Question:
Dear Steve,
Two years ago, My credit report was horrible; all kinds of things in collections. My credit score was 519, my wife was 430, and she had no credit when she did have only collections.
In 2 years, I cleaned everything up except for like three things with a total of less than $1,500 bucks that drop off in about a year. I had one thing jointly that was about ten grand that drops out in the 14 months.
Also, In those two years, we have added about six credit cards each and a $23,000 car loan.
And we both have jewelry charge cards that have $5,000 limits, and we both have a couple of store department cards. We have never missed one single payment on any of those. So they all have an excellent payment history.
Yesterday my wife spoke to the debt settlement company Litigation Practice Group, and they said they would settle all our debt.
Credit cards plus the few things that we had left in collections would be debt-free except for the $300 payment that we would make to them every month for 19 months. That would save us about $800 a month in bills that we pay.
So we would be down to a $500 car payment, car insurance, cell phone, and to them for a total of $5700.00, they would settle about $12,000 of debt.
I had all the stuff removed on my own from my credit report by just reading on how to do it, but the things I left on there only had a couple of years of coming off.
I got rid of all the stuff that was recent in collections.
In about a year and 1⁄2, we both had our credit scores in the mid 600s. And we both have 14 things with excellent payment history. So we went and got a car financed, no problem.
Our scores dropped about 40 points each. My wife panicked and called that company.
Litigation Practice Group said we’d have one credit card left; the rest will be gone.
My question is, won’t all that excellent payment history also be gone and replaced with 14 things each on a credit report that says the debts were settled.
Also, won’t we lose the points for the longevity of the accounts we have left cause the car is brand new?
And won’t that more negative payment history than the excellent payment history be on a credit report for the next seven years?
And won’t we lose just about all the rest of the points we have earned over that last one and a half years?
When I asked the gentleman at Litigation Practice Group about that, he said no he said they would settle the debts and have them removed.
It would be like made never existed. Does all this sound right to you, or even the right thing to do? Since none of our accounts are in jeopardy, we never missed payment on any of the accounts they want to settle, and they all have excellent payment history and are in good standing and current.
In your opinion, are we doing the right thing?
Mike
Answer:
Dear Mike,
I just answered a reader question with a lot of information that applies to your situation. See Should I Do Debt Settlement or Get a Debt Consolidation Loan?
From what you’ve shared, it sounds as if something out of your control made your scores drop a bit, which caused a reaction from your wife. I get it. It is understandable.
We Need More Information
But what is missing here is information on exactly what caused the drop. Then there is the issue that the credit score you and I see is not necessarily the one individual creditors use to make lending decisions. But this does not even factor in all the secret credit scores out there.
It might be wise to go to AnnualCreditReport.com and both get copies of your three major credit reports to understand better what impacted your score.
You can also go to CreditKarma.com and use the credit score simulator to understand better what led to the 40 point drop.
Concerns About the Credit Repair Organizations Act
It appears the most pressing issue here is what you are reporting Litigation Practice Group (LPG) told you.
The point that concerns me the most is the alleged sales pitch that, for a fee, they will use some form of credit repair to change your credit report. If true, that would run into a conflict with the Credit Repair Organizations Act (CROA). If part of their service is altering or improving your credit report, they can’t collect any fee until they have achieved and demonstrated the result. The CROA says, “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.”
And then there is the provision of CROA that is against the regulation 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 and not obsolete to—
(A) any consumer reporting agency;
(B) any person—
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit.”
It would be worth calling the person back at LPG and asking how they navigate the Credit Report Organizations Act issues since the Federal Trade Commission says “The first rule of credit repair is that no credit repair company can remove accurate and timely negative information from someone’s credit report. For credit repair companies that would claim otherwise, there’s CROA – the Credit Repair Organizations Act. It makes it illegal for credit repair companies to lie about what they can do to clear up a clouded credit report or charge upfront fees before they do the job they promised to do.”
Understand Who You Are Talking To
It sounds as if the person at LPG might be a salesperson trying to sell you their services. However, that does not mean they are right for you.
Asking a salesperson for advice generally leads to one result, the product is perfect for you. Buy now.
I encourage every person to do their homework and research before signing any contract.
Here are some free guides to help.
- The Ultimate Consumer Guide to Checking Out a Debt Relief Company Before You Sign On the Line
- 10 Must Do Steps to Find the Best Counseling or Settlement Company for You
- How to Check Out a Business or Company to Avoid Getting Scammed or Ripped Off
I’m a Huge Fan of Asking and Reading
It doesn’t matter if the company in question is LPG or another company. However, consumers should always ask to see the client agreement in advance before signing it.
The fine print can change all the statements and promises made verbally, so read and understand it before signing.
You should also read this FTC advice about the kind of data any company should provide you before making any sales claims.
An Educated Consumer is Always the Most Protected
Who knows, you might ultimately decide LPG is the right solution for you after you do your research and explore the realities of what you want to achieve versus what you are being told.
You’ve raised some excellent points about preserving the good credit history you’ve worked hard to develop. But until you can determine what caused the 40 points to drop and deal with that, it feels like you might be leaping before knowing all the facts.
Please let me know what you decide to do.
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