Are Credit Sweeps Legal? – Credit Countdown

December 11, 2021CreditBy toptierfinancial

Credit Sweep Fraud - PinterestCredit sweeps are a heavily advertised and promoted service among credit repair companies. Unfortunately for many unsuspecting consumers looking to improve their credit, the credit sweep is a fraudulent and illegal practice.

John Ulzheimer, one of the nation’s most prominent credit experts, explains why you need to watch out for credit sweep scams in an episode of Credit Countdown.

Disclaimer: The views and opinions expressed in this article are strictly those of John Ulzheimer and do not necessarily reflect the official stance or position of Tradeline Supply Company, LLC. Tradeline Supply Company, LLC does not sell tradelines to increase credit scores and does not guarantee any score improvements. Tradelines can in some cases cause credit scores to go down.

Credit Repair: Legal vs. Illegal

To be clear, credit repair as a whole is not illegal. Credit repair—the legal kind at least—is simply the process of removing inaccurate or unverifiable information from a consumer’s credit report. This is done by disputing the negative items with the credit reporting agencies (CRAs, AKA credit bureaus). Alternatively, credit report information may be challenged through the financial institution that is furnishing the data to the CRAs.

Credit repair is legal as long as it complies with federal and state rules and laws that govern the industry of credit repair.

Hiring a Credit Repair Company to Fix Your Credit

Although the credit dispute process is free to everyone, consumers who want help repairing their credit can choose to pay a credit repair company to try to get negative information removed from their credit reports.

Although trustworthy credit repair professionals do exist, there are also plenty of “scumbags,” in John’s words, in the industry who take advantage of consumers and use illegal and fraudulent practices to make money.

For this reason, it’s extremely important to do your due diligence before deciding to work with a credit repair company.

The Credit Dispute Process

Typically, the credit repair process involves sending letters on the behalf of consumers to challenge the validity of the data in question and ask the CRAs to validate the items. This process is not illegal; it is commonly used and has been around for decades.

Disputes Under the Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) gives you the right to dispute information on your credit reports that you believe to be incorrect. If you do challenge an item on your credit report, the credit bureaus are required to perform an investigation. They then look into your claim and determine if the dispute is valid or if the challenged information can be verified as correct.

Section 605B of the FCRA

Section 605B of the FCRA is a section that is entitled “Block of Information Resulting From Identity Theft.”

This section of the FCRA states that if you have been the victim of identity theft and someone else has fraudulently opened accounts in your name, then you have the right to have the fraudulent information resulting from identity theft removed from your credit reports.

In addition, in the event of identity theft, Section 605B obligates the CRAs to do two things that are not normally required as a part of removing negative information:

They have to remove the fraudulent information from your credit report within four business days of receiving all of the valid documentation that proves identity theft has occurred. This is a very short period of time in comparison to the 30-45 days that are typically allowed for the credit bureaus to complete their investigations and remove the information.
They have to block the information from ever appearing on your credit reports again. 

Scammers have abused this section of the FCRA by selling a service that takes advantage of these policies even when identity theft is not the cause of negative information appearing on someone’s credit report.

What Is a Credit Sweep?

This particular scam that disreputable credit repair companies often engage in is called the credit sweep.

The goal of a credit sweep is to cause the credit bureaus to remove negative information from your credit reports prior to the time that they are legally required to do so. The FCRA mandates that negative information must be removed from a credit report after seven years (with the exception of a Chapter 7 bankruptcy, which can stay on your credit report for up to 10 years).

A credit repair company tries to get the negative marks deleted from your credit report immediately rather than waiting until it is seven years old, when it will automatically be taken off of your credit report.

How Do Credit Sweeps Work?

The way a credit sweep works is the credit repair company asks you to pretend that you have been the victim of identity theft so that they can get the credit bureaus to remove accurate, valid negative information from your credit report.

The credit repair company has you go to an enforcement agency such as the police and file a police report claiming that your identity has been stolen. They can then show the identity theft report to the credit bureaus as “evidence” that the negative information on your credit report is there as a result of your identity being stolen.

