Credit repair can help get financial lives back on track
The stakes are high when it comes to paying bills on time, for one late payment can drop a credit score 50 to 100 points — or more — in one fell swoop, credit experts say.
“I had a client who made a mortgage payment late by five days last month and he lost 126 points on his credit score,” said Bob Lefcourt, owner of Great American Credit Repair on the North Shore.
And the consequences of negative information on a credit report can be devastating and farreaching.
It’s bad enough when consumers mismanage their own personal finances, but a recent report by a consumer advocacy group found that credit reports contain a high number of errors that are devastating to consumers. The non-profit U.S. PIRG Education Fund found complaints filed with the Consumer Financial Protection Bureau related to credit bureau errors nearly doubled between 2021 and 2022, and those complaints totaled 69% of all CFPB consumer complaints.
In addition to ongoing scrutiny from federal regulators, credit repair experts say their industry plays a big role in helping people fix legitimate errors on credit reports.
They also see first-hand the damage that credit bureau mistakes are causing.
“It’s keeping their credit scores lower, stopping them from getting homes, jobs, life insurance and car insurance at a good rate,” said Donna Perkins, vice president of the National Association of Credit Services organization. “It affects every aspect of a consumer’s life.”
Identity theft worsens problems
Credit repair companies can’t legally claim to remove legitimate negative marks from a credit report, but there are plenty of true errors that need fixing.
“I see a lot of people with past due collections on their credit reports that have errors where the debt collector has reported the consumer’s debt twice,” said Joy Hill, owner of Royal Hands Credit Consultants in Crafton. She said that can happen when the same account is reported by two separate collection agencies.
“If someone is late on a payment and they know they were late, we can’t dispute that,” she said. “We dispute information that is inaccurate, such as one collection account
being reported twice.”
Many people with good credit take severe hits to their score when they become victims of circumstance, causing their normal routine to be disrupted. On many occasions, credit repair expert Paul Ritter said, he has seen people who have their payments made automatically through a debit or credit card get late payments when the card is targeted by identity thieves.
“If that happens, my bank sends me another card in about two weeks,” he said. “When I get my debit card, I don’t remember to go in there and make the change with the automatic payment, and all of a sudden I have a 30-day late payment.
“That happens a lot with identity theft being so high,” said Mr. Ritter, owner of My Credit Team credit counseling service in Murrysville.
He said the damage done to a credit report by missing justone payment depends on how high the consumer’s score was to begin with. It would also depend on whether it’s a mortgage payment, installment payment or revolving credit. Late mortgage payments have more severe impact.
According to Experian, late payments stay on credit reports for seven years.
While credit scores can initially take a significant hit, it will recover over time if the consumer doesn’t miss any more payments.
“If you are walking around in 800 or 750 land with your score and all of a sudden you miss a payment, your score could go down 120 points or more,” Mr. Ritter said. The outcome could be catastrophic, especially when consumers live in what he calls “the house of cards” — when someone juggling a wallet full of credit cards is doing ok ... until they suddenly miss a payment.
“As one creditor makes a negative entry on my credit report, all of these companies companies either freeze my limit or they lower my limit, or they call the whole note due,” Mr. Ritter said.
Credit repair industry offers options — and pitfalls
The ripple effect is compounded as companies either freeze or reduce the consumer’s credit because that raises the credit utilization ratio — which accounts for 30% of the total credit score.
The credit utilization ratio refers to the amount of credit aconsumer uses compared to their credit limit. Someone with a $4,000 card balance with a $10,000 credit limit is using 40% of their limit. The highestscores are awarded to people who use 30% or less of their available limit.
The Consumer Financial protection Bureau has for years issued warnings to consumers about debt relief companies offering paid credit repair services.
“Over the past several months,more than half of peoplewho submitted complaints withthe CFPB about credit repair chose the issue “fraud or scam” to describe their complaints,“said a CFPB bulletin inDecember 2019.
Credit repair experts believe the CFPB has their industry in its crosshairs. One recent CFPB proposal that is still in the discussion phase would require credit repair companies to do all the work for clients before being allowed to bill them.
“The CFPB is trying to put us out of business,” said Mr. Lefcourt, who is based in Boca Raton, Fla., but operates 11 branch offices, including one on the North Shore. “Normally what credit repair companies do is we do some work and charge for it, and we do more of the work and charge for it. Who can go four or five months without getting paid?”
The problem, he said, is that the CFPB wants to lump the whole credit repair industry into one group when there are actually three categories.
First, with credit consolidation, the consumer pays a fee to a company that negotiates a lower interest rate with credit card companies and effectively lowers their overall monthly burden.
Next, debt settlement is the area that receives the most scrutiny because consumers are more likely to come out of that process with damaged credit.
“They encourage you to not pay your bills at all on active credit cards that you have balances on,” Mr. Lefcourt said. “This will obviously ruin your credit score.”
The idea behind that strategy is that if your bills go unpaid for six months, credit card companies hoping to recoup their losses are more inclined to negotiate 40% to 50% settlements.
The last category is straight credit repair, which consists of challenging items on consumer credit reports that are either inaccurate or not verifiable.
“Not everybody has a lot of credit card debt,” Mr. Lefcourt said. “But they have other derogatory items on their report.
“Their problem is they want to raise their score from either the high 400s or 500s up to a score of 680 to 720. That way they can qualify for an apartment or to buy a home or get a vehicle or qualify for a new job.”