If you’re one of the credit bureaus, or the people who sell their reports, you’ll swear that it’s a complete sham. If you’re a lender, you either love it or hate it, depending on your past experiences with it. But if you’re one of the millions of consumers with errors on their credit report, it’s a godsend. Who’s right..? All three …
Let me explain …
I have been doing credit repair for nearly two decades. Initially, I needed it for myself, then I did it as a favor to friends and family, and eventually in 2004, I founded a registered credit services organization. Since then, I have seen a lot of changes in the credit repair industry—some good, some not-so-good. I’ve been through ups and down in the real estate and mortgage markets, and I’ve watched credit repair companies come and go, with only a few remaining afloat, mine among them. I have made consumer credit my career. And in the wake of a terrible recession, caused in part by the mortgage crisis, credit repair companies have begun to pop up everywhere. Cardboard “bandit signs” at busy intersections and billboards with an 800 number and the promise of a fresh new start, line the roads throughout my city. Radio and TV ads that make ridiculous guarantees bombard the airwaves, and print ads that offer too-good-to-be-true results to the disenfranchised and fill mailboxes from coast to coast. And all of this leaves me to wonder: Where is this industry, one that’s been so good to me for so many years, headed? But before I try to answer that, let me elaborate on my first few statements.
The credit bureaus …
Plain and simple, the credit bureaus think what we do is a scam. Or do they? In a recent article on Yahoo!, I pointed out the similarities between credit repair and rapid rescoring. I detailed how, for nominal fee, inaccurate, incomplete, erroneous, outdated or unverifiable information could be removed from consumer credit files and create an increase in their scores that could mean the difference between a loan being approved or declined. And then I talked about credit repair. Here’s the thing … the companies that lenders purchase their tri-merged credit reports from purchase the same data from the bureaus that any consumer could, but in a concise, easy-to-read format. In other words, they’re a customer of the credit bureaus. A customer that is happy to sell–with a slight markup–the same information to lenders as a third party. And what’s a lender to do if they happen to pull one of the millions of credit files with an error in it? They pay to have it fixed. Seems legit, right? Of course it does, so long as the third-party reseller (read, “bureau customer”) makes money doing it. But credit repair companies, if everything else is assumed the same about the process—an error is found, a fee paid, the credit repaired, scores raised—are consistently labeled as a scam by the bureaus. The whole thing sort of leaves me scratching my head.
What about lenders?
I was speaking to a large group of lenders several years ago, when I was asked a tough, but fair, question. “Yeah, but as a credit repair guy, don’t you feel a little bit like the defense lawyer that gets someone off on a murder trial for a technicality?” I thought about it for a minute, before said, “Yeah, I suppose I do. But let me ask you something … If you were wrongly accused of murder, would you care if I got you off on a technicality?”
The answer you get about whether credit repair is a legitimate industry depends exclusively on which lender you talk to. Many lenders have had a less-than-favorable experience, because they enlisted the help of a less experienced or perhaps even disingenuous company. Perhaps they referred a borrower to a company that they knew little about, only to have the client return upset, because the results weren’t there. Or maybe a commissioned salesman promised more than his or her company could deliver. Either way, the borrower’s money was the only thing gone, and the results simply never came.
Most lenders would be hesitant to refer a borrower to a credit repair company after an experience like that, and I wouldn’t blame them. However, in the interest of customer service and getting a loan closed, many offer to do some of the repairs for their client, manually or via rapid re-score. Others might suggest that the borrower do it themselves. Some might even go as far as to provide the borrower with template letters for the purpose of disputing inaccurate information. Unfortunately though, many opt to simply decline the loan, and offer no alternative for the prospective homebuyer.
On the other hand, there are legions of loan officers who will absolutely swear by what we do. Having been a referral-only company for nearly a decade, I have a long list of top producers who would insist that their success wouldn’t have been possible without our help. Of course, I won’t name them by name, though. The credit bureaus and third-party resellers not only frown on loan officers referring their clients to credit repair, they generally forbid them from sharing reports with credit repair companies in their contracts. Perhaps it’s because of the inherent competition with the rapid re-score model.
Then there are the consumers …
I could write a book, several, actually, about the nightmares I have heard from people about their efforts to deal with credit errors on their own. In February of this year, CBS’ 60 Minutes did a lengthy story about the statistically significant number of errors on consumer credit files, and incredibly flawed system for correcting them. That story was inspired by a recent Federal Trade Commission (FTC) study which found that one in five credit reports had errors on them, and that one in 10 had errors that negatively impacted the consumer’s scores.
Now, to be fair, the credit bureaus are burdened with the massive (albeit, profitable) task of maintaining credit data for hundreds of millions of people, and with that much data, mistakes are inevitable. Fortunately, under federal law, there exists a mechanism by which these errors can be corrected. The Fair Credit Reporting Act (FCRA) allows the consumer to contact the bureaus and request that they conduct an investigation into the alleged inaccuracies. The problem, as was pointed out by Ohio Attorney General Mike DeWine in the 60 Minutes story, is that although the investigation mechanism exists, the bureaus are often “not doing any investigation at all.” That leaves consumers frustrated, and with the errors unresolved.
Invariably, the argument comes up that credit repair companies cannot do anything for people that they cannot do for themselves. Would you say that about barbers or lawyers? How about accountants? After all, you can certainly cut your own hair, represent yourself in court, and do your own taxes, right? But would you trust the results to be the same? Or would you prefer experienced, professional help? That’s where credit repair comes in … or should come in.
Back to the future …
I suppose I’d liken my situation to that of my lender friends, who, in the face of increasing regulation and the creation of the Consumer Financial Protection Bureau (CFPB), wonder what the future holds for their industry. Residential lending has suffered at the hands of those who have bent the rules, not to mention those who have ignored them altogether. So too, is the challenge that the credit repair industry currently faces. Those who are not in line with the federal Credit Repair Organizations Act are making it increasingly difficult for those of us who are. What’s more, it seems that the good companies are the only ones that ever honestly acknowledge that there are bad guys in the industry. I know that I have to overcome it in virtually every sales call I make. That leaves me in the unusual position of battling to defend my industry’s reputation, while also working to help consumers defend their financial reputations against credit bureaus that refuse to correct inaccuracies submitted by the creditors and collection agencies trying to collect them.
So, what’s a guy with that kind of challenge supposed to do? I tell you what he does … he continues to be an example of how credit repair should work. He continues to play by the rules, fight the good fight, for the little guy, and do his part to make the American dream a reality for people … just like you do.
Doc Compton accepted the position of operations manager for the consumer credit section of Prevost and Shaff LLC, a “Family and Finances” law practice in Dallas. He may be reached by phone at (214) 733-8336.