With so many people spending more than they earn, racking up credit card debt, it's no wonder so many people have issues with their FICO scores -- and are desperate for a way out.
Forty-three percent of American families spend more than they earn, according to MSN Money, and carry about $8,000 in credit card debt. Can their prayers be answered with a few hundred dollars given to a phone number on a plastic sign hanging from a telephone pole?
Creative Loafing found one such sign on W.T. Harris Blvd. boasting such services and decided to check it out. After only a brief phone call to the number on the sign, the proposition -- a service that disputes bad credit reports and drives up your FICO score -- seemed a little too easy and way too good to be true.
Tom Bartholomy, president of the Better Business Bureau of the Southern Piedmont, said these businesses are a scam.
"If it's on a telephone pole, it's not a legitimate business," he said.
And if these businesses charge an up-front fee in the name of cleaning up your credit, they are also illegal.
Bartholomy said that North Carolina law forbids anyone who says they can help you with credit issues from charging an up-front fee. "That's what most of these businesses do," he said.
Bartholomy added that the BBB receives thousands of calls per year about these types of businesses. And it is usually after someone has given upwards of $20,000 to some company or person claiming to remove negative accounts from their credit reports.
Don't assume that the people running these companies are just greedy, scheming bastards; Bartholomy said that many of the people posting these signs are victims too. "They probably just came from a seminar where they paid thousands of dollars to learn how to run this business from their home, only to learn that it is illegal," he said.
So, can you clean negativity from your credit report for free? Yes. Bruce Hamlett, director of United Family Services' economic independence program, said consumers can dispute any negative information on their credit reports by simply writing a dispute letter to the credit bureau.
"There are certain rights you have as a consumer under the law and one of the rights is you have the right to dispute anything on your credit report. Anyone can do that," he said. "If you write a dispute letter to anyone of the credit bureaus, that credit bureau has to remove that from your credit report while they are researching it. If they determine that item shouldn't be there or they don't get around to reviewing it in 30 days, that item never returns to your credit report."
How do these credit "cleanup" companies make it seem as if your credit score has been raised?
Hamlett said the game these companies run is to write a letter disputing every negative item on your credit report and for one reporting cycle, your FICO score shoots up. But after an investigation and some of the items are returned to the credit report, your score goes back down.
"For that small period of time, your credit report might look pristine," he said. "You don't have to pay someone hundreds of dollars to do that. One of the things we do is give our clients a form letter [to dispute items]."
Hamlett says the only fee United Family Services charges for its services is $15. If a person is really struggling, the fee is waived.
"Still, people can do it themselves, they can pull their own credit report, they can go through and dispute anything they want on their report and the bureau has to research it," he said.
Legitimate for-profit credit counseling agencies also offer credit counseling. ClearPoint Financial Solutions, a Virginia-based non-profit 501c3 agency with an office in Charlotte, does the same. ClearPoint spokesman, Bruce McClary, said there isn't a magic wand that can be waved to clean up bad credit.
"Be careful who you select to help you out of a bind," he said. McClary said it's always best to check out any credit counseling agency with the Better Business Bureau before signing up for their services.