Have you ever wondered
about those ads you see from companies and law firms which offer to
fix your credit for a low monthly fee? People with credit problems often ask me when
it comes to improving their credit score whether they should hire
a credit repair company or do it themselves? Unfortunately, there
is no simple or universal answer to this question. However, I will
shed some light on the subject if you're in need of a little enlightenment.
According to the Federal
Trade Commission (FTC) "Everything a credit repair clinic can
do for you legally you can do for yourself at little or no cost".
While I agree with the FTC, I also understand some consumers do not have the time, patience (or
knowledge) to do the work themselves and the thought of "drive-thru-we-do-it-all-for-
you-credit-repair" becomes very appealing. After all, everything a mobile oil change service can do
for me I can also do myself at little or no cost (but you won't find
me changing the oil in my car this weekend!).
Although some things
are better done yourself, only you can determine if doing your own
credit restoration work will be one of them. This is why understanding
both the advantages and limitations of a credit repair company and
the structure from which it operates are VERY important.
REFERENCES: Any legitimate
company or individual doing credit restoration work for consumers
will be able to provide you with at least half a dozen references.
If the company or person is local you should be able to call these
references. This is without question the most important point of consideration
when hiring a professional to do the work for you.
If possible, I suggest
you ask friends, family, relatives and professional contacts if they know of someone who does credit restoration
work as a side business. By far the highest percentage of successful
stories I hear from consumers are those which come from those who
found a credit consultant via personal referral. I cannot stress this
enough. It's the difference between going on a vacation with a close
friend instead of a stranger.
CONTRACT: Unlike painting
a house or putting in a driveway, credit restoration work (and results)
are extremely broad. Therefore, the use of a contract is imperative.
Most likely your credit challenges didn't occur overnight and they
won't be improved overnight either. A good contract protects you as
well as the service provider. The contract should be easy to understand
without an Attorney and spell out the actual services which will be
rendered as well as the service providers' limitations (i.e. they
cannot guarantee the removal of any one particular item but can guarantee
an overall increase in score overtime).
MONTHLY FEE: One of the
most critical elements which affects "how" a credit restoration
company operates is determined by its' payment structure. One of the
most common payment structures of large companies or law firms doing
credit restoration is that of the monthly "auto-debit" fee.
In this structure the consumer usually pays $49 to $99 up front and
then a monthly fee of $39 to $49 per month. While there is an advantage
to this method (affordability) with it comes many disadvantages.
1.) The first disadvantage
this structure creates is that it gives the company absolutely no incentive to work quickly or aggressively on
behalf of the consumer. In fact, the opposite is true. The longer
they take the longer they will continue to collect their monthly fee!
In most cases this structure leads to slow results over a very long
period of time. Looking at it logically, this shouldn't come as a
surprise.
2.) The other challenge
within this structure is the actual amount of time, effort and resources
which a company or law firm can reasonably allocate on a consumer's
behalf. Remember, any large business has a tremendous amount of overhead
which quickly chews up most of that monthly fee. Out of that $39 to
$49 there are monthly expenses including but not limited to: Advertising,
Office Rent and Utilities, Employee Payroll and Taxes, Health Insurance,
Phone Service, Office Supplies, Refunds, Computer Maintenance and
Programming, Website Administration, Office Supplies and let's not forget postage for mailing
letters to creditors, collection agencies and credit bureaus. A much
simpler way to think of this is by imagining if you had a client paying
you $39 a month; how much work would you be willing to do?
3.) One of the biggest
challenges credit repair companies charging low monthly fees run into
is being forced to rely on the use of Automated "Boiler Plate"
Dispute and Correspondence Letters. Boiler Plate Letters are simple
form letters which are used for ALL consumers (one format fits all).
Once set up in a computer program with the consumers' information
they are "shot out" automatically based on the consumers
needs (i.e. late pay, charge-off, judgment etc).
The problem here is that
when a credit repair company has thousands of clients they are shooting
these form letters out for, the creditors, collection agencies and
credit bureaus can take notice of these letters being used over and
over and discover your correspondence is coming from a third party
(i.e. credit repair company or law firm) and in some cases ignore
it or (worse yet) mark the dispute frivolous and flag your credit
report. I spoke with a man recently who was on the inside of a large
credit repair company who informed me they had an archive of over
10,000 boiler plate letters on file to avoid this problem. Of course,
they charged customers by
the month.
NON-DISCLOSURE OF METHODS:
One of the most troubling issues with 95% of large credit repair firms
(especially law firms) is their non-disclosure of dispute tactics
and methods. As a consumer it is vital that you are made aware of
the methods they are using in dealing with your creditors, collections
and the credit bureaus. If the organization or law firm violates laws
or makes errors (I have witnessed both) you could be held liable for
their negligence. In addition, this can actually make your credit
worse and create problems which are very difficult to clean up. Anyone
doing credit restoration for you should disclose "what"
they are doing since you are paying for a service. If they won't,
you better run the other way as they could be pouring gas on a blazing
camp fire.
LOCATED IN HOME STATE:
This is one of the most overlooked keys to successful third party
credit restoration which consumers miss. It is absolutely vital when
having someone else do your credit restoration work for you that they
operate within your home state. Here's why: if a credit repair company
or law firm mails dispute letters or correspondence on your behalf
from another state, that mail will be postmarked from that state.
If the credit bureau catches this they can (and in many cases will)
mark the dispute as frivolous and flag your credit file.
It is known that many
Credit Repair Companies and Law Firms will resort to or create a method
to avoid and out of state postmark in order to get disputes postmarked
from the consumers' home state (potentially violating postal regulations).
For example. If they are in NY and you are in CA they will first have
to mail your dispute letters inside an envelope from NY to CA. Once
in CA someone opens the envelope and then mails your dispute letters
from CA so they postmarked from your home state. I am not an expert
on postal regulations but had one postal employee tell me the concept
sounded extremely shady at best.
CUSTOMIZATION:
It's for this reason that some of the most advanced forms of credit
restoration are done completely customized for the client and even
(in many cases) by hand. The best credit restoration companies I've
seen are usually run by one person or a small number of people and
are extremely customized for each client. The is the most effective
but with effectiveness comes cost. Every one of these services I have
seen charges a very large upfront fee and works entirely off of referrals.
This type of service is simply impossible to perform for $39 or even
$49 a month.
Unfortunately, if you
are unable to find someone in your area (preferably an individual)
by way of referral through a friend, relative or professional contact,
then I recommend you take matters into your own hands and do it yourself.
I realize most consumers do not want to hear this but the good news
is that it will almost always turn out to be the highest paid work
you will ever do in your life. How high? How does $500 to $2500 an
hour sound? I understand that's a bold claim but not one I am unable
to back up.
If you're ever going
to finance a first or second home (which everyone eventually should
for the tax breaks) the difference between good credit and poor credit
will affect your interest rate. If you secure a $200,000 mortgage
on a 30 year term and your interest rate is only 2% lower because
of a high credit score, that 2% will save you $96,934.11 over the
course of the loan (just because you had better credit). Take that
$96,934.11 and divide it by the 30 to 50 hours you may spend working
on your credit situation and you'll quickly realize credit restoration
when done properly does not cost - it pays!
