So your credit is in the toilet. You’ve seen a trendy
haired guy blazing his guitar in commercials for freecreditreport.com, and you are
wondering what you can really do to fix the mess. Before you don a pirate
outfit like the guy in the commercial, the short answer, that will allow you to
avoid the rest of this article, is to start paying your bills on time. If
you took someone’s money, in the form of credit, and you pay it back on time,
then your credit report should be fine.
Since you are still
reading, however, you probably don’t want to pay some of the bills on your credit
report. When big banks and auto companies don’t want to pay their bills,
they employ expensive lobbyists and ask Congress to give them a bailout. If you can afford to pay the best lobbyists in the country, and would rather
pay lobbyists than your bills, stop reading this article and call a few lobbyists
to see if they can pull some strings and get you bailed out.
Still reading? So you don’t want
to pay those bills on your credit report and you know you can’t afford bank
lobbyists to get a bailout. Instead you need to know how
to "clean up" your credit report. By "clean-up,"
you may mean "make bad information go away, even if it is
true." If so, you can stop reading now. There is
no sympathetic “do-over” button or eraser technique hiding within the
consumer reporting agencies. A credit report is something creditors reviewto make sure that applicants who want credit are actually people who pay
their prior bills. The "do-over" or eraser you seek would
eliminate the entire reason for having a credit bureau in the first
place.
If you have not paid a bill, it will sit on your credit report for
years. Plus, your creditors may sue you and try to garnish your
wages. The best bet here is to try to make payment arrangements with the
people who gave you money, or the unpleasant folks who are “collecting” on your account.
Maybe you always pay your bills on time, but thieves stole your
identity and then failed to pay the bills they incurred under your name. This is a legitimate problem, and you can find help from the Federal Trade
Commission (“FTC”), including a sample
letter to send to the credit bureaus.
If you continue to read this post, then
you probably are not a victim of identity theft, and you’ve ignored my warning
that there is no magic button within the credit bureaus to wipe off your
payment blemishes. This means you may be thinking about hiring one of
these “credit repair organizations.” You may be wondering whether they
are "legal" (people love to ask lawyers whether something
is "legal") and whether credit repair organizations can
help in the first place.
The federal Credit
Repair Organizations Act governs credit repair organizations. Under that
law, Congress attempted to “reign in” the practices of certain “credit repair
organizations” who claimed they could improve your credit or provide
advice on improving your credit. At this point, as a lawyer, I feel
compelled to clarify that reading this article will not improve your
credit. This article is not even providing advice on improving your
credit. Please don’t sue the messenger. If you do, the partners at
my law firm will make me stop blogging.
So can a credit repair organization
help you improve your credit? Congress passed that law, because your
elected officials decided that some credit repair organizations actually
imposed “a financial hardship upon consumers, particularly those of limited
economic means and who are inexperienced in credit matters.” So, if their
opinion matters to you at all, please take notice of the fact that your
esteemed elected officials were worried that these credit
repair organizations were going to hurt you. Congress wanted to
protect you from perceived unfair treatment. If you don’t feel downright
coddled by our warm and fuzzy legislative branch at this point, just wait until
you read how they decided to help protect you from your own decisions.
How did Congress decide to help you? Paperwork, of course. They
mandated more disclosures. In case the world of consumer credit didn’t
involve enough disclosures, they bombarded you with more to read. (CAVEAT
1: I get paid to draft consumer credit disclosures. I can feed my family
because I spend the bulk of my day writing disclosures based on these types of
laws). (CAVEAT 2: Sometimes I dream entirely in fine print.)
On top of mandating certain
disclosures, Congress prohibited credit repair organizations from lying,
prohibited them from helping you lie to the credit bureaus, and prohibited them
from getting paid in advance. That's right: They can’t charge you until
they are done serving you. Those are the extent of your
protections.
Really folks, this particular law does very little to
protect you. Even without this law, almost no one in the marketplace
(other than politicians) can lawfully mislead you or take your money before
giving you the services they promise. The one helpful part of the entire
law is that it requires credit repair organizations to disclose your right
to communicate with credit bureaus on your own. If something on your
credit report is wrong, you can tell the credit bureaus to fix it, directly,
for free. Here is a helpful link from the FTC on this topic: How to Dispute Credit Errors. Soon, a new federal
regulation will also help consumers dispute errors on their credit reports,
directly with their creditors, rather than with the credit bureaus.
So can these groups help you?
Probably not much more than you can help yourself. According to
Congress, if you hire a bad credit repair organization, they may even impose a
financial hardship. If you have already hired a credit repair
organization and you are unhappy, contact a lawyer, other than the author of
this article. That lawyer may be able to advise you of your rights.
Also, consider contacting the FTC. The FTC recently settled charges against a credit repair
organization and its principals after alleging that they collected fees in
advance and failed to keep their promises to improve credit.
Justin B. Hosie – Justin Hosie is a member of Chambliss, Bahner & Stophel, P.C.’sConsumer Finance Group, focusing his practice on consumer financial
services, the Federal Electronic Signatures Act, Truth in Lending Act,
Equal Credit Opportunity Act, and Electronic Funds Transfer Act, as
well as state regulatory compliance.
This article is
intended to be informational and does not provide legal advice nor create an
attorney-client relationship. Laws are constantly changing, and each federal
law, state law, and regulation should be checked by legal counsel for the most
current version and before acting on this information. Certification as a
Specialist in Consumer Finance Law by the Tennessee Commission on Continuing Legal Education and Specialization is not currently available. None of the attorneys listed in this communication are certified in any area of specialization.
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Justin – Loved your post and especially your quote: “Sometimes I dream entirely in fine print”
I’d also point out that there is a detailed section at Credit.com that deals with how to handle credit report disputes, how long information can be reported etc.
http://www.credit.com/products/credit_reports/tips.jsp
And our colleague John Ulzheimer, who worked for both Equifax and FICO, has written a great book on credit reports and scores as well. The title is You’re Nothing But a Number and it is available on Amazon.