Never Pay In Advance To Fix Your Credit

Picture this: You're eager to take advantage of today's troubled real estate market and buy a foreclosed house at a fire-sale price. But you don't have much money for a down payment. And your credit files are scuffed up with late payments.

What you need is a service that can help put it all together -- linking you into lists of available foreclosures, credit repair and even low-down-payment mortgage financing.

Companies that promise to do at least some of these things -- especially to fix your credit -- sell themselves aggressively on the Internet. But can they really do what they claim? Based on a recent settlement by the Federal Trade Commission, the only conclusion is: If the deal involves paying money upfront, don't do it.

According to a complaint the FTC filed in U.S. District Court in New York, the Home Buyers Consulting Network of Raleigh promised would-be buyers that it could raise their credit scores by 50 to 100 points, help them locate foreclosed houses through a network of participating agents, and connect them with low-cost mortgage money to complete the deal.

Through online and telephone pitches, Home Buyers Consulting Network and its affiliated firms -- GoodCredit.com, the Good Credit Co. and 0DownHomeBuyers.com -- allegedly guaranteed clients that they could "remove accurate, negative information from [their] credit reports permanently, including bankruptcies and past due bills," according to the FTC's complaint. Sales representatives allegedly claimed they could remove bankruptcies from the national credit bureau files and public records.

For their services, the companies typically requested an initial payment of $99 for credit repairs and $399 for credit and home-buying "consulting" services. The client also had to agree to a minimum contract period -- anywhere from six to 12 months -- and make weekly or monthly payments of $19 to $49. The companies promised to refund all money except $99 if the customer was not satisfied.

After consumer complaints and an investigation in cooperation with North Carolina authorities, the FTC filed suit against Home Buyers Consulting Network and its chief executive, Douglas Andersen Moore, for allegedly violating federal credit and consumer protection statutes.

Among the claims:

· Home Buyers Consulting Network and its affiliates falsely promised clients that they could scrub credit records of even the most severely negative information, even though they were not able to do so when the information was "accurate and not obsolete."

· The companies required payment before performing their credit services -- a violation of the federal Credit Repair Organizations Act. The companies also allegedly failed to include mandatory disclosures of consumers' rights to cancel their contracts without penalty within three business days of signing agreements, also in violation of federal law.

In a settlement with the FTC in late May, neither Moore nor the Home Buyers Consulting Network admitted wrongdoing, but they agreed to stop "using any untrue or misleading statements" to pull in customers looking for credit fixes, as well as to cease collecting money upfront for credit-repair services, and to provide the full disclosures to clients required by federal law.

The settlement imposed a $573,000 civil penalty and a $40,000 restitution of funds to customers. However, when Moore and his companies provided documentation that they were financially unable to pay the penalties, the FTC agreed to suspend all but $10,000 of restitution to customers. As part of the settlement, Moore agreed to intensive monitoring of his business practices.

William I. Rothbard, the defendants' attorney, noted that the agreement "does not prohibit" Moore from further involvement in credit, real estate or mortgage activities, and that "he is moving forward."

What's the significance of the settlement for buyers who need to boost their credit scores to qualify for a mortgage in today's tougher underwriting environment?

If the problems in your credit files reflect actual late payments, nonpayments, charge-offs, court judgments, tax liens or foreclosures, don't look for magic or miracles. No legitimate "repair" service -- no matter how much you pay -- can make them disappear permanently.

Most serious credit issues are likely to remain in your files for three to seven years, and bankruptcies and foreclosures for as much as a decade. Tax liens sometimes remain on your records until they're paid.

However, it's different if your credit files contain erroneous information. Either you or an organization that specializes in credit assistance can contact the sources of the bad information and get it corrected on your national bureau files.

But under no circumstances should you pay upfront for credit-repair services. If a company requires you to do so, file a complaint with the FTC at http://www.ftc.gov.

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.