Thursday, November 20, 2008

The Credit Doc Is In - Credit Repair - Myth or Reality?

We are playing with a great Buyer's Market right now. We are seeing deals that we have not seen in a very long time especially in what was the seemingly eternal bubble that enveloped the heart of the city - Manhattan.

That said, every day we hear of banks that are either raising their standards so high that even the "good credit" guy can't get a loan, only the lucky few with "excellent credit". Worse yet, other banks are starting to simply refuse no matter what your credit score is. I have to say it's imperative that you know what you can do to take advantage of this awesome chance at getting a piece of the Big Apple and in that spirit, I felt I had to share the article below as soon as I saw it! Having been one of those people that was wronged by an unscrupulous credit card company, over 10 years back, (which has kept my credit score at under 700 over the years, and only NOW started to move up slowly) I can empathize with anyone that has had unjust black marks on their credit, and if this is the way to help it then more power to on!
P.S. Beware that "credit fixes" can also go bad so you really need to be careful on that side too.

Can 'credit docs' cure bad scores?

The credit repair industry is exploding as tighter lending rules prompt many consumers to seek ways to push up their ratings. But beware: Unscrupulous practices are common.
By SmartMoney

Thanks to the credit crunch, lenders only have eyes for borrowers with near-perfect credit -- and that comes as welcome news to Edward Jamison. A credit-repair expert in Los Angeles, Jamison helps improve consumers' credit scores by quickly removing such blemishes as old collection accounts and credit report errors. Needless to say, business is booming. These days, Jamison is focusing on an even more lucrative opportunity: selling startup packages to those who want to become credit repair experts themselves.

His Web-based system automates the entire process, from finding clients to flagging negative information on their credit reports and generating requests that the credit bureaus remove it. Anyone with $15,000 (the cost of the package) and 25 hours of training can enter the field, he says."They can learn everything there is to know about the credit repair business and credit scores and almost be a credit expert in a matter of a week," Jamison says. Started about two years ago, his company, Credit CRM, already has more than 300 affiliates using his system.

As lending requirements tighten, hiring a credit repair expert, or "credit doctor," to help improve your scores in a matter of weeks or months sounds enticing. But consumer advocates such as Ed Mierzwinski, the consumer program director for the U.S. Public Interest Research Group, warn that the industry is rife with shady practices and high fees ranging from several hundred to thousands of dollars.

"Your money will be better spent paying your bills," Mierzwinski says.

Unfounded disputes are a common technique

The industry has a bad reputation, Jamison confirms. He's trying to change that by checking references for anyone interested in becoming an affiliate and even testing his business owners on their credit knowledge before he certifies them. He runs a clean shop and does his best to ensure that his affiliates do as well, he says.
Some credit repair shops, though, use loopholes in consumer-friendly laws in ways that only temporarily boost a person's credit scores. The most common technique is to dispute negative but accurate information on consumers' credit reports. A provision in the Fair Credit Reporting Act allows consumers to challenge and remove anything from their credit report that's incorrect, misleading, outdated or unverifiable, explains John Ulzheimer, the president of Educational Services. If a person finds, say, a paid collection account reported as unpaid or a delinquent credit card account that he or she actually paid on time, that person can send a dispute letter to the credit bureaus, which then request that the creditor verify the account. Unless verified as accurate within 30 days, the bureaus have to correct the information on the consumer's credit report.

Many credit repair companies know that by burying the credit reporting agencies with dispute letters, they can remove negative items -- even if they're accurate, Ulzheimer explains.

"If you have a credit report with 15 negative items and send 15 dispute letters, the odds are that some of those 15 letters aren't going to come back -- either the data (are) too old to dig out or the data furnisher's response will get lost in the mail," he explains.

The Credit Data Industry Association, a trade group for the credit bureaus, estimates that roughly one-third of the disputes that the bureaus receive are from credit clinics. "Our members tell us that almost all identified credit repair correspondence concerns adverse but accurate data," said Norm Magnuson, an association spokesman, in a written statement.

