Can 'credit docs' cure bad scores?

Borrowers who fit that profile, however, can see quick results. Scott Yonehiro, a mortgage planner in Burbank, Calif., has helped improve clients' credit scores by 20 to 30 points in a matter of days. He works with borrowers who want to raise their scores from the 690-to-695 range to above 720 in order to receive better interest rates and pay less in mortgage fees, he notes.

Some mortgage brokers also employ so-called credit simulators that identify specific strategies to boost a client's scores. Justin Lopatin, a mortgage broker with American Street Mortgage in Chicago, uses software from CreditXpert that analyzes credit reports and provides specific solutions. Recently, he helped a borrower increase his scores from 620 to 695 within six weeks by paying three of his credit card balances to below 50% of the available credit limit, opening two new credit cards and clearing up two collections accounts. (The service is free to customers.)

That sounds like a great quick fix, but even consumer advocates such as Ulzheimer question the impact of such strategies in today's ailing lending environment.

"I don't see how that's good for the industry," he says. "If you have a score of 650 and you go through one of these services and are able to jimmy your credit to 710, are you really a 710 -- or 650 with makeup on? And are you really going to behave like a 710 risk-wise? I'd say you're definitely a 650 with some makeup on."

(Fannie Mae, which sets credit score criteria for mortgages that it purchases from lenders, declined to comment for this story. Freddie Mac did not return our calls.)

Of course, the best way to improve your scores is to learn the rules of good credit and stick to them for the long run. "Without proper counseling, as far as taking financial responsibility, credit repair is just a Band-Aid," says Brian Smith, a mortgage banker in Seattle.

Credit repair warning signs

Not all credit repair companies are unscrupulous, but it pays to keep an eye out for those that will take your money without delivering much in return. The Federal Trade Commission advises consumers to watch out if companies:

• Demand upfront payment for credit repair services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they complete the promised services.
• Don't tell you your legal rights and what actions you can take on your own for free, such as contacting the creditors and credit bureaus yourself to dispute any errors in your credit report.

• Tell you not to contact a credit reporting company directly.
• Advise you to dispute all information in your credit report, even if it's accurate.
• Suggest that you create a new credit identity by applying for an Employer Identification Number to use instead of your Social Security number.

Published July 29, 2008

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