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It was over cake and coffee that the subject came up. Mary and John were entertaining Mary's friend from work, Kim and her husband Bob. They were in their mid-twenties and were just beginning to make some major financial decisions.
Kim was the one who broached the topic first. "Mary, have you and John ever had trouble keeping up with your payments?" Bob squirmed a little, but remained quiet as Kim continued. "Since we had that car accident last fall we've been behind. We had to come up with a new down payment and the settlement with the insurance company didn't even cover what we owed. Now we're falling further and further behind. I'm not sure what to do."
Mary and John, who were a bit older, admitted that they, too, had had some problems a few years back. John smiled and asked Mary, "Remember when the kids were small and we were so far behind that I was afraid that they were going to come and repo the car? I even started talking to those companies that claim that they can fix your credit."
At this point, Bob loosened up a little and joined in. "I've heard about those services. They claim that they can guarantee a new credit identity. One even says that they can remove bankruptcies, judgments, liens and bad loans from your credit file! Sounds good to me!"
John poured their guests another cup of coffee as he began his explanation. "Let me tell you Bob, when I started talking to these credit repair companies I was desperate. We were getting calls from bill collectors every day. It was a nightmare. I was ready to sign up with one when I realized that I had never heard from anyone else who had successfully used a credit repair company. We all know people who are having trouble paying their bills. Why didn't I hear them talking about how great these companies were?
"So I started doing a little checking up on the subject. I wrote the Federal Trade Commission. You know, the FTC. I even wrote our state Attorney General to see what they had. What I got from them was a real eye opener."
By now Bob was feeling a little defensive. "But John, how much harm can they do? I'm already in trouble. I checked on one company that guarantees their work. Called the Chamber of Commerce just the other day. They said that there was nothing bad in their file on these guys."
"That's one of the things that the FTC talked about. The Chamber of Commerce reports on businesses who pay a membership fee. In most places as long as a member answers a complaint the complaint is closed. The customer doesn't need to be satisfied."
John continued, "They talked about guarantees, too. If the company that gave you the guarantee is gone when you have a problem, what good is the guarantee? The best way to protect yourself is to get a contract that specifies that payment is due only after the work is successfully completed. In fact, one of the warning signs of fraud is a company that asks for 'upfront' money."
Bob was still a bit skeptical. Like most people, he didn't want to have to talk directly to people that he owed money to. The thought that a credit repair company could solve his problem sure was tempting.
By this time Mary had pulled out a file that contained the brochures that had helped the Smith family avoid a problem. She reviewed the warning signs of credit repair fraud:
She read from a portion of the FTC report. "Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can't deliver. After you pay them hundreds or thousands of dollars in up-front fees, these companies do nothing to improve your credit report; many simply vanish with your money."
By now Kim was looking at the material. She read another portion from an FTC brochure. "Before signing up with such a business, investigate it thoroughly. Be sure you understand what services the business provides and what they will cost you. Do not rely on oral promises that do not appear in your contract. Also, check with the Better Business Bureau and your local consumer protection office. They may be able to tell you whether other consumers have registered complaints about the business."
She continued, ""If you need help in dealing with your debts, you may want to contact a Consumer Credit Counseling Service. (CCCS). This is a non-profit organization with more than 850 offices located in 50 states. CCCS counselors will try to arrange a repayment plan that is acceptable to you and your creditors. They will also help you set up a realistic budget and plan future expenses. These services are offered at little or no charge to you. You can find the CCCS office nearest you by checking the White Pages of your telephone directory or by calling from a touch-tone phone 1-800-388-2227 to get the telephone number."
"OK already! I get the idea!" Clearly Bob had been won over. But he recognized that so far he just knew how NOT to solve the problem. He still didn't know HOW to solve it. "If it weren't already so late I'd ask you what you did to get out of debt."
Kim jumped in to complete the deal. "How about you guys come over to our house next Friday and you can tell us what you did." John, always waiting for opportunity to knock replied without hesitation. "Throw in desert and you've got a deal!"
They parted for the evening. But we'll join the Smiths and their friends next week in Avoiding Credit Repair Fraud (part 2).
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Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. You can also follow Gary on Twitter or on his blog.
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