Credit Repair

As distinct from credit counselors or debt management programs, which offer guidance on improving your credit through better financial management, credit repair organizations offer to remove negative information from your credit report. You may have seen advertisements from a credit repair company claiming that they can wipe away your bad credit record and give you a new credit identity; or, they promise to remove negative items from your credit report and boost your credit score.

The truth is, if you simply contact the credit bureaus yourself, you will likely accomplish more on your own than you can with these types of credit repair companies. As an educated consumer, you should be aware that the way some credit repair companies operate is not only ineffective but it can get you in a lot of trouble.

For example, one common tactic employed by these credit repair companies involves disputing every negative item on your credit report. These credit repair scam companies will assure you that, while you dispute these items, the item will be temporarily removed while the credit bureaus verify its accuracy. Credit fixing tactics like this were fairly common twenty years ago, but with computers these days it doesn't usually work that way. Accurate information can be verified within minutes. If you dispute accurate items, you run the risk of your dispute being flagged as frivolous. Even in the unlikely event that your credit is fixed and the item is dropped, if the negative item is accurate your creditor can simply report the same item to the credit bureaus again next month after you've already paid the credit report company for repairing your credit.

Some companies will suggest that you set up a new credit identity for yourself by applying for an EIN (Employee Identification Number) and using that number in your credit application instead of your social security number. If you follow this advice, you are committing fraud and can be prosecuted under federal law. Also, it is not hard for a bank to spot this sort of fraud immediately if for instance you are 40 years old and your credit report was opened a week ago.

While some credit repair clinics may be legitimate, the FTC have received enough complaints about most of them that they felt it necessary to enact laws to protect consumers from predatory or deceptive advertising and business practices on the part of these organizations. For more information, you may consult the Federal Trade Commission website.

Even if you are in an overwhelming amount of debt, experts advise that you consider carefully before making the decision to declare personal bankruptcy. Filing for bankruptcy has a big effect on your credit rating and can affect your ability to get any form of credit, including credit cards, auto loans, and mortgages, for many years to come.

How a bankruptcy affects your credit score depends largely upon which type of bankruptcy you file for. The two most common types of personal bankruptcy are known as Chapter 13 (reorganization) and Chapter 7 (liquidation). You may have also heard of Chapter 11 bankruptcy, but that type of bankruptcy is declared by corporations, not individuals. Even if you could qualify for it, it would not discharge your credit rating.

In the case of a Chapter 7 bankruptcy, the filing remains on your credit history for 10 years. A Chapter 13 bankruptcy remains on your credit record for 7 years. In either case, your credit score will plunge, and you will not be able to get any type of credit line during that time. Experts say that declaring bankruptcy can lower your credit score by as much as 200 points. This can be a big hurdle to overcome when you are looking for credit in the future.

After the seven or ten year period is up, your credit score may not automatically go back to where it was before. You may still need to contact creditors and the credit bureaus to remove items from your record. Talk to a credit counselor before making any decisions about whether to declare bankruptcy. Even if you have some late payments or even charge-offs, those will not affect your credit rating as severely as a bankruptcy will.

From a credit perspective, you should consider every other possible alternative before resorting to a bankruptcy filing. Personal bankruptcy will remain on your credit report for many years, and will be revealed to potential employers and lenders whenever they run a credit check. You should think carefully before declaring bankruptcy and only consider it as a last resort.

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