But when accurate information is deleted from a consumer's report -- especially if it's an outstanding debt -- there's often a good chance it will be re-reported the following month.

"There's no miracle work," Jamison says, adding that he disputes accounts only if a client says they're not 100% accurate. "If someone has a bunch of unpaid collections or charge-offs, you can get them off, but they're just going to come back on. A lot of companies out there will lie (that it can be done), but that's not the way it goes," Jamison notes.

Because only accounts that are paid off can be permanently removed, he says he turns away consumers who can't pay off their debts. "They're better off trying to get their finances in order and then try to get their stuff settled," he explains.

Mortgage brokers can speed up changes

For those shopping for a loan, there are some perfectly legit ways to improve your credit scores quickly. Though disputing errors with the credit bureaus typically takes about 30 to 60 days to resolve, a mortgage broker can help clean them up in a matter of five to seven days with a service called Rapid ReScore.

At $25 or $30 per credit line per bureau, however, it's a pricey option. (Mortgage brokers aren't allowed to charge clients for this but can pass along the costs in the form of higher fees elsewhere.) To successfully use Rapid ReScore, a borrower needs to submit a letter on the creditor's letterhead that proves his or her claim is correct, explains Juan Boldiszar, a Chicago mortgage broker. "Rapid ReScore really only works for people who have errors on their credit report and the documentation on hand (to prove it)," he notes.

Borrowers who fit that profile, however, can see quick results. Scott Yonehiro, a mortgage planner in Burbank, Calif., has helped improve clients' credit scores by 20 to 30 points in a matter of days. He works with borrowers who want to raise their scores from the 690-to-695 range to above 720 in order to receive better interest rates and pay less in mortgage fees, he notes.

Some mortgage brokers also employ so-called credit simulators that identify specific strategies to boost a client's scores. Justin Lopatin, a mortgage broker with American Street Mortgage in Chicago, uses software from CreditXpert that analyzes credit reports and provides specific solutions. Recently, he helped a borrower increase his scores from 620 to 695 within six weeks by paying three of his credit card balances to below 50% of the available credit limit, opening two new credit cards and clearing up two collections accounts. (The service is free to customers.)

That sounds like a great quick fix, but even consumer advocates such as Ulzheimer question the impact of such strategies in today's ailing lending environment.

"I don't see how that's good for the industry," he says. "If you have a score of 650 and you go through one of these services and are able to jimmy your credit to 710, are you really a 710 -- or 650 with makeup on? And are you really going to behave like a 710 risk-wise? I'd say you're definitely a 650 with some makeup on."

(Fannie Mae, which sets credit score criteria for mortgages that it purchases from lenders, declined to comment for this story. Freddie Mac did not return our calls.)

Of course, the best way to improve your scores is to learn the rules of good credit and stick to them for the long run. "Without proper counseling, as far as taking financial responsibility, credit repair is just a Band-Aid," says Brian Smith, a mortgage banker in Seattle.

Credit repair warning signs

Not all credit repair companies are unscrupulous, but it pays to keep an eye out for those that will take your money without delivering much in return. The Federal Trade Commission advises consumers to watch out if companies:

  • Demand upfront payment for credit repair services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they complete the promised services.

  • Don't tell you your legal rights and what actions you can take on your own for free, such as contacting the creditors and credit bureaus yourself to dispute any errors in your credit report.

  • Suggest that you create a new credit identity by applying for an Employer Identification Number to use instead of your Social Security number.

  • Tell you not to contact a credit reporting company directly.

  • Advise you to dispute all information in your credit report, even if it's accurate.

1 comment:

  1. I have to say it's imperative that you know what you can do to take advantage of this awesome chance at getting a piece of the Big Apple and in that spirit, I felt I had to share the article below as soon as I saw it! Real Credit Repair Companies


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