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Not so fast.Preying on people who have a real need and are often blinded by their own circumstance is an age old practice. In today’s darkened economic and political climate the scammers are as likely to advertise their mostly empty promises as the trustworthy service providers. Perhaps the scams are even more prolific.
Credit scoring was introduced in 1958 by the Fair Isaac Corporation. Today FICO, a publicly traded company, provides scoring software to most reporting agencies in the United States. Equifax, the oldest of the three major credit bureaus founded in Atlanta in 1899, uses the FICO model with a range of scores from 350-850. Experian, based in Dublin, Ireland, uses a FICO model with scores between 350-800 and also offers the VantageScore® with a range of 501 to 990. Lastly, the third most popular bureau for credit reporting, TransUnion, uses a FICO modeled score with a range of 350-850.
Almost every borrower knows if you have a lower credit score you will either be denied credit or pay a higher cost to borrow money because of the risk to the lender. While the more liberal members of the federal government believe banks, lenders and retailers should cover the risk spread and make all loans equally to all people the simple truth is that will never work. Improving credit scores through a legitimate program, however, will allow higher risk borrowers to become lower risk and thus deserve the better loan pricing.
According to data from TransUnion borrowers with a credit score of less than 500 are 87% likely to be slow to pay or default on the loan. Conversely those with a credit score of 700-749 are less than 5% likely to be delinquent or in default. Though the term is over-used it is a “no-brainer” to the economy that lending to people with lower scores cost more than lending to people with higher scores.
Credit restoration and credit repair companies do have a legitimate function. Unfortunately, according to government investigations and concerns, many of these companies are not licensed, have no liability to the customer and use questionable techniques to attempt to deliver on promises of dramatic score increases almost overnight.
Until recently one of the favored techniques of certain credit enhancement companies was to position their customer as an authorized user on the credit of another individual who had long, good standing credit. For a while it worked until lenders stopped using “authorized user” credit unless there was a very close relationship and the applicant (authorized user) could provide paper evidence of having paid or contributed to the repayment of the debt. The practice of having another individual’s good credit placed on an applicant’s credit report is now examined as a red flag of loan fraud.
Other credit repair companies choose to dispute all negative credit remarks, whether legitimate or not, in hopes that even the legitimate claims will not respond to the allegations within the 30 day period allowed by federal law. If the lender does not respond within 30 days the bureaus are required to remove the negative information.
In the end these companies are not scamming only their own clients but adding massive expenses to the lender who is legally due the debt. If they do not recover the cost is then passed on to the consumer thus increasing prices. This does not even take into consideration the massive number of labor hours required to respond to illegitimate contests of reporting accuracy.
What are your views of the credit reporting system? Do you support these techniques of “credit repair”, “credit restoration” and “credit enhancement”?