Posted by Elisabeth Leamy, Mon Oct 12 2009, 11:27pm

It's happened again

It's happened again. The Federal Trade Commission has once again cracked down on companies claiming to offer "credit repair" services. The Federal Trade Commission says it has never seen a legitimate credit repair company and these latest are no exception. What is exceptional is the manner in which these companies marketed themselves. Usually credit repair firms advertise on late night cable, on the radio, the internet, in classified ads –even on telephone poles. In this case, the FTC alleges that the firms marketed their services at real estate investment seminars. In other words, people would go to these seminars thinking they were going to learn about how to make money in real estate (real estate seminars are another sketchy arena) and they would hear pitches for credit repair.

The FTC says the defendants claimed to have special relationships with creditors, collectors and the credit bureaus that enabled them to remove derogatory information from clients' credit reports. And here's the key: the defendants claimed they could remove unflattering information –late payments, collections, repossessions-- from people's credit reports even if that information was true. The FTC says it was all a lie. It's always a lie. And the firms always charge big bucks up front for their bogus service, which is illegal. These latest cases followed the same pattern.

It's insane. People who are too strapped to pay their bills somehow scrape together enough money to pay a credit repair company. Credit repair companies use a couple different strategies. The first is known as "bombardment." They flood the credit bureaus with paperwork disputing every single item in your credit report. They try to take advantage of a law that says credit bureaus must drop an entry if it can't be verified within thirty days. Trouble is, that same law allows creditors to put an item back in your credit file, once it is verified. So even if a credit repair company succeeds in creating chaos at the credit bureau, it won't last for long.

Another strategy is called "file segregation." Some credit repair companies counsel their clients to apply for an employee identification number. It has the same number of digits as a social security number. Credit repair firms claim you can create a new financial identity by using this number instead of your old social. If you try it, you'll be breaking not one, not two, but three federal laws. It's illegal to apply for an employee I.D. number under false pretenses, to misrepresent your social security number and to make false statements on a credit application.

Of course, many credit repair companies don't bother with all these fancy strategies. Their method is much simpler. They just take your money –and disappear.

The FTC has crafted a series of rules credit repair firms must obey. Credit repair companies are not allowed to take money up front before they do any work. They're not supposed to make false claims about their services. They must tell you that you have three days to cancel and then honor that waiting period. And they have to give you a written contract that includes the price, the precise services they are offering you, how long it will take to get results, any guarantees and the company's official name and business address.

Know the signs:
1. They claim they can quickly fix your credit situation, no matter how atrocious it really is. These grandiose claims are one of the signs to watch out for.
2. If a company asks you to pay for credit repair services up front, that's a bad omen, indeed, because it's illegal.
3. Credit repair companies often discourage you from contacting the credit bureaus directly.
4. If somebody suggests that you apply for an employer identification number and use that instead of your social security number when you apply for credit, that's a telltale sign of fraud.
5. Credit repair scammers may advise you to dispute all the information in your credit report, even entries you know are true.
Do your homework:
1. If, after reading this column, you still somehow believe a credit repair company could be legit, then for goodness sake, check out the company with the Better Business Bureau and your county and state consumer protection offices. Also type the name into an internet search engine and see what comes up.
2. Consider disputing errors in your credit history yourself –for free! Start by ordering your free credit reports from Then follow the simple instructions for disputing inaccuracies.
How to complain:

Since credit repair companies operate illegally, contact your state attorney general if you have been victimized. Also file a complaint with the Federal Trade Commission, which does not resolve individual cases, but does investigate when it gets multiple complaints about a company.