You’ve almost certainly seen or heard pitches for “credit repair” services promising to clean up your credit problems, reduce your debt, or even raise your credit scores by 100 points or more.
Come-ons like these can be especially seductive for people seeking to buy a home and apply for a mortgage who have negative items in their credit reports. In order to qualify for a loan, they’re told, they need to make their credit look better — mainly by neutralizing the bad stuff in their files at the national credit bureaus, whether it’s accurate or not. But mortgage and credit industry experts warn that repair services can be far more harmful to home buyers than they suspect — even get them rejected on the spot.
Two new legal settlements from the Consumer Financial Protection Bureau — involving more than $2 million in penalties against credit repair companies — offer mortgage applicants sobering reminders about what to avoid if you feel you need help with your credit.
The CFPB alleged that the companies — Prime Credit LLC, IMC Capital LLC, Commercial Credit Consultants and Park View Law, along with several executives of the firms — charged home mortgage seekers and other clients illegal advance fees, misled customers about what they could actually do for them, and failed to adequately disclose the limits on their advertised “money back guarantees.” The companies “attracted thousands of customers through sales calls and their websites,” the bureau said, “at times targeting consumers who had recently sought to obtain a mortgage loan” or refinancing. The bureau alleged violations of the Consumer Financial Protection Act and the Telemarketing Sales Rule. The defendants neither admitted nor denied the bureau’s allegations but agreed to the settlement.
Under federal law, credit repair companies are prohibited from requesting or requiring payments upfront until they can document that they have achieved actual improvements to a client’s credit report or score. Up until then, consumers shouldn’t have to pay a cent. The companies involved in the new settlements allegedly sought to evade this requirement by requiring payment of a sliding series of fees — an initial “consultation” charge typically costing $59.95, hundreds of dollars for a “set-up fee” and monthly fees of $89.99.
For typical clients, according to the CFPB, the companies sent “dispute letters” to the national credit bureaus challenging “much of the negative information” in clients’ credit reports, “even if that information was accurate and not obsolete.” The companies then allegedly failed to follow up to see whether the credit bureaus identified the challenged items as being in dispute by the consumer, and never determined whether they had raised clients’ credit scores.
Among other alleged violations of federal law, according to the government, the credit repair companies’ “money back guarantees” were misleading: They were worthless until clients had paid for at least six months’ worth of services.
The repair companies’ targeting of home loan applicants and refinancers came as no surprise to mortgage lenders like Joe Petrowsky, president of Right Trac Financial Group Inc. in Manchester, Connecticut. “People see those cockamamie advertisements” saying they can wipe their credit problems away “and they get hooked,” he told me. “We run into the damage they do every week.” Would-be home buyers pay hundreds of dollars to credit repair companies to dispute debts in their credit reports only to discover that not only have their credit scores not increased but they can’t qualify for a mortgage at all.
“You can’t get a mortgage with outstanding disputes” on your credit files, said Petrowsky. “Not one. It’s got to be zero.” Yet flooding the credit bureaus with dispute letters is a standard technique of credit repair companies.
Thomas Conwell III, president and CEO of Michigan-based Credit Technologies Inc., a company that provides mortgage credit reports and scores for lenders nationwide, says consumers need to know that “there is nothing any credit repair company can do that consumers can’t do for themselves faster and at no cost.” They can order free copies of their credit reports online at www.annualcreditreport.com, contact the credit bureaus if they spot erroneous information, get them corrected by creditors, and work with loan officers on ways to improve their credit before applying for a mortgage.
The takeaway here for mortgage seekers: Be aware of the potential downsides of dealing with “we can fix your credit” outfits. And never pay any credit repair fees up front. That’s the first sign that you’re probably dealing with scammers.