If your credit score has taken a dive in the past few years, you’ve probably been tempted to hire a credit repair organization to fix all your problems. They promise to get rid of damaging items, and replace them with only good credit. But is it legal to hire someone to give you a clean credit report? I’m going to share what’s OK and what’s a scam, and give you a few tips of my own — at no charge.
Q: Why is good credit important to prospective home buyers?
A: Now more than ever before, lenders are relying on your three-digit credit score to help them decide if you will qualify for a loan in the first place. If the answer to that questions is yes, then they use your score to determine what interest rate you will pay. On top of that, insurance companies are now setting your premium rate based partly on your credit score.
As a result, it is now critically important that a home shopper start the process by examining their credit report and score, and making sure they do everything possible to maximize their good credit.
Q: We’ve all seen the ads for “credit repair” that promise to fix your credit and boost your score. Do they really work?
A: Generally speaking, no. We all dream of paying a fee to “start over,” but if you have lots of damaging items on your credit report, those are bound to show up in your credit score. That’s reality.
Q: So, why do these so-called credit repair organizations still persist? Is there anything at all to them??
A: Well, potentially yes. If you have incorrect information associated with your credit history, things that do not belong to you and are incorrectly placed, then a CRO (for “credit repair organization”) can help you identify those and ask the Credit Reporting Agency to remove them from your record.
Q: OK, isn’t that worth the a fee?
A: Not in my opinion. And here’s why:
First, the costs for this type of service varies widely from a few dollars to several thousands of dollars. And it’s almost impossible to know in advance what you are getting.
And secondly, the correction of errors on your credit report is something you can do for yourself at no expense.
You can easily get a copy of all three of your credit reports for free once a year from AnnualCreditReport.com , and you can easily file a protest on any item for which you are not responsible.
Q: Are there really that many wrong entries on our credit reports?
A: According to Forbes magazine, a full 70 percent of credit reports contain errors worth correcting. So yes, it’s certainly worth looking, especially if it’s free, and it is. Sure, you can pay someone to do this for you, but why bother?
Q: I’ve seen credit repair offers that promise to improve your score by over 130 points in 30 days. How can they do that?
A: Here is a gimmick used by many of the repair firms:
Most people don’t know that if you challenge an item in writing, the credit reporting agency has 30 days to respond, or they are required to remove the item.
Some CROs will send in a couple dozen separate written requests daily for four days in a row to see if the repository responds to each and every every one individually. If they don’t, the item must come off.
Q: Is that ethical?
A: Well, let’s just say that’s the way the rules are currently written.
Instead of throwing your money away on a credit repair organization, here’s my advice in three steps:.
1. Sign up at CreditKarma.com. It’s now totally free and you can check your credit report once a week, so you can find and report errors on an ongoing basis. They don’t even ask for your credit card. In addition, you can check your credit score for free also once a week, so you can monitor your progress.
2. Try to get caught up on any late payments you may be making now. Remember that every month you are late makes the situation worse.
3. Finally, if your credit situation seems hopeless, or is getting worse, get counseling for free from Consumer Credit Counseling Service. They just changed their name to ClearPoint, but the phone number is the same: 1-800-251-CCCS (2227). And their new website is ClearPointCCS.org.
The bottom line: My advice is to steer clear of so-called credit repair companies and fix your credit yourself.
Atlanta native John Adams is a veteran real estate broker, investor, and author. He answers real estate questions every Sunday at 3 p.m. on WGKA-AM (920). He welcomes your comments and questions at Money99.com, where you will find an expanded video version of this column.