Borrowers beware of credit fixer scams
Original Post Date: September 12, 2010
By: Kenneth R. Harney
Recession-hammered consumers across the country have seen their credit scores decline, and that has made then susceptible to scams that purport to erase delinquencies, judgments, foreclosures and other problems from their files at the three national credit bureaus — Equifax, Experian and TransUnion.
A Federal Trade Commission settlement in early September with a Florida “credit repair” company provides a fresh example. The FTC’s complaint against Clean Credit Report Services Inc. of North Miami alleged that the firm promised clients it could boost their credit scores dramatically and quickly — even if the derogatory information in their files was accurate and current.
In national radio, Internet and TV pitches, Clean Credit said it could make records of “late payments, collection accounts, charge-offs, repossessions and bankruptcies” simply disappear from credit files, according to the FTC’s complaint.
The FTC complaint said Clean Credit went beyond mere promises of short-term “repair,” holding out to prospective clients in telephone sales talks the prospect of “permanently and legally” eliminating negative information in their credit bureau files. The firm allegedly said that the target for clients was a 650 to 700 FICO score at the end of the file-scrubbing process.
Customers were charged upfront fees averaging $400, the FTC said, but once they paid the money, the company did “little, if anything, to fulfill the promises made” about boosting scores and purging negative files. Under the law, companies and individuals that claim to be able to fix consumers’ credit files are prohibited from making “untrue statements” about what they can achieve, and may not charge or collect money in advance of rendering their services.
According to both Fair Isaac Corp., whose FICO score is widely used in the mortgage industry, and VantageScore, a joint venture of the three national credit bureaus, scores have sagged in recent years because millions of consumers have fallen behind on credit cards, mortgages and other debts. Lower scores are preventing many homeowners from qualifying for new or refinanced mortgages under toughened underwriting standards imposed by lenders and investors such as Fannie Mae and Freddie Mac.
In the FTC settlement, Clean Credit and its officers agreed to forfeit substantial assets to help repay Clean Credit clients. The agreement also requires the firm and its principals to pay $14.4 million for restitution should the financial statements they submitted for settlement purposes prove to be inaccurate.
Robin Rock, an FTC attorney in Atlanta, said the $14.4 million represents an estimate of what consumers were charged for credit repair services they never received. An attorney representing Clean Credit, Andres Montejo of Miami, declined to comment on the allegations in the FTC complaint or the settlement terms.
The takeaway here for anyone with depressed credit scores who nonetheless is seeking a mortgage: Don’t believe claims of credit repair operators who say they can perform miracles on your credit files. If the delinquencies and other derogatory information in your files are accurate and current, the only way to boost your scores is to reverse your previous credit behavior and make responsible use of your credit accounts over time.
Finally, never pay money upfront. Not only are demands for advance fees for credit repair red flags for scam operations, they’re also blatant violations of federal law.