NEW YORK — Getting your credit report in shape in 2009 is a sound New Year’s resolution. Just make sure you’re not reeled into any scams.
With a deepening recession leaving more people in financial distress, fraudulent services promising to scrub credit reports of negative information are rampant. Just this year, the Federal Trade Commission saw a 50 percent spike in complaints about such businesses.
“There are bad actors everywhere. And they’re crawling out from under their rocks for the holidays,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, an association of nonprofit counselors.
Services billing themselves as credit doctors and credit clinics, for instance, can’t really improve your report, she said. The truth is, if the negative information is accurate, nobody can get it removed — not even you.
That doesn’t mean you shouldn’t resolve to spit-shine your credit report in 2009. Credit reports are regularly pulled by potential employers, landlords and lenders. Staying on top of what’s in your report will also ensure you get better rates on loans.
So before you get started, a few points to keep in mind.
If you encounter a service promising to remove negative data from your report, it’s probably safe to assume it’s a scam. That’s because a debt collection can stay on your credit report for up to seven years. A chapter 7 bankruptcy, the most common type which wipes clean unsecured debt such as credit card bills, can be reported for up to 10 years.
In fact, FTC spokesman Steve Baker said he’s never seen a legitimate credit repair operation.
“I won’t say it can’t exist. But I’ve never seen one,” he said.
The details may differ, but Baker said “the basic essence of the scam is the same.” It goes something like this:
In exchange for payment, the service promises to pester credit bureaus until negative items on your report are taken off. The premise is that the credit bureau will eventually grow weary and remove the items.
The company might string you along by saying the process will take several months.
“So it can be a long time before people figure out it’s not working,” Baker said.
By then, you’re out several hundred or even thousands of dollars.
Another sign you’re being scammed is if you’re asked for payment upfront. It’s against the law for such companies to demand a fee before services are delivered.
If you believe you were duped by a credit repair company, call the FTC at (877) FTC-HELP.
The bottom line is that improving your credit report will take effort and commitment on your part, said David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, an association of nonprofit counselors.
The first step is checking your credit report regularly for errors or collections you didn’t know about.
The three national credit reporting agencies — Equifax, Experian and TransUnion — are legally required to provide you with a free copy of your report once every 12 months. You can request your copy at Annualcreditreport.com, but be careful of sites with similar names.
Annual credit reports are free, but you have to pay if you want your credit score.
Each of the credit bureaus may have different information, so get copies from all three. You might want to stagger your requests because a correction on one report is communicated to the others.
You’re also entitled to a free copy if your report results in a company taking negative action against you, such as denying you a loan or job.
Credit bureaus are required to investigate any disputes about collections, usually within 30 days. The business reporting the disputed collection to the agency must also look into the claim.
If a mistake is confirmed, you can request the credit bureau send a corrected report to prospective lenders.
In some cases, your credit report might be riddled with collections because you’re struggling under the weight of medical bills or other financial hardships.
Don’t throw in the towel. Trying to negotiate lower interest rates or late fees on debt is a good start to taking control of the situation.
Call the lender and ask to speak with a supervisor who has the authority to change the terms of your loan. Negotiating credit card debt can be difficult, but you might find more success with secured debts such as a mortgage or car loan, Jones said.
If your debt is too daunting to handle on your own, consider visiting a credit counselor. Consultations are usually free. There might be minimal monthly fees of about $20 for certain services, but you can get them waived if you can’t afford to pay.
There are hundreds of nonprofit groups that offer financial counseling on topics, including mortgages, credit card debt and budget planning. To find one in your area check the Web sites of either the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Both associations also require members to meet certain standards and pass certification tests.
“Getting your credit report and understanding its contents are two very different things,” said Cunningham of the NFCC.
You don’t have to be poor or in debt to get free help from a credit counselor, either. In fact, there are no requirements for getting help, so there are no excuses for dallying on getting your credit report in shape.
“Our real objective is to see people before they dig themselves into debt,” Cunningham said.