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Credit repair is a general term often applied to the controversial practice of improving or rehabilitating one's financial reputation (creditworthiness) among creditors.

To improve a credit rating damaged by poor credit habits, in the long run only one thing will work: changing those habits.

Making arrangements with the creditors to repay them is often one of the steps in improving one's credit habits. Creditors may accept slow payment schedules, as an alternative to writing off the debt. In some cases, creditors may accept a less-than-full repayment (pennies on the dollar). The key here is contact with the creditor and taking action to retire the debt.

At the same time, reviving an old debt that is no longer collectible can actually do additional damage to one's credit reputation. It is best to be aware of the circumstances regarding the debt's collectability, statute of limitations, and legal and illegal collection practices, before contacting a creditor on a very old debt.

In December 2003, Congress passed the Fair and Accurate Credit Transactions Act (FACT Act), which included the right to a free annual credit report on request and a number of provisions designed to improve the accuracy of credit reports.

On June 4, the Federal Trade Commission finalized its rule for implementing the new consumer right to a free credit report, rolling it out over a nine-month period, beginning on the west coast in December 2004 and finishing on the east coast in September 2005.

From 1994 to 2004, the state PIRGs and other consumer organizations have issued numerous reports showing that sloppy credit agency practices are at fault for errors in consumer credit reports.

Inaccurate credit reports could damage 1 in 4 consumer's ability to buy a home, rent an apartment, obtain credit, open a bank account, or even get a job.

U.S. PIRG collected 200 surveys from adults in 30 states who reviewed their credit reports for accuracy. Key findings include:

- Twenty-five percent (25%) of the credit reports contained errors serious enough to result in the denial of credit;

- Seventy-nine percent (79%) of the credit reports contained mistakes of some kind;

- Fifty-four percent (54%) of the credit reports contained personal demographic identifying information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect;

- Thirty percent (30%) of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.[1]

It is possible, for example, that a bad debt of a previous tenant could be associated with a current tenant, merely because of the common address.

A credit repair campaign is most likely to show results if creditworthiness has been damaged due to incorrect or misleading information in a credit report.

In summary, such a credit repair campaign involves obtaining copies of one's credit reports and formally disputing erroneous or misleading information there found.

The process in many countries (including the United States) can be quite complex and time consuming, thus spawning the credit repair industry. Both for-profit and not-for-profit organizations have formed to assist individuals in the credit repair process, always for a fee, though governments have repeatedly increased oversight and regulation of this industry because of predatory practices.

Under the Credit Repair Organization Act (CROA), you are prohibited from pre-charging for the services of credit repair unless you are a 501 C-3 non-profit Credit Education and Repair Company. [2]

In addition, much self-help information on credit repair has become available, providing the motivated individual the tools and knowledge to proceed with their own credit repair campaign. Just as an organization hired for this purpose, the individual would initiate the credit repair process by first obtaining copies of their credit report, reviewing the credit report for errors, omissions, and misleading information, and requesting corrections to such information by means of a formal dispute.

Dispute

To dispute an entry in your credit report because it contains erroneous, misleading, or outdated information, as provided by federal law, simply write a letter to the credit reporting agency. As an example:

Your Name
123 Your Street Address
Your City, ST 01234


Big Credit Bureau
Their Street Address
Some City, ST 56789


2/10/1999


Dear Credit Bureau,

This letter is a formal complaint that you are reporting inaccurate and incomplete credit information.

I am distressed that you have included the below information in my credit profile and have failed to maintain reasonable procedures in your operations to assure maximum possible accuracy in the credit reports you publish.

Credit reporting laws ensure that bureaus report only 100% accurate credit information. Every step must be taken to assure the information reported is completely accurate and correct.

The following information therefore needs to be re-investigated. I respectfully request to be provided proof of this alleged item, specifically the contract, note or other instrument bearing my signature. Failing that, the item must be deleted from the report as soon as possible:

CREDITOR AGENCY, acct. 123-34567-ABC

The listed item is completely inaccurate and incomplete, and is a very serious error in reporting. Please delete this misleading information, and supply a corrected credit profile to all creditors who have received a copy within the last 6 months, or the last 2 years for employment purposes.

Additionally, please provide the name, address, and telephone number of each credit grantor or other subscriber.

Under federal law, you have 30 days to complete your re- investigation. Be advised that the description of the procedure used to determine the accuracy and completeness of the information is hereby requested as well, to be provided within 15 days of the completion of your re-investigation.

Sincerely,

your signature

Your Name
SSN# 123-45-6789

Fraud

Many companies offer fraudulent schemes for personal credit repair, offering to wipe out legitimate records and give a person a "clean slate". In many cases, these are either fraudulent scams or schemes which may cause a person attempting to use them to violate more serious laws. It is very important to note that this is not only the case.

Such schemes are primarily identified by unrealistic promises, such as the following:

  • We want you to pre-pay even though we are not a bank or a non-profit as defined in CROA.
  • We will erase bankruptcies from your record.
  • We can erase tax liens from your record.
  • We can issue you a new Social Security number.
  • We can clean up your credit in [any amount of time less than a 30-120 days].

Additionally, if you do sign up for a credit restoration/repair service, you should look ask them the following important questions:

  • Is their company authorized by CROA, as a bank or non-profit to pre-charge for credit repair? Even an attorney cannot pre-charge for credit repair.
  • Is there a monthly fee? If so, then there is no incentive for them to quickly and efficiently clean your file.
  • Is there a lawyer or a legal department on staff? If not they are unable to deal with issues like tax liens, wage garnishments, and bankruptcies to the fullest extent.
  • Is the name "credit counseling" in the name? Credit counseling firms are simply tools of the banks and creditors, and leave your credit report in worse shape than when you started.
  • Is the company involved in "debt consolidation" at all? Debt consolidation is worse than a bankruptcy for your credit report.

Legitimate approaches which may correct erroneous, misleading, or outdated entries on a credit file, negotiate with creditors, and teach better debt habits, take months if not years to accomplish significant results.

See also

Federal Trade Commission

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