All across the country I have heard stories like Joanna Fridinger, owner of a limo company in Baltimore, who had the credit limit on her American Express card cut to $1,400 from $19,500 after getting just a single late fee on another credit card.

You’ve probably seen headlines like…

‘2009: The Coming Meltdown. Part Four: Consumer Credit’ ~ Bankruptcy law network

‘U.S. Consumer Credit Card Debt May Crash Economy’ ~ Fox News

‘Credit card hike fright: Banks raising rates, even if you’ve paid on time’ ~ Daily News

‘Some Credit Card Companies Profiling Customers’ ~ ABC News

‘Consumers’ Credit Card Limits Slashed as Companies Try to Reduce Risk’ ~ the Washington Post

With all this circulating the media it’s easy for some people to be influenced to believe that there is no hope and no way to get back on track.

In my opinion that’s a bunch of hogwash and stinking thinking that does nothing but perpetuate negative results.

There is no challenge that you can’t overcome!

When it comes to personal credit challenges there are several alternative solutions that each and every individual should consider.

In this particular post I am going to cover one of the many viable solutions for individuals undergoing personal credit challenges.

First, let me say that this is my personal opinion and after working with thousands of consumers on personal credit issues over 18 years one of the most commonly asked questions I hear is ‘ How can I get my personal credit restored?’

Before I get into this highly misunderstood service called ‘credit restoration’ or ‘credit repair’ let me be the first to tell you that if you are an entrepreneur or small business owner that has experienced personal credit issues don’t be alarmed when it comes to obtaining business financing.

One of the major benefits for entrepreneurs and small business owners is the ability to build a business credit profile separate from your personal credit profile.

Be sure to read ‘The Eight Steps to Building Business Credit’

This post is intended to fully educate you on answering two main questions:

Is Personal Credit Restoration Legal?

Are Credit Restoration Companies Legal?

Let’s get started shall we?

Personal credit restoration

The Federal Trade Commission which is a federal agency created to investigate and eliminate unfair and deceptive trade practices in business, initiated a specific body of legislation which was put in place to regulate the credit reporting agencies and protect YOU the consumer from unfair credit reporting. This legislation is called the Fair Credit Reporting Act.

Take a look at the FCRA

Now look at section 611 of the FCRA which outlines the procedures in case of disputed accuracy on your credit reports. The FCRA empowers YOU the consumer the right to dispute and verify the accuracy of questionable items on your personal credit reports.

So, this means you can in fact repair your own credit in accordance with the Fair Credit Reporting Act.

But here’ the catch!

The underlying problem for the consumer is that this is a self policing law. It’s completely up to you the consumer to police your own personal credit reports. It’s up to you to find any errors and it’s up to you to monitor any and all activity on your personal credit files with all three main credit reporting agencies.

In the justice system you are innocent until proven guilty but in the credit reporting system you are guilty until you proof yourself innocent.

If you haven’t seen your personal credit reports recently keep in mind that you are entitled to one free credit report per year which can be accessed at http://www.annualcreditreport.com

Now don’t worry this won’t count as an inquiry when you order your free annual reports.

Credit Restoration Companies

 
Despite the massive efforts of the credit reporting agencies (which are privately held companies) to convince you otherwise, there are many credit restoration companies that are no different than most other services. Like all industries, less-than-honest companies do exist and are damaging to their clients and to the credit restoration industry as a whole.

For example, you may have 20 car mechanics in your hometown. Most likely, 17-18 of these mechanics are honest, hardworking people who want to earn a living and give you the best service possible. The other 2 or 3 mechanics may not be so honest and will take your money while not giving you the quality or quantity of service you pay for… or, they may be out-and-out crooks who take your money and lie to you.

This doesn’t mean that your town is a bad place to get your car fixed; it just means that, like any industry anywhere, there are good companies, mediocre companies, and really bad companies.

Let me take you back a little bit first because the credit restoration industry was completely unregulated in the mid to late 1970s, hundreds of credit restoration companies sprung up all over the place. Most of them were dishonest and were interested only in stealing money from gullible consumers. As a consequence, thousands of consumers were milked out of millions of dollars while receiving little, if any, of what was promised to them.

