How Credit Repair Scams Work
You may see or hear an ad that promises to remove negatives from your credit file. But what's most likely is, they'll try to remove money from your pocket and your credit will remain the same.

The Fair Credit Reporting Act gives you the right to have erroneous information removed from your credit file. And bogus credit repair companies try to use this right to have accurate information removed. Normally, if you dispute an item in your credit report, the agency that compiled the report has 30 days to check the information. If the agency can't verify the item in 30 days, it must be corrected or removed.

The companies use this 30 day time limit to try erase bad credit information. They dispute every negative item in hopes the credit reporting agency can verify the information in time. But even if they're successful, it's only temporary. The FCRA also establishes any information removed that is latter verified, can be put back into your credit file.

So if credit information is accurate, it can stay in your credit report usually for up to 7 years or 10 years for bankruptcies.

An alternative method illegitimate companies will use to claim to erase bad credit is the new identity method. This is also called "file segregation". This involves using either a different Social Security number(SSN) or using an Employer Identification Number(EIN). Not only will this method not change your credit, but if you use it, you could be prosecuted for the federal crime of making false statements on a credit application. And it's also unlawful to apply for an EIN under false pretenses.

Credit Repair Rights
To protect you from disreputable companies, the Credit Repair Organizations Act gives you certain rights. A credit repair company is required to:

• Give you a copy of "Consumer Credit File Rights Under State and Federal Law" before you sign a contract.
• Give you a written contract explaining your rights, the service to be performed, how long it will take, and the cost.
• Give you a 3-day waiting period to approve the contract.
• Complete their promised services before getting paid.

The Right Way to Erase Bad Credit
The road to good credit starts with getting a copy of your credit report and making sure it's accurate(See Clean Up Bad Credit). If your application gets turned down, you have the legal right to know the specific reason why, so be sure to find out. The creditor can also tell you what would be necessary to get it approved. And remember, creditors have a wide variety of what is considered acceptable credit. In fact some companies specialize in granting credit to people with poor credit.