The truth about repairing your credit

Black Enterprise, Oct, 1995 by Joyce Harris Jones

A 1992 POSTING ON THE INTERNET CAUGHT THE eye of Maryland resident Ronald Thomas. The ad offered to clean up Thomas's bad credit record and restore it to good health. Thomas felt frustrated and desperate. The bills and the creditors were starting to annoy him. He needed breathing room, particularly now that he was a new father.

In 1990, he had been a little lavish trying to impress his girlfriend--now his wife--by buying $800 worth of jewelry and borrowing $500 from a bank to pay off the amount he owed to two jewelry stores. On top of that, he quit a job in February 1991, thinking he would find something better. He was out of work for 16 months. By the end of that period, his debts added up to $3,650, including interest, late fees and lawyer fees.

"The ad hit me at the right point," Thomas, 25, recalls. "It was a point of frustration, where I felt, 'If I could just pay off the creditors I'd be okay.'" The credit repair company asked for $125 up front. Thomas thought it sounded fishy and decided against it.

If it sounds suspicious, more than likely it is, says David Medine, associate director of credit practices for the Federal Trade Commission.

At a time when we have moved from being a cash-dependent society to a credit-dependent one, and pre-approved credit offers bombard consumers, unscrupulous businesses are flourishing as they prey on people who have succumbed to credit dependency, found themselves in a sea of debt and lack the wherewithal to get out. The potential for these businesses is great. A 1994 survey by the National Foundation for Consumer Credit found that nearly 18 million U.S. households need some form of help in dealing with their debts.

While many agencies that offer credit or debt counseling are legitimate, many that offer to repair credit and change credit histories are operating illegally, Medine says. "There is nothing wrong with providing assistance to consumers with debt problems," says Medine. "The problem with credit repair is that some of these companies make promises on things they can't deliver."

Credit repair scams have become such a thorn in the sides of state law enforcement agencies and the credit industry that last November state attorneys general, creditors, representatives of the three major credit reporting agencies, public interest groups and members of the FTC held a summit in Washington to explore ways to handle the growing problem.

At that time, the FTC announced that it had reached a settlement with Chase Consulting that included a permanent injunction prohibiting it from deceptive practices that violate the Federal Trade Commission Act. The FTC accused the Sacramento, Calif-based company of using America On Line to offer credit repair services and to provide new identities to consumers, Medine says. The company is one of a dozen such businesses the FTC has taken legal action against.

Dave Mooney, spokesman for Equifax Inc., one of the three major credit reporting bureaus, says the alleged illegal businesses, whose bold, boastful ads imply that they can make the most tarnished credit record spotless, are easy to recognize. Many are located in one state and operate in others. The ones that operate in the same state in which they offer their services frequently change the name, location and phone number of their operations. In a Washington and suburban Maryland 1994-95 phone book, eight of the 27 businesses listed under credit and debt counseling have disconnected phone lines.

The methods of operation are common, and some are not illegal, just annoying to creditors. Some of the unscrupulous credit repair companies will ask for up-front fees, charging from $100 to $1,500 for their services. Then, they bombard the credit reporting agencies with letters disputing everything on the consumer's credit report, whether the information is true of false. These services operate under the premise that they can wear out the agency with letters on every item and get each item removed.

Credit reporting bureaus are required to respond within 30 days to disputes in a credit report. The investigation must be completed within those 30 days, or the item in question must be removed. If found accurate, the information will be replaced at a later date, however. Equifax and other credit bureaus can now e-mail items to creditors to verify information being disputed. Before, file review requests were made by mail. The instantaneous response reduces the likelihood that the items in question will have to be removed.

No matter what credit repair clinics says, accurate information cannot be removed, whether it's a loan default, a bankruptcy or a host of overdue payments. Overdue payments can stay on the record for seven years, bankruptcies for 10 years. As for false information, credit bureaus are far from infalliable and frequently mix files.

Medine says that FTC received complaints about 5,000 to 8,000 mixed files in 1991 and 1992. Of course, many incorrect files go unnoticed. The credit bureaus argue that they maintain files on 180 million Americans, and make 2 billion updates on those files every month. "It would be foolish to say that all are correct," says Norm Magnuson, a spokesman for the Associated Credit Bureaus, a group that represents the nation's 800 credit reposting agencies. But, Magnuson claims, the report that 20% of credit files contain errors is incorrect. "Any error in a credit file concerns us," he says. "The only value [a file] has is the integrity of the information. The errouneous report that the errors are rampant and furious is just not so."