Can this company really clean my credit report?
By Erica Sandberg
December 20, 2013
I'm hearing these commercials about companies that can clear anything off my credit reports. Is this legit? I've got some mistakes I made a few years ago, such as late payments and an account in collections that are dragging me down, but it seems weird that anyone could remove that stuff before their time is up. — Leo
Don't these businesses sound fantastic? With one call, you can remove all the damage you did to your credit report, enabling you to borrow even more money soon!
But, alas, they don't perform miracles. Usually, they either negotiate debt settlements or set up payment arrangements — sometimes both. What they do not do — because they can't by law — is expunge accurate negative information from your file. Like it or not, evidence of late payments and accounts that went into collections will be on your reports for a total of seven years.
Now, there may still be some companies out there that “help” consumers clean up their credit reports by disputing all negative notations, even when the data is true. The credit bureaus then have to investigate the matter, which takes about 30 days. During that time, the harmful marks wouldn't be calculated into a credit score, causing it to spike temporarily. However, when the bureau discovers that the information was indeed correct, the score plummets to its natural state. Thankfully, many of these companies are no longer in existence.
So are the companies that arrange settlements or payment plans good? Some can be fine. If you don't have the time, interest or aptitude to do it yourself, paying someone else to work on your behalf may be right for you. Just know that there are fees involved, so if you can manage it on your own, that's the way to go. Here's how you can fix your own credit:
- Allow time to “cure” late payments. There's nothing you can do to remove late payments from your reports before the law permits, but the older they become, the less impact they'll have on your credit. Check your FICO scores ($20 per score from myFICO.com) and see how you're doing today. Maybe the numbers aren't so bad because enough years have passed.
- Repay collection accounts. Bills that were sold to collection agencies within the past few years are having a profound impact on your scores. You have two options to lessen the severity — pay what you owe in full or settle the debt for less than you owe. If you have enough cash, do the first, as a fully satisfied obligation is better for your credit than cutting a deal. Also, while settling can save you some money, beware of a tax consequence. Forgiven sums of more than $600 are considered taxable income by the IRS.
- Let exceptionally old accounts die. If the collection accounts are due to fall off your reports in the next year or two, you may want to wait it out. When they're gone they can't return, and will never sully your scores again. A brief warning, though: Check the statute of limitations in your state for being sued for a debt. In some states, a creditor can sue you over a debt even after it's removed from your credit reports.
- Use credit well now — and forever. By borrowing money from a financial institution and then repaying it on time (and without carrying a big balance), you'll be repairing your credit as each month goes by. Eventually the negative notations will be eliminated, leaving your reports with nothing but the positive. And what did it cost you? Nothing but time and a commitment to excellence.
If you're still intrigued by companies that act as intermediaries between you and those you owe, be sure to check them out on the Better Business Bureau and other consumer websites for possible complaints first. While they may operate above the law, some may fall below your expectations anyway.
Got a question for Erica? Send her an email.