If the credit sweep is successful, the CRAs have to remove all of the implicated negative information within four business days and prevent it from ever reappearing on your report, thus “sweeping” all the negative items off of your credit report.

Credit Sweep Fraud

As John puts it, it is clear that credit sweeps are fraudulent and illegal.

Not only are you lying to the CRAs, but also to the police, and filing a false police report is against the law. 

In addition, lying to the credit bureaus and then defaulting on your credit obligations can land you in court, criminally charged with fraud.

Conclusions on Credit Sweeps

Is it worth it to try to fix your credit by purchasing a credit sweep and possibly being prosecuted for fraud? Or is it a better idea to pay your bills on time so that negative information does not hit your credit report in the first place? It’s up to you to consider the pros and cons.

If you learned something from this article, please share it so that others can be aware of the dangers of credit sweep scams.

You can watch the Credit Countdown video below. Find more content like this on our YouTube channel and in our Knowledge Center!

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Are There Negative Items That Can Stay on Your Credit Forever? – Credit Countdown With John Ulzheimer

August 23, 2021CreditBy toptierfinancial

Negative Items That Can Stay on Your Credit Forever - PinterestIn credit reporting, negative information can only stay on your credit report for a maximum of 10 years for a Chapter 7 bankruptcy and seven years for everything else—right?

The Fair Credit Reporting Act (FCRA) does mandate that the credit bureaus remove negative information from consumers’ credit reports within 7-10 years depending on the type of information. 

While this is true most of the time, there are three exceptions to this rule, meaning that certain negative items could potentially stay on your credit report permanently.

1. If the consumer is applying for a job with a salary of $75,000 or greater.

If a consumer is going to apply for a job that pays $75,000 or more, and the employer uses a credit report as part of the employment screening process, the credit bureaus are allowed to include information on this report about derogatory events that occurred more than 7-10 years ago, such as an old bankruptcy or old collection accounts.

2. If the consumer is applying for a life insurance policy with a value of $150,000 or higher.

If a consumer applies for a life insurance policy with a value of $150,000 or higher, then the credit reporting agencies are technically allowed to include negative information that is more than 7-10 years old on the person’s credit reports.

3. If the consumer is applying for $150,000 or more in credit.

If the consumer applies for credit in the amount of $150,000 or more, this also qualifies as a case where the credit bureaus could include old negative information that normally would not be listed on the consumer’s credit report.

The interesting thing about this exception is that it includes most mortgages, meaning that if you apply for a mortgage today, there is a good chance that you could fall into this category of exceptions to the FCRA regulations regarding negative information.

Applying for $150,000 in credit qualifies as an exception to the 7-10 year rule, which means most mortgages could be included.

Applying for $150,000 in credit qualifies as an exception to the 7-10 year rule, which means most mortgages could be included.

Should You Be Worried About Negative Items Staying on Your Credit Report Forever?

By now, you may be concerned that derogatory credit items that you thought were ancient history could haunt you in the future, in the event that you apply for a high-paying job, purchase life insurance, or apply for a mortgage.

However, there is no need to panic. While the credit bureaus are theoretically allowed to do this under the FCRA, that doesn’t mean that they choose to do so—and fortunately, they don’t.

Rather than maintaining old information to be used in specific situations, they simply default to applying the same 7-10 year policy across the board.

So if you do apply for a job that pays $75,000 or more, a $150,000 life insurance policy, or $150,000 in credit, you don’t have to worry about old negative items being revealed on your credit report.

Check out credit expert John Ulzheimer’s explanation in the video below. Visit our YouTube channel to see more educational videos on tradelines and credit!

 

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What Are Credit Scoring “Buckets?”

December 20, 2019CreditBy toptierfinancial

Most of the time when I’m asked about credit scores the line of questioning is commonly about how to improve scores. It’s equally often, and equally enjoyable, when I receive questions from people about how many points certain things from your credit reports are worth to their credit scores.  The questions generally go something like this… “How many points is a charge off worth” or some variation of that question.