As a result the FTC initiated another legislation called the Credit Repair Organizations Act (CROA) that outlines how these companies may legally operate.

Take a look at CROA

This Federal regulation is proof that the industry as a whole is legal and not a scam. I think the reason why there has been this general negativity about credit restoration companies is because of the few bad companies that have given the industry as a whole a bad name.

The Federal Trade Commission regulates credit bureaus and credit repair organizations.

Take a look at the definition of a Credit Repair Organization (look at Sec. 403 Definitions)

(3) Credit repair organization. — The term ‘credit repair organization’–

(A) means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of

(i) improving any consumer’s credit record, credit history, or credit rating; or

(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i); and

Now let’s look at Section 404 Prohibited Practices.

Specifically look at definition (b) payment in advance.

(b) Payment in Advance–No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.

Basically, a credit restoration company cannot charge you for credit restoration upfront! So if you decide to hire a credit restoration company don’t pay for the fees up front.

But, there are specific organizations and institutions that DO NOT fall under the definition of a credit restoration organization and are therefore exempt from prohibited practices.

This means that there are a very select few credit restoration companies out there that can charge for credit restoration upfront.

Take a look at Sec 403 definitions under description (B) does not include-

These organizations and institutions include any nonprofit organization which is exempt from taxation under section 501(c) of the internal revenue code and any depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) or any Federal or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such a depository institution or credit union.

So if you decide to enroll in a credit restoration service do not pay for the service upfront unless the company you decide to hire falls under Sec 403.

The best credit restoration company that I personally recommend and have used for my clients over 10 years is United Credit.

Also check their rating with the BBB at http://www.bbb.org/

If you decide to promote a credit restoration service to your clients be sure to ask the right questions which you now know.

Remember – Improve your business, your life, your relationships, your finances and your health. When you do the whole world improves. ~ Mark Victor Hansen

To Your Success!

Marco Carbajo

About the Author

Marco Carbajo is a business credit specialist, author, speaker, and founder of the Business Credit Insider’s Circle. He is a weekly columnist for Dun & Bradstreet Small Business Solutions, a business credit blogger for All Business & American Express Small Business and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in The Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.  

For example, you may have 20 car mechanics in your hometown. Most likely, 17-18 of these mechanics are honest, hardworking people who want to earn a living and give you the best service possible. The other 2 or 3 mechanics may not be so honest and will take your money while not giving you the quality or quantity of service you pay for… or, they may be out-and-out crooks who take your money and lie to you.

This doesn’t mean that your town is a bad place to get your car fixed; it just means that, like any industry anywhere, there are good companies, mediocre companies, and really bad companies.

As for credit repair- do your homework. Is the company you are selecting a non-profit organization or credit union service organization? Are they claiming that they can delete accurate negative information? Do they provide you with consumer rights information? Do they charge outrageous fees?

Consumers should take these things into consideration when hiring a credit repair company to help them with their credit issues.

To better understand the credit repair business some background on the industry is necessary. Beginning in the mid to late 1970s, many unscrupulous entrepreneurs realized that millions of Americans have damaged credit report ratings and that they could make money by convincing these people they could remove all negative information from their credit files.

Because the industry was completely unregulated, hundreds of credit repair companies sprung up all over the place. Most of them were dishonest and were interested only in stealing money from gullible consumers. As a consequence, thousands of consumers were milked out of millions of dollars while receiving little, if any, of what was promised to them.

Federal and state authorities received numerous complaints about credit repair companies, and as a result, both federal and state governments began passing laws regulating the credit repair industry. In addition, credit repair companies must contract with all clients in writing before work begins and cannot collect any upfront fees unless they exempt from CROA. 

Be sure to read ‘Credit Repair Fix’ for more details regarding laws governing credit repair companies or watch my compliance video below.

Despite such regulation, dishonest credit repair companies still operate. This bit of knowledge is used by dishonest credit repair services to perform credit repair for their clients. Their aim is to either overwhelm the Big Three with reverification requests (letter writing) with the goal of getting as much negative information removed as they possibly can, or hoping that a few requests slip through and result in the removal of negative information.

