A shaky economy spawns growth of credit-repair scams

Every day, thousands of people type the words “credit repair” into an Internet search engine. Thousands more type in phrases like “bad credit” or “bad credit repair.”

Figuring out how to repair your credit is on the minds of homebuyers, -sellers and -owners, each of whom have realized having stellar credit gives you financial options — options that aren’t available to those with low credit scores.

Unfortunately, some of the Web sites that come up in a search for “credit repair” can do more harm than good.

Credit-repair scams abound in economic times such as these, with a shaky economy, record levels of foreclosures and rising numbers of bankruptcies, credit card delinquencies and late mortgage payments.

Yet some people are so desperate they’ll try anything, even a general search on the Internet.

The typical credit-repair scam works in one of a couple of different ways. There’s always the promise your credit history will be wiped clean, and you’ll be asked for a large payment upfront, sometimes as much as $1,000 to $1,500.

In one typical scam, the credit-repair organization will tell you you’ll get a new Social Security number. Since the Social Security number is new, it won’t have any blemishes and your credit will be perfect.

Unfortunately, the Social Security Administration almost never gives out a new Social Security number, even to people who have legitimately had their number stolen and used repeatedly.

Instead, the SSA expects you’ll work hard to clean up the fraud, or at least do what you can to live with it. Only in extremely rare cases, such as when a Social Security number has been stolen and used by dozens of people, will the office consider issuing someone a new number.

So what is the credit-repair company actually doing? It’s filing for a new number, but it’s an EIN, an employer identification number. This is a nine-digit number (similar to a Social Security number) used to identify companies to the Internal Revenue Service or for tax-payment purposes only.

If you start using an EIN as your Social Security number, and change how your income is reported to the IRS, you’ll find yourself in a pickle when it’s time to retire and the IRS has no record of your work history. You might also be accused of conspiring to commit fraud.

Another common credit-repair scam is to dispute all the negative information on your credit history.

Under federal law, a credit-reporting bureau must investigate all disputes within 30 days. If the bureau can confirm the negative information, it stays on your report. But if it can’t confirm it, the information is pulled off of your credit history.

But here’s the key: While the information is being disputed, it temporarily disappears from your credit history. So, your credit history looks perfect, even though it isn’t. At the end of the 30 days, the credit-repair company will dispute all the charges again.

For a big, fat fee, credit-repair companies promise you the moon. All you’re really going to get is trouble.

Glink's latest ebooks are “Credit Scoring Secrets” and “How to Find a Great Real Estate Agent,” which are available at her all-video Web site, www.expertrealestatetips.net. If you have questions, write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact her through her Web site, www.thinkglink.com.