Not only are these questions common but they are also reasonable. We grow up in an academic environment where questions on tests are worth a certain number of points toward our final grade. For example, if you have a test with 25 questions then each question is worth 4 points for a possible grade of 100. Credit scoring systems, however, are not designed such that entries on your credit reports are worth any specific number of points.

That’s Not How Credit Scores Work

If you ever read a book or blog or hear someone suggest that credit report entries are worth a specific number of points, you can ignore it because it’s factually inaccurate. Nothing on your credit report is worth any specific number of points, either positive or negative. Scoring models do not assign points like that because they’re not designed to do so.

Instead, credit scoring models assign points based on how well you have performed in certain credit scoring categories. Without getting highly technical and jargon-heavy, points are assigned based on how your credit reports answer questions asked by the credit scoring models.

Buckets, Bins, Variable Classing…They’re All the Same Thing.

Credit scoring models are made up primarily of three things…characteristics, variables, and weights. These three things can also be described as…questions, answers, and points. These three work in concert as part of the scoring process.  Here is an example of how it works:

Characteristic (aka, a question asked by the scoring model)

Example: How many credit card accounts do you have with a balance greater than zero?

Variable/Bucket (aka, the answer from your credit report)

Example: I have 4 credit card accounts with a balance greater than zero.

Weight (aka, the points assigned by the credit scoring model based on the answer)

Example: If you have between 3 and 6 credit card accounts with balances, you earn 20 points. As such, because you have 4 cards with balances you have earned 20 points.*

*This fictitious example isn’t meant to mimic the points you’ll earn for having four credit card accounts with balances. It’s simply meant to illustrate how scoring models work.

The variable or “answer” component is also commonly referred to as a bucket or bin. It’s essentially a range where the answer to a credit scoring characteristic/question falls. And, the weight or points are assigned based on which bucket/range your answer falls.

I recognize that this is complex and it might take you a few times reading through this to understand how it works. But, at the very least what this should expose is the truth that no item on your credit report is worth “x” points.

Instead, the bucket/range where your answers fall is what’s worth the points. And, you may have several answers that would cause you to fall into the same bucket, meaning multiple consumers with different credit reports can have the same credit score.

In the above example, the variable bucket was “between 3 and 6 credit card accounts with balances.” And, that bucket was worth 20 points to your credit score. So, if your credit report had either 3, 4, 5 or 6 credit cards with balances your answer would have fallen in the same bucket and you would have earned the same 20 points.

This is precisely why the people who try to assign a specific value to any one credit report entry are universally incorrect. In this example, you would have earned an equal 20 points toward your score even if you had 4 different credit reports.

Your Never “Lose” Credit Score Points

Here’s another one that’s going to blow your mind. Your credit score doesn’t start out at a perfect 850 and then go down based on your credit reports. You instead start low and accumulate points.

Nothing on your credit report is worth negative points. So, collections are not worth negative 50 points. Charge offs are not worth negative 100 points. It doesn’t work that way. Your score doesn’t go down because of negative information, it just simply isn’t as high as it could be because you’ll accumulate fewer points during the scoring process.

If you have any of those negative items, like collections and charge offs, you would fall into a bucket that would be worth fewer points than you would have fallen into if you did not have those types of negative entries. That’s why people who have negative entries have lower scores, generally, than people who do not. They earn fewer points, rather than lose more points.

You can apply these examples to every scorable entry on your credit reports. This includes inquiries, the presence or lack of negative information, debt and debt-related ratios, the age of your credit report information, and the diversity of your credit report entries.

John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group and the author of four books about consumer credit. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has 27+ years of experience in the consumer credit industry, has served as a credit expert witness in more than 370 lawsuits, and has been qualified to testify in both Federal and State courts on the topic of consumer credit. John serves as a guest lecturer at The University of Georgia and Emory University’s School of Law.

Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of Tradeline Supply Company, LLC.

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