You've made such a fine mess of your credit, it's now officially a nightmare. Then you see that ad on television with all the promises to make your credit squeaky clean again -- find the remote!
Before you pick up the phone, you should know that you're better off going it alone than using the services of a credit repair firm.
"There is no tooth fairy, no magic cream that can remove fat while you eat all you want, no fountain of youth -- and there is no company that clears a bad credit report for you. Companies that claim they can 'erase' your bad credit have as their sole objective erasing money from your bank account. They are making false claims," warns Steve Bucci, debt adviser for Bankrate.com. "Legitimate credit repair companies are few and far between."
Quite frankly, "There's nothing they can do that you can't do yourself," adds Ken McEldowney, executive director of Consumer Action, a nonprofit organization.
Sure, there are some credit repair good guys, but there are plenty out there that are straight-up shady. How to know the difference?
"Credit repair companies cannot require you to pay up front before they provide services. They also should not be recommending that you avoid direct contact with a credit reporting agency, or that you create a new credit identity -- this is an illegal practice called file segregation. Agree to this and you're a partner in fraud," explains Thomas Fox, community outreach director for the nonprofit Cambridge Credit Counseling.
They also shouldn't ask you to dispute accurate information in your credit report. Be wary, too, of a contract that doesn't specify payment terms for services, total cost, a description of services to be performed, or an estimate of how long it will take to achieve results, says Fox.
Some of these companies try to "clean" your record by intentionally confusing the credit reporting agency's computer files, leading to more problems than you started with. If a company tells you that it can remove truthful but adverse information, hold onto your wallet, says Kelsey Owen, marketing coordinator for the Council of Better Business Bureaus.
Seek Out A Nonprofit For Help
It's not like there is nowhere to turn for help if you don't want to do the clean up yourself. You can contact a nonprofit credit counseling agency and speak to a certified counselor. "Counselors will be able to instruct you on the legitimate ways to dispute inaccurate or outdated information in your credit report," says Fox.
A good company will answer all your questions and explain your rights. If information in your report can't be verified, it must be removed from your credit report, says Ken Olin, CEO of CreditKarma.com. These companies can negotiate with your creditors to change the way some negative items are listed on your report, which can affect your credit score differently.
Do It Yourself
You can do what a credit repair firm can, for free -- if you're willing to do the work. "Save yourself the fees, hundreds, sometimes thousands of dollars that you pay the company," says Bucci.
You can send a 100-word statement to the credit agencies, explaining your delinquencies and disputing any inaccurate information, and continue to pay your bills on time. "There's no reason to pay someone to do these things for you," says Kim McGrigg, spokesperson for Money Management International, a nonprofit credit counseling agency.
Know that accurate information cannot legally be removed from your credit report. Once you file your dispute, either in writing or online with the credit bureaus -- TransUnion, Equifax and Experian -- they have 30 days to respond, either with proof that the item is legitimate or that it will be removed, says Bucci. You are entitled to a free credit report every 12 months from each of the three reporting companies. You can get one at annualcreditreport.com. You can also get your credit score for free at CreditKarma.com.
You'll also help your situation by paying off old bills. "A debt paid in full is better than one still owed. Pay down debt to below 30 percent of your credit line. Don't take on any new debt until existing debt obligations are satisfied," says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling.
Be patient. Your credit chaos likely didn't accrue overnight, so don't expect to fix it so quickly either.