Debt: Credit-Repair Companies

Excerpted from
Girl, Get Your Credit Straight!: A Sister's Guide to Ditching Your Debt, Mending Your Credit, and Building a Strong Financial Future
By Glinda Bridgforth

Patience. It's definitely a virtue. Unfortunately, most of us want what we want and we want it right now-including a clean credit report. Some folks will go to any length, including using credit-repair clinics to get the job done. But as you'll learn in the next chapter, you have to be very cautious with these companies and their services. You'll pay dearly for things you could do yourself. One company's fee is $599, with a one-year contract and $150 at renewal. Other companies could cost you even more.

The Federal Trade Commission warns about dealing with organizations that claim they can provide a new identity, a new file, and remove late payments, bankruptcies, or other information from your report. Remember: If the credit information is accurate, it will remain on your report for a period of time. For instance, if you were ten months late paying your cell phone bill and the cell phone company reported you, that negative piece of information is not considered erroneous or fraudulent. And it cannot be removed by you or a credit-repair company. It's part of your history. Relax. You don't need the help of an outside company to start doing the right thing. Make your payments by the due date, keep balances low, and your credit report will improve over time. If you choose to use a credit-repair company, I'll give you some tips to follow in the next chapter.

Credit-Monitoring Services

Ten years ago, no one in the general public had heard about these services. Now all the credit bureaus push for you to subscribe to one of their credit-monitoring services, which can cost more than $100 a year. These services allow you to have "real-time" information on who is accessing your credit. Rut these services do not necessarily give you the keys to unlock the doors to all of your credit reports and scores from all the bureaus every day. These services each have their own model for what they are providing you; for example, one service might examine all three credit reports, sift through the individual items, and rank them in order of impact on your credit report. It might also allow you to plug in a variety of credit behaviors, such as buying a car, paying off a credit-card balance, or closing accounts you don't use, and use its simulator to see how your credit score changes. Virtually all of these services have an alerting system in place for when something suspicious turns up on your credit report that can indicate identity theft, but nothing about these services is truly exceptional. You are basically paying for someone else to review and analyze your credit report. All of the services are based on paying for information that's available for free or at a very low cost.

For this reason, about the only time credit monitoring is worthwhile is when you've been a victim of identity theft or are at high risk of it. But even then, it's free and simple to have the credit bureaus flag your account and contact you when there's any activity. Bottom line: Don't be fooled into thinking you need a credit-monitoring service. Save the money and put it toward your debts.

Do Credit Scores Discriminate Against Minorities?

According to Fair Isaac, only credit-related information is provided on credit reports, so regardless of race or ethnicity, consumers with the same history would have the same score and would likely honor their financial obligations in the same way. The Equal Credit Opportunity Act also prohibits lenders from using race, gender, or nationality when considering loan requests. But a recent Federal Reserve report based on 2004 data indicates that blacks were more than three times as likely and Hispanics more than twice as likely as whites to obtain higher-priced loans-1.75 percent to 2 percent above what banks normally charge their creditworthy customers. In 2004, only 8.7 percent of whites were in the higher-priced category, while 20.3 percent were Hispanics and 32 percent were blacks. The Fed researchers concluded that this discrepancy "may be symptomatic of a more serious issue," but at the time of the report, more evidence was needed to determine if banks were breaking discrimination laws. Unfortunately, the same credit reports that keep track of these higher-priced loans are used as background checks for employers and we get stuck between a rock and a hard place-we can't get the job to improve our financial status, to pay our bills on time, improve our credit reports, and get better interest rates.

For now, we're forced to deal with the situation at hand. Our credit history is going to be maintained by credit bureaus whether we like it or not. But this can be seen as a blessing if you look at it like this: If racism is still an issue with our lenders and creditors, the best way to combat it is to use our credit reports to our advantage by making them as strong as possible. The stronger they become, the weaker the credit industry's reasons for lending us money on poor terms. So it behooves us to be as diligent as possible in managing it properly. Once you know the rules of the game, you can establish healthy habits that will get your credit score straight and keep it growing!