal of the negative items. The complaint also alleged that FES charged clients an illegal $99 upfront fee for its services, as well as recurring fees as high as $89 per month.
As you can see, there are many companies out there that claim they can repair your credit report and get you a high credit score quickly when they are really just taking advantage of a consumer’s desire for better credit. Here are some signs that a credit repair company is a scam:
- The company promises to remove negative information from your credit report. Accurate negative information cannot be removed from a credit report. Most negative information will generally stay on a credit report for seven years. If, for some reason, accurate information is removed, it will reappear when reported.
- The company requires an upfront fee before any credit repair services are performed. Credit repair companies are regulated by federal law and cannot require you to pay until they have completed the services promised.
- The company offers to create a new “credit identity” for you by using another business tax ID number or alternate Social Security number. Using a Social Security number or business tax ID under false pretense is illegal. If this happens to you, please file a complaint with the FTC or CFPB.
The fact is that the services offered by a reputable credit repair company can be done by you for little cost. Credit repair services can cost as much as $150 per month. You can do the same thing for the cost of a few stamps. You can request a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion) every 12 months from the following website: https://www.annualcreditreport.com/index.action. it is often suggested you should stagger the requests by requesting a different report every four months. If you identify an error on one of your credit reports, you should take steps to immediately correct the inaccuracy by disputing the item.
Some common errors on credit reports include the following:
- Identity-related errors such as a misspelled name, incorrect phone number or address, or someone else’s information incorrectly merged with yours,
- Inaccurate account balance or credit limit errors,
- Incorrectly reported accounts, such as a closed account reported as open or an account wrongly reported as delinquent,
- The reinsertion of inaccurate information after it has been corrected.
Here is the process that you can take to contact the credit bureaus yourself to remove inaccurate derogatory items from your credit. Once you have identified an error on one of your credit reports, you should contact the three major credit bureaus: Equifax, Experian, and TransUnion. While this can often be done online, we recommend doing this by certified mail, so that there is documentary evidence of your efforts.
Write a letter to each credit Bureau and explain what the error is and why it is inaccurate. You can find sample letters to dispute credit report information on the CFPB website here: https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/sample-letters-dispute-credit-report-information/
Include any supporting documentation that will help the bureaus correct the error, such as a copy of an email that verifies the status of an account that is being reported incorrectly. You may also want to contact the company that provided the incorrect information to the credit bureau. You can find the address to contact the company on your credit report. Here are the addresses of the credit bureaus where you can submit a dispute by mail:
PO Box 740256
Atlanta, GA 30348
Consumer Dispute Center
PO Box 2000
Chester, PA 19016
PO Box 4500
Allen, TX 75013
The party receiving the dispute generally has 30 days to perform an investigation and verify the relevant information. If the credit bureau decides that your dispute is frivolous, it will not investigate the matter any further, however, it still must communicate to you, within five days, regarding the reasoning for deeming the dispute frivolous. If your initial dispute was labeled frivolous, you can always resubmit a dispute with updated supporting information.
The credit bureaus must provide you with the results of their investigations in writing, as well as provide a free copy of your credit report if your dispute results in a change to that report. The credit bureaus must also provide you with the name, address and phone number of the company that reported the incorrect information. Even if the company insists that the disputed information is accurate, you can still request that the credit bureau include a statement in your credit file regarding the dispute.
It may take some time for updates to appear on your affected credit reports. If the update does not appear on your credit reports within several months, you should contact the credit bureaus, as well as the company at issue to verify the correct reporting of your account information to the bureaus. If your credit report has inaccurate negative information on it which is detrimentally affecting your credit score, and the credit bureaus refuse to remove it, you may be entitled to damages under the Fair Credit Reporting Act (FCRA). Plaintiffs in these FCRA cases may receive damages typically ranging from $100 to $1,000 per item plus attorney’s fees for a willful violation of the law. In addition, the Court will determine if punitive damages are warranted for such violation.
Removing inaccuracies from your credit report is a good way to boost your credit score, however, the best way to improve your credit score is to pay your bills on time and to keep your credit balances low, relative to the amount of your credit limit. Additionally, a long credit history will help your score. Credit scores are based on your use of credit and payment history over time.
Contact the Law Offices of David I Pankin, PC
If you are struggling with debt, you may need a financial fresh start through bankruptcy. On average, our clients see an increase of 100 to 150 points in their credit score one year after bankruptcy. We can provide you with a free consultation regarding your debt to see if bankruptcy is right for you. We have seen numerous clients scammed by credit repair companies over the years. If you want advice on your credit, speak with an attorney who has over 25 years of experience helping debtors become debt-free.