It is important to note that not all credit repair companies are dishonest. Some companies offer a valuable service to those who find the whole process of credit repair too boring or complex, or just don’t have the time to learn about credit repair. A Credit Repair Service is as legitimate and worthwhile as a tax preparation service — the IRS claims that everyone can do their own taxes, but most people hire someone else to do them.

There are a number of credit repair companies offering to give consumers a “fresh start” with their credit histories. These companies seek to obtain a second Social Security number or federal ID number for their clients. This is commonly referred to as “file segregation”. File segregation is a fraudulent practice and violates many Federal and State Laws.

I strongly oppose the abuse of consumers by companies and individuals which direct you to commit fraud in order to obtain “clean” credit reports. In this scheme, you are promised a chance to hide unfavorable credit information by establishing a new credit identity. That may sound perfect, especially if you’re afraid that you won’t get any credit as long as bankruptcy appears on your credit record. The problem: “File segregation” is illegal. If you use it, you could face fines or even a prison sentence.

If you have filed for bankruptcy, you may receive a letter from a credit repair company that warns you about your inability to get credit cards, personal loans, or any other types of credit for 10 years. For a fee, the company promises to help you hide your bankruptcy and establish a new credit identity to use when you apply for credit. These companies also make pitches in classified ads, on radio and TV, and even over the Internet.

If you pay the fee and sign up for the service, you may be directed to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Typically, EINs – which resemble Social Security numbers – are used by businesses to report financial information to the IRS and the Social Security Administration. After you receive your EIN, the credit repair service will tell you to use it in place of your Social Security number when you apply for credit. They’ll also tell you to use a new mailing address and some credit references.

To convince you to establish a new credit identity, the credit repair service is likely to make a variety of false claims. Listen carefully; these false claims, along with the pitch for getting a new credit identity, should alert you to the possibility of fraud. You’ll probably hear:

Claim 1: You will not be able to get credit for 10 years (the period of time bankruptcy information may stay on your credit record).

Each creditor has its own criteria for granting credit. While one may reject your application because of a bankruptcy, another may grant you credit shortly after you filed for bankruptcy. And, given a new reliable payment record, your chances of getting credit will probably increase as time passes.

Claim 2: The company or “file segregation” program is affiliated with the federal government.

The federal government does not support or work with companies that offer such programs.

Claim 3: The “file segregation” program is legal.

It is a federal crime to make any false statements on a loan or credit application. The credit repair company may advise you to do just that. It is a federal crime to misrepresent your Social Security number. It also is a federal crime to obtain an EIN from the IRS under false pretenses.

Further, you could be charged with mail or wire fraud if you use the mail or the telephone to apply for credit and provide false information. Worse yet, file segregation likely would constitute civil fraud under many state laws.

All the information in this post is provided to help clear up those “questionable” items on your credit reports. “Credit repair” is a general term usually used to describe a systematic process of rehabilitating an individual’s creditworthiness, or financial credit reputation.

The process is generally started by obtaining copies of the individual’s credit report, reviewing the credit report for errors, omissions, and misleading information, and requesting corrections to such information by means of a formal dispute letter. Many laws, regulations, and practices govern this process, and many organizations exist that will assist in guiding individuals through this sometimes complex process, though much, if not all, may be accomplished by individuals by their own efforts.

When you identify inaccurate, erroneous, and obsolete entries on your credit reports and bring it to the credit reporting agency’s attention they must do one of two things by law. Correct it or delete it!

If you are in the process of applying for a mortgage, immediately notify your lender of any incorrect information in your report and you may be able to do a rapid rescore. 

Remember - The direction in which education starts a man will determine his future life.   ~ Plato

Click Here for a reputable credit repair service that  I have been personally using for my clients for over 18 years.

P.S. Do you have any credit repair scams or stories that you would like to share?

To Your Success!

Marco Carbajo

About the Author

Marco Carbajo is a business credit specialist, author, speaker, and founder of the National Entrepreneur Club.  Click here to visit his blog and signup free to get strategies, resources, and credit building tips with blog updates, news, and more! To start building business credit join his business credit community today and Click Here.