The Dos and Don’ts of Improving Your Credit
It's hard to argue with facts, and the facts are that bankruptcy filings are on the rise, credit card debt is increasing and many Americans are struggling to make mortgage payments. Because of these factors, U.S. citizens from coast to coast are looking for help with their finances.
Credit counseling, credit repair, debt management - the options abound for those with less-than-stellar credit histories. But some offers on the Internet and in the mail are scams. Here's a look at what to avoid and what to look for when trying to clean up your financial past.
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Common Claims of Credit Repair Scammers
- "Nonprofit" agencies are always safe. In truth, a "nonprofit" label does not guarantee a company's legitimacy. Even if a company is arranged so that it makes no profit, that doesn't mean it's working for the greater good - it could still charge you unnecessary fees or offer you services that aren't very helpful. One nonprofit, Ameridebt, shut down its debt management branch after the FTC sued the company for charging customers more than $170 million in hidden fees, according to CBS News.
- You can get a new credit identity. The reality is, you're stuck with your credit identity forever. Companies that offer you a new credit identity are likely offering you an Employer Identification Number, used by the IRS to identify workers. Not only is this fraud, it will land you in difficulties when you try to get retirement benefits from the government - the IRS will have no history of you working, according to an article on boston.com.
- Piggybacking will improve your credit score. Piggybacking, or adding yourself as an "authorized user" to an account with excellent payment history, became popular for parents looking to help their children get a head start when they began applying for credit. Scammers have applied the same principle between strangers, but now the issue is moot: the Fair Isaac Corporation, which calculates your FICO credit score, recently eliminated the benefit that "authorized user" status has to a credit score.
How to Improve Your Credit
So what can you do to improve your credit score and make yourself attractive to potential lenders? First of all, remember that you can only improve your credit score by improving your credit habits over time - there is no quick fix! Here are some specific techniques that might prove useful:
- Visit a credit counseling agency. A CBS News affiliate recently published an excellent article about determining whether or not a credit counseling agency might be able to help with your financial needs. Basically, the article urges debtors to check with the Better Business Bureau, the Fair Trade Commission, the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies to make sure their credit counselor is a legitimate organization.
- Talk with a bankruptcy lawyer. Filing for bankruptcy will not improve your credit right away, but it will give you a chance to start fresh. Chapter 7 bankruptcy may provide you total discharge of certain types of debts and Chapter 13 bankruptcy will allow you to repay your debts with a three to five year plan. Either way, you'll have a chance to get back on track financially.
In General…
No matter what route you decide to take, remember to avoid any credit repair option that requires you to pay an up-front fee before you've received any services. Since this practice is illegal, it should tip you off that the offer is a scam!
The only way to improve your credit is by improving your credit habits over a period of time.