Expensive credit repair kits not likely to go away

NEW YORK — Consumers with low credit scores, many of whom already pay high interest rates on subprime loans, may be paying too much for something else: kits that claim to patch up their credit. “Lots of credit repair agencies are capitalizing on people who are in dire straits,” said Michael Baras, an independent certified financial planner in West Hempstead, N.Y. “The last thing financially pressed people need to do is buy another product.” But it is hard to say no to a product such as Suze Orman’s FICO Kit, which is endorsed by the personal-finance expert, author and host of CNBC’s “Suze Orman Show” and available on Fair Isaac Corp.’s website, myfico.com. Ms. Orman’s kit is just one of the products mentioned in a class action against Fair Isaac of Minneapolis and Atlanta-based Equifax Inc., which market services that promise to give “customized advice on what you need to do to improve your credit,” according to court documents.
The suit alleges that the companies violated the Credit Repair Organization Act by collecting payment before rendering their services and that they made misleading statements about their products. After more than two years of litigation, the agencies settled the matter Feb. 5 by agreeing to refrain from promoting their services by using such words as “improving” or “boosting.” Fair Isaac also agreed to pay the attorneys’ fees (a total of $4 million) and to provide class action members with three months of its Score Watch service for free. The credit score quick fix typically is the last step in a series of mistakes. After consumers rack up big credit card balances and find that they no longer can afford a mortgage or additional credit, they turn to products that claim to help fix their credit ratings. Although the credit fix kits don’t come with costly strings, such as high-interest debt consolidations, they can run up to $49.95 apiece, which planners contend is a high price to pay for basic information. “People who buy these kits have to understand what they are,” Mr. Baras said. “They are telling people to pay on a timely basis, to make sure that they’re paying more than the minimum on the debts they owe and to check for errors on their reports.” In short, cash-strapped consumers may be paying for something they can get free of charge. “These products offer useful advice, but nothing more than someone can find by doing a little homework,” said Ted Sarenski, a CFP at DB&B Financial Services LLC of Syracuse, N.Y. He recommended that consumers take advantage of free credit reports, which they can receive from three different agencies, and check them for suspicious items, such as old credit card accounts that are open and unused. Consumers are allowed one free report from each of the three reporting companies every year, so it is possible to get a credit report every four months, he added. Some websites, such as 360 Degrees of Financial Literacy (360financialliteracy.org), which is sponsored by the American Institute of Certified Public Accountants in New York, also offer assistance on tackