Jul 072009

It does exist

Today’s housing market scares many consumers and mortgage brokers. Homeowners face dramatically increased monthly payments due to adjustable rate mortgages, and the saturation of the real estate market makes it almost impossible to sell a home. Mortgage professionals must cope with a tight loan market while having to deal with clients whose credit scores are less than perfect.

Often, credit scores are affected negatively by inaccurate information. The Massachusetts Public Interest Research Group (MASSPIRG) did a study in 2004 of the three major credit bureaus and found that 79 percent of credit reports contain incorrect information. That’s almost eight out of every 10 people. The same study reported that one person out of four had a credit report that was so inaccurate he or she was actually turned down for financing.
For a broker trying to help clients purchase a home, these inaccuracies can have a major impact on the interest rate the consumer receives. Then the homeowner suffers with high monthly mortgage payments.

This is why some brokers have turned to credit repair in order to help their clients achieve homeownership goals. In theory, the idea is perfect – improve a client’s score before the borrowing process begins. That leads to closing the deal and enhanced customer loyalty.
However, in reality, many people don’t know what to look for in a credit-repair company. Professionals find themselves searching for information and fighting against the lack of communication from unethical repair companies. Mortgage brokers’ clients are charged exorbitant fees and very few results are actually delivered. Then the brokers’ reputations are affected and the loan closings are jeopardized.

Knowledge is power, and knowing what to look for can help brokers find, and use, quality credit-repair services. The following unethical activities can help brokers pick the good companies from the bad.

Watch for these unethical practices

Many internet credit-repair companies charge monthly rates without a specified timeline. Clients pay each month while they rely on these companies to dispute inaccuracies on their credit reports. Since they get paid monthly, there is no incentive for these companies to expedite the repair process. Clients never see the dispute letters and the repair companies only send out a few each month.

This process is not effective for two reasons. First, the laws governing credit repair provide a loophole to the credit bureaus because they can ignore any disputes made by a third party. That means all the letters sent out by those companies on behalf of their clients can be ignored. Therefore the whole process is a complete waste of time and money.

Secondly, the dispute process usually requires three rounds of letters per unwarranted trade line. With three credit bureaus – TransUnion, Equifax, and Experian – it will require nine letters for each discrepancy. If the credit-repair practitioner is only sending out a few letters each month, it will take several months to a couple of years to remove the inaccuracy. This can cost the consumer a lot of money in monthly fees and will most likely be ineffective.

Other companies try to collect large payments up front. This is illegal under the Credit Repair Organization Act (CROA). Brokers should beware of companies requiring any investments before the work is completed.

Run from these illegal activities

Some people practice illegal methods to increase clients’ credit scores. Such schemes include “piggybacking”, overriding password protected documents and issuing fake credit accounts to customers.

Piggybacking occurs when an individual becomes an authorized user on the credit-card account of another person with excellent credit. Over the period of a few months, the unknowing consumer has his or her score used to increase the piggybacker’s rating.
Another tactic is to buy overriding password software to break into password-protected documents. This allows hackers to change credit reports, most likely in their clients’ favor. Issuing fake credit accounts can also temporarily increase a person’s credit score. Some of these unscrupulous companies will issue their clients a fake line of credit and report it to the credit bureaus. Having a low balance on this credit line enhances the consumer’s credit rating.

Repair services to embrace

The methods above are unethical and some are even illegal. This is exactly why many people think credit repair is a scam. However, consumers and mortgage brokers shouldn’t dismiss the industry altogether. There are several companies acting as consumers’ advocates against the large credit bureaus. These businesses practice under the rules of the Fair Credit Reporting Act (FCRA) and aim to provide clients with legitimate and legal assistance.

The FCRA statutes are supposed to provide American consumers with quick, simple and effective methods to ensure the accuracy of their own credit reports, and also to guarantee them the right to correct any errors they find. However, the average consumer is hard pressed to successfully navigate through the procedural morass of the FCRA.

An individual must go through as many as seven steps in order to successfully remove an inaccurate item from his or her credit report. Several of these steps have multiple parts and others require some expertise in the fields of credit analysis and reporting.

That is why ethical credit-repair professionals are needed. The trustworthy companies use consumer-protection laws to force the creditors and credit bureaus to verify debt and negative trade lines. Specifically, the bureaus must prove that everything is 100 percent accurate. If they do not have the documentation or something is incorrectly reported, then by law that information must be removed.

Good repair companies will offer clients a transparent process with a specified time limit, such as 60 to 90 days, to clean up credit. They use legal procedures to identify negative and unwarranted information on clients’ credit reports and proceed to systematically remove inaccurate information. Once a negative trade line is removed, a client’s credit score improves because the information that was affecting the ratings no longer exists.

These companies provide more than just dispute letters attacking the validity of negative information. These businesses educate clients on how to use their credit to positively affect their credit scores. Those lessons include paying off small balances on high-limit credit cards and closing cards that aren’t in use.

Other valuable functions of an ethical credit-repair organization are legal advice and debt negotiation. Brokers should look for companies that have a legal staff on-site to be assured that the company is following all government laws and regulations. Attorneys can also be beneficial when it comes to debt negotiation and can help clients reduce monthly payments while working to remove existing debt.

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