It’s all over the internet: Get a brand new credit record! Improve your scores overnight! Guaranteed 720 middle score regardless of your credit history!
Some of the above advertise absolute lies and scams. Some actually “can” work. What you need to know is how will any of the above affect your personal liberties (I call that my jail avoidance program) and your ability to actually secure a mortgage loan. Obviously the people charging for the service are going to give you the good salesmanship and tell you it will only improve your ability to borrow.
Here’s the lender’s side. Since the credit repair companies don’t offer you mortgage financing and we do let me help you understand from our point starting with the felonious “new credit report” and working down to the do-able loan condensation program.
Here are actual teaser lines from actual internet ads:
“Credit problems? No problem!”
“We can erase your bad credit-100% guaranteed.”
“Create a new credit identity-legally.”
“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”
When this issue comes into question with one of our mortgage or real estate clients we provide them with a nice little letter we’ve created with information from the Federal Trade Commission’s Consumer Credit Organization which includes the following information:
Every day, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can’t deliver. After you pay them hundreds or thousands of dollars in up-front fees, these companies do nothing to improve your credit report; many simply vanish with your money.
The Warning Signs
If you decide to respond to a credit repair offer, beware of companies that:
* want you to pay for credit repair services before any services are provided;
* do not tell you your legal rights and what you can do-yourself-for free;
* recommend that you not contact a credit bureau directly;
* suggest that you try to invent a “new” credit report by applying for an Employer Identification Number to use instead of your Social Security number; or
* advise you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.
You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to make false statements on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
The Credit Repair Organizations Act
By law, credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before signing the contract. The law contains specific consumer protections. For example, a credit repair company cannot:
* make false claims about their services;
* charge you until they have completed the promised services; or
* perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees.
That pretty much sums it up bet there are a couple of ways of “clearing up” your credit fairly quicly and honestly. One is simply to obtain a personal loan at a reasonable interest rate to consolidate your loans. The problem with this from the lender’s side is that we know the borrower has no more self control than they had before they consolidated so now they are going to have their consolidation loan and expend all the available credit on their revolving and charge accounts. This is why debt-seasoning is an issue.
If the consolidation loan is only one or two months old we’re going to question it even if the score may have increased. We’re also going to be interested in the monthly payment amount going to repay that consolidation loan. It’s generally quite pricey unless you were able to secure it and get it from a legitimate lender. A large number of credit repair companies who offer debt consolidation charge upfront fees and then high interest rates … often higher than your initial debts!
From the lender’s side nothing beats good old hard work, honesty and integrity. Pay down your bills. STOP CHARGING!!!! If you have to charge it you probably don’t need it! I am always appalled at the people who come to me for help barely making it by with credit card debt over their ears and then they show me their debts and time after time there are debit card withdrawals to Sid’s Sea Shack for $85, MovieBlock for $22, Corner Liquor for $68, GameZone Rentals for $12 … my lord people, get a grip on the spending 
If you are enrolled with a debt management company “credit counseling” and it is recorded into your credit report it may prevent you from getting financing and will almost certainly keep you out of A Paper range.
Best bet is self control and budgeting. Second best is a legitimate debt-consolidation with a money management plan to keep you from getting right back into the same position again.
Ken Cook – Nationwide Specialist – Information/Marketing – FHA Home Loans
678-439-8683
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