Here’s how it works: When consumers file a dispute with the credit bureau, they are asked to describe the error, and can opt to send any supporting paperwork or information separately. The bureaus then conduct an investigation, which basically involves notifying the creditor about the disputed information so the creditor can confirm whether it’s wrong. Problem is, the bureaus report errors by choosing from a list of two-digit codes that describe the most common types of complaints, such as “account not his/hers” or “claims account closed.” That, consumer advocates say, may solve some problems. But it doesn’t solve those that fall outside the box.

“They try to automate things to make it cheaper, but in the process they lose a lot of detail,” says Chi Chi Wu, staff attorney, National Consumer Law Center. “People send these long letters that explain what happens, a lot of documentation, and all of that gets reduced to two-digit codes which the agency sends to the lender, the furnisher of the information.”

So essentially the “investigation” the credit agencies are conducting consists of sending a two digit code to the person who reported you to ask whether it’s true or not. And often, because that code is so generic, the company they’re reporting it to won’t have any clue what the basis for the objection is. The article discusses several people who were forced to resort to a lawsuit to get a human being at the credit agency to actually evaluate their file. There doesn’t seem to be any good way around this problem, other than making sure the person who you owe the debt to will confirm it’s inaccurate. But as one of the people in the article demonstrated, sometimes it can be a tax lien or something else where no one has any incentive to help you out.

Discuss this in the Free the Drones Financial Forums.

1) Never pay up front. It is actually illegal for a credit repair organization to receive money from you prior to the services being rendered. The Credit Repair Organizations Act places restrictions on what they can do, and it provides:

No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.

So if they’re asking you to pay up front, it’s a bad sign that they don’t care about what the law says.

2) They advise you to try to set up a separate credit report or use a different identity. Again, that’s illegal. The same Act provides in part that it is illegal to:

make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer’s identification to prevent the display of the consumer’s credit record, history, or rating for the purpose of concealing adverse information that is accurate…

3) They ask you to sign a contract before showing you a written statement titled: ‘Consumer Credit File Rights Under State and Federal Law’. Again, this is a legal requirement. They can’t enter into a contract with you without showing you this statement – it’s a pretty lengthy statement that shows your exact rights, and the Credit Repair Organizations Act requires it to be worded a certain way. If you never see that document, you’re dealing with someone shady – don’t sign anything if they don’t VOLUNTARILY show it to you. Don’t ask for it – use it as a warning sign. If they give you something to sign before giving you that document, say no thanks and walk out.

4) They don’t want to give you 3 days to cancel. You’ve got a legal right to cancel any credit repair services you agree to within three days. Ask them about it specifically. If they try to give you some line about how you can’t, you don’t want to deal with them.

5) Listen to your gut. Are they promising you something that sounds too good to be true? Don’t you remember what your parents used to tell you about things like that? Well, it was good advice. There is a limit to what credit repair agencies can legally do for you. If you ruined your credit, no one is going to be able to miraculously make those problems go away. If the credit repair agency is telling you that you should be paying debts on time, using well-accepted “tricks” like having a credit card and paying it off each month, and managing your money well – then they’re probably the real deal. If they’re telling you that everything will be OK if you report to the agencies that a Guatemalan coffee farmer has stolen your credit and then set up a Reverse Interdict Abraham Lincoln Trust in the Canary Islands to manage your funds, you should probably be a little suspicious. Scams usually sound like schemes.  

You can read up on the Credit Repair Organizations Act here, which outlines many of your legal rights.

Discuss this on the Free the Drones Financial Forums here.

The reality is that there is no simple way to delete bad credit history. The credit agencies are only under an obligation to remove information that is factually inaccurate. There is a dispute procedure, and if you see anything inaccurate on your credit report you should be using it. However, they will conduct an investigation and will want you to submit any materials you have proving that the file has an error. They’ll also get in touch with the company that reported you – and if the file is accurate, you’re not going to get it removed.

A related scam is for the credit repair agency to tell you that they will dispute everything, hopefully getting some of the items removed in the process. Often this works – temporarily. There is a 30 day limit on the investigation process, and credit repair agencies that use this strategy hope to force the credit bureaus to investigate everything, meaning that some of the items on your credit report won’t get checked out in time. When it works, the credit agencies have to delete those items from the file. BUT – it’s only temporary. If they confirm the information after the 30 day period, they can put it back in. So what usually happens is that the credit repair company gets you what looks like a big improvement, and a month or two later you find out that your credit is back where it was. The credit repair company, however, is nowhere to be found or will point to a fine print clause saying it’s not their problem.

Discuss this on the Free the Drones Credit Forums here.

Wrong! Turns out it’s illegal, and it is a felony under federal law to establish a new identity for this purpose. You could be fined or even go to prison. The Federal Trade Commission has an extensive debunking page on their website here. They describe the scam as commonly looking like this:

If you have filed for bankruptcy, you may receive a letter from a credit repair company that warns you about your inability to get credit cards, personal loans, or any other types of credit for 10 years. For a fee, the company promises to help you hide your bankruptcy and establish a new credit identity to use when you apply for credit. These companies also make pitches in classified ads, on radio and TV, and even over the Internet.

I’ve looked around online and seen several companies claiming that if you just listen to them and do it their way, with a tiny loophole, they’ve figured out a way to make file segregation a legal way to repair your credit. Don’t fall for that. It’s not legal, period, and you’re going to get into trouble if you do it. There is no legal way to just delete your old credit and get a new file.

What if you paid a credit repair company already and they want you to use file segregation? You have rights under the Credit Repair Organizations Act. The FTC explains:

This law prohibits false claims about credit repair and makes it illegal for these operations to charge you until they have performed their services. It requires these companies to tell you about your legal rights. Credit repair companies must provide this in a written contract that also spells out just what services are to be performed, how long it will take to achieve results, the total cost, and any guarantees that are offered. Under the law, these contracts also must explain that consumers have three days to cancel at no charge.

Under the law, you also have the right to sue in federal court. The law allows you to seek either your actual losses or the amount you paid the company — whichever is more. You also can seek “punitive” damages: sums of money to punish the company for violating the law. The law also allows class actions in federal court: cases where groups of consumers join together in one lawsuit. If you win, the other side has to pay your attorney’s fees.

This sounds complicated, but the upshot is: call an attorney. Even if you can’t afford one, you might be able to get one for free – because if you’ve got an open and shut case, the attorney will take the fees out of the hide of the credit repair company. If that doesn’t work, report them to the FTC directly.

Discuss this on the Free the Drones Credit Forums here.

Would you let your kid go through life without telling them not to smoke or explaining what drugs are? Then don’t let them be oblivious about credit cards, either.

Discuss this on the Free the Drones Forums here.

Calvin’s income fluctuates, and in 2005 it topped $200,000. Each year Calvin makes the $12,500 maximum contribution to his Simple IRA, a small business retirement plan.

Daisy, a medical technologist, works part time for Calvin and draws a salary that covers her IRA contribution.

Last year they gave $40,000 to charity, spent $35,000 on home improvements and saved another $7,200.

In retirement, the Dixons would like an annual income of $96,000. To cover that, they have $335,600 spread among different IRAs and brokerage accounts.

About 65% of their money is in stocks (nearly all large-caps), 18% is in bonds, and 17% is in cash. They’re also planning to sell Calvin’s practice, which they value at $200,000.

They are in poor shape at the moment for the retirement income they want. CNN’s advice centered around saving $55,000 a year until age 65, which would give them enough money to meet that goal. The article gives them some good advice, such as making their son pay for his own graduate school and partnering with a younger doctor so he can sell his practice early. I would add:

1) Cut out the charitable giving. It sounds harsh, but let’s be realistic – if you’re giving $40,000 a year in charity and not saving for your retirement, you’re doing something wrong. For some people this won’t emotionally be an option – but I would suggest either paring it back or getting rid of it entirely and willing a large chunk of your money to charity when you die. There are also plenty of alternatives to giving away money if you want to do your share of good deeds, especially for a doctor. Why not volunteer to service poor communities for free in your spare time? Or stop giving to charity for 8 years until retirement, and then volunteer to keep yourself occupied and salve your conscience. I’m not saying that people who want to give to charity should cut it out entirely, just that you should not ruin your financial planning when doing it.

2) Cut out the home improvements. $35,000 a year? That’s 10% of their current retirement savings – way too much to blow on improving the house. And even under their ambitious plan, they’re going for a nest egg that will give them income of less than half what they earn now – a pretty big drop in quality of life.

Between those two, they’d have another $75,000 a year – enough that they could exceed the recommended plan of $55,000 a year and live much closer to their current spending levels.

While it won’t do anything to help the Dixons, I think their story should serve to caution younger people about the problems with waiting until the last minute until starting to retire. If they didn’t make over $200,000 a year, they would be hopelessly in trouble for retirement with that level of savings. Most people won’t make that much – and if you don’t start looking at retirement until your 57, it is much harder to save what you need in that short a time period. It’s a lot easier to do it over 40 years than it is to do over 8, even if you’re making a lot less money. They have a tough, doable task ahead of them, but many Americans find themselves in a hole too deep to dig out of at that age.

Discuss this example or submit your own in the Free the Drones forums.

This post is a quickie, but has an important tip for people looking to build up your credit score: think about switching to Verizon for your cell phone service. Why would that make a difference? Most cell phone companies don’t report your monthly payments to the credit agencies. If you pay on time, you don’t get any benefit for it in your credit score – but if you don’t pay, you’ll still get a hit.

Verizon, however, has started reporting every month. If you pay on time, it goes on your credit report. They do this in nearly all the states Verizon is available in. This means that if you’ve always paid your cell phone bills on time, you can boost your credit score over time by using Verizon instead – because it will now be on record.

Who should do this? And who shouldn’t?

If you’re young and have no credit history, this is a great way to get started. If you’ve got a bad credit history, but have fixed your problems and are now paying everything on time, this is a good way to repair your credit.

You shouldn’t use Verizon from a credit score perspective, however, if you’re likely to miss a payment. This is the big downside to monthly reporting: people who miss payments or are late in making payments will now be on record. Before this decision to report monthly, you could get away with missing a payment or being late without it going on your score, as long as you paid it without waiting too long. Now, people who miss payments will actually lower their credit scores by using Verizon. That’s also a very good reason to keep the autopay option on – being late will hurt you.

To discuss this, visit the Free the Drones forums here.  

This part deals with how to change the way you pay your bills each month to gradually increase your credit score. If your credit score has been damaged from late payments, then this post is for you. There are two basic categories of people for the purposes of this post: those who can afford to pay their bills each month and those who can’t.

What to do if you’ve got enough money to pay your bills:

The short answer is: pay them! If you’ve got enough money to cover your expenses each month, then you’ve got no excuse for failing to pay the bills. However, that doesn’t work for some people because their problem is not the lack of money – it’s forgetfullness. Many people let their credit get damaged by an easily correctable problem – forgetting to pay some of their bills occasionally. You NEED to fix this. It doesn’t look good, and it hurts your score – but worst of all, there’s no excuse for doing it. It’s not that you don’t have the money – it’s that you haven’t gotten organized. How can you stop yourself from going down this spiral?

1) Sign up for autopay for every bill that offers it. This is the easiest solution because there is no way for you to forget, and nearly every major company offers something like this. You do it once, and every month your bank account will be billed automatically for whatever you owe.

If you’ve got more than enough money to pay your bills each month, there’s really no reason not to. Autopay also has the added benefit that you won’t be tempted to spend money that isn’t in your account anymore.

2) If you have bills that you can’t or won’t put on autopay, make a list of them and get into a routine of paying them each month on a certain day. Most of the problems people have with paying off bills come from the fact that they don’t all come in at the same time. You may get your cable bill and remember to pay it, but then you leave the water bill on the table and forget about it until it’s late. If you put the bills all in one place, and get in a routine of paying them all at once, you won’t miss any strays. Keep a checklist to make sure you get them all.

Even if you don’t want to pay all your bills on one day, you should have a last minute “check the bills” day – a day where you make sure everything has gone out paid for the month. As you pay your bills, put the bill itself in a central location with the other bills that have been paid for the month. Run through your checklist, and make SURE you got every one that’s due.

3) Have a cell phone? Use the organizer to set up a reminder. On “bill day” or whenever you need to pay, you need a system to remind you. Most modern cell phones have lots of nifty little features, and one common one is the ability to set a reminder. Do it, and if it makes you reset it, then after you’ve paid the bills for the month, set a reminder for the next month. Put “set a reminder” on your checklist, too – and check it off when it’s done.

What to do if you don’t have the money to pay all your bills:

This situation is the tougher nut to crack. There are lots of things you can do to remedy this in the long run – but in the short run, you need to try to minimize the damage to your credit. If you aren’t paying your bills, you can lower your credit score extremely quickly. Luckily, however, you can usually keep this from happening even if you don’t have enough money to go around by following these tips:

1) Prioritize your bills based on who is most likely to report to the credit agencies. This is similar to what most people with financial problems instinctively understand – the idea of paying the bills for what you absolutely need, first. Everyone pays the power bill – because if you don’t, the lights go out. The car payment or the cable bill are lower down on the list. But you also ought to think about which bill is most likely to damage your credit if left unpaid.

Generally, a credit card, mortgage, car loan, or other debt is at the top of this list. A failure to pay a debt is going to be reported, and most of these companies regularly report whether you pay or not each month. Want to be sure? Request your free annual credit report. You’ll see a list of payments made each month from all the companies that are regularly reporting to the credit agencies. Pay these bills in full each month if you can, because they’re going to report either way.

Normal bills like cable, the phone bill, electricity, water, and the like are usually not reported on a regular basis. In fact, most of these companies will wait several months after disconnecting your service to report you. That’s not a sure bet – some will jump the gun and do it within a month of nonpayment. But you’re much less likely to get reported right away, which will buy you some time to pay them off.

2) Negotiate, negotiate, negotiate. Think the best approach is just to dodge your creditors and not talk to them? Wrong. The best approach is to call them up, explain that you can’t pay, and offer to pay something, even if it is small. Tell them you don’t want to damage your credit, and you want to pay, and ask if they can put you on a payment plan.

Most collection departments will be happy to deal with you. Not happy, exactly – but they know they are much better off if you are paying something than if you disappear on them. It makes their lives easier. So if you call them up, pay $20 on the $80 cable bill, and promise to pay it in full next month, you’re going to be in better shape than if you disappear. Try to get the company to commit not to reporting you if you can.

In fact, disappearing is the fastest way to get reported. If a company can’t get in contact with you, they’re likely to just write off the debt and declare it uncollectable. That usually means one of two things: either they report to a credit agency, or they forward the debt to a collection agency who will - and who will try to make your life miserable to get you to pay.

3) Fix the problem in the long run. If you can’t pay your debts, you have a problem and you need to fix it. You either need to make more money or spend less – and usually it’s easier to spend less. If you constantly find that you don’t have enough money to pay the bills each month, then you can’t expect to keep your credit clean.

For most people in this situation, this means getting rid of your credit card debts, being more frugal, and putting yourself on a strict budget. Those are all complicated subjects in their own right, so start reading up. You can visit the Free the Drones Forums to ask questions or read more.  

http://money.cnn.com/2006/07/19/pf/employee_screening/index.htm

A recent survey by staffing firm Spherion found that 79 percent of companies said they conduct background checks on some or all job candidates, 50 percent perform drug tests and 33 percent said they perform credit checks.

More than half of companies that use these screening methods also said they have increased their use of them since 2001.

Besides verifying the details on your resume, employers most commonly screen for criminal behavior, drug abuse, regulatory violations and — of late — inclusion on terrorist watch lists.

But they also may take an interest in tax liens, bankruptcy filings, a habit of bouncing checks, ongoing divorce and custody proceedings, driving violations and medical conditions.

That’s because employers are concerned that someone with serious monetary problems, health issues or family concerns might not be fully focused, said Tal Moise, CEO of background screening firm Verified Person, and Cynthia Shapiro, a former human resource executive and author of “Corporate Confidential.”

A full third of employers – a great reason to begin improving your credit if you haven’t already. But it’s also a little scary, in that it makes the spiral of debt problems even worse. If you can’t get a job because you have bad credit, how are you supposed to ever improve your credit?

There’s not much you can do about it, because negative information stays in your files for seven years. But you should be thinking about how you’re going to deal with it in the interview process. One suggestion the article makes is to apply to small companies instead of big ones – they are less likely to conduct this kind of rigorous background check and more likely to be flexible about it even if they find something bad in your financial past.

Another suggestion is to avoid talking about it in interviews, because the company can’t legally bring it up.

If you’re currently employed somewhere, you should start checking out your credit reports before you begin job hunting. If you spend six months to a year working at it, in many cases you can achieve a lot as far as credit score improvement.

Discuss this on the Free the Drones Forums here.

You may be telling yourself that you know your credit is fine – you pay all your bills, you’ve never had a problem with anything, and you’re current on them all. This is NOT the case – mistakes are actually quite frequent, and many people check their credit reports only to find a mistaken report that they are deliquent in payment.

There are a number of reasons that you could have errors in your credit report. First is that many companies are simply incompetent. My most recent check of my credit report disclosed that my cable company had reported me for failing to pay a cable bill. They had been in error in billing me in the first place, because they mistakenly continued billing after I cancelled the service. Four months after I was told they had corrected the error, someone in their collections department forwarded a deliquent account notice in my name onto the credit agencies.

Second, sometimes you will find that you are signed up for something you didn’t think you were. Another mistake I discovered was that I had a credit card, unknown to me, which had been open for 6 years. I had filled out a “survey” in college to get a free T-shirt, and wound up with a Discover card in my name as well – without ever being contacted about it.

Third, there is a risk of identity theft. People may use your name or social security number to sign up for lines of credit, or they may use them to get water, power, or other services turned on. When they don’t pay the bills, you get a bad mark on your file – and no one ever gives you a heads up if you don’t request the credit report. Think that’s not going to happen to you? You can read more about it here. Tens of thousands of people have had this happen to them, mainly because illegal immigrants to the U.S. have begun using real people’s Social Security numbers in an effort to qualify for various kinds of services. They buy real social security numbers on the street – and yours could be one of them.

Fourth, sometimes overaggressive collection agencies will report people they shouldn’t. Many times debts which are not really owed will be forwarded on to unscrupulous collection agencies which use your credit as a tool for blackmail to try to get you to pay.

So what can you do about mistakes on your credit report?

If you’ve reviewed everything carefully, and found a mistake, you’ve got to dispute the information. There are two pathways you’re going to have to use. 

First, you need to contact the person who is reporting this information to the credit agencies. If it’s a company that has made a genuine mistake, they will usually retract the information from the credit agencies themselves. MAKE SURE THAT IF IT’S AN ERROR, IT GETS REPORTED AS ONE. If you genuinely didn’t owe a debt, you do not want it reported that you paid or satisfied it – you want the company to acknowledge its error. The reason is that if your credit history shows that you were deliquent in paying something you owed, but then later satisfied the debt, your score will be lower – it will reflect your original failure to pay what you “owed.” If you didn’t owe it, don’t let the company report that you “satisfied” the debt.

You also need to request that the company send you a letter acknowledging its error. You want something in writing – if the company had problems in the first place, how do you know they’ll get things right later on? What if their report to the credit agencies doesn’t properly retract the information? Getting it on paper covers your rear in case they make MORE mistakes. It also gives you something to show anyone who looks at your credit report in the meantime – it can take 30 to 60 days for the errors to get corrected.

You also need to know that if you are dealing with a collection agency, more restrictive rules apply. Go here and read up on the Fair Debt Collection Practices Act – it only applies to third party debt collectors, and not the company you owe the debt to, but it imposes a number of restrictions on what they can do – and gives you a legal remedy if they don’t meet them.

The second step is to contest the errors directly with all three of the credit agencies. You’ll need to have requested a credit report with them first – if you find the problem with one agency, you still have to get reports from the others. This means you have to either use your one free annual credit report to do this or buy a credit report from the other two. If you have been denied credit, however, you are also entitled to a free report if you act within 60 days.

There is an excellent, comprehensive guide on how to do this from the FTC, which you can access here.

You can either do this in writing, as the FTC recommends, or go online to the web sites of the three credit agencies. These sites are:

http://www.equifax.com/

http://www.experian.com/

http://www.transunion.com/

Each site has an online form you can fill out, granting you a limited space to explain why you think there is an error. Personally, I would recommend going with both routes, just to be safe. They will investigate, and it generally takes a month or so for them to complete this and fix the report if it is in error.

What if I’ve been the subject of identity theft?

You have a much harder path. In fact, the credit agencies often won’t really fix it if another person is using your social security number. There is another government site on how to deal with identity theft here – you can’t just fix the errors in your credit report. You’re going to have to do something to stop the fraud from happening again – which will mean closing accounts and contacting the police.  

Discuss this in the Free the Drones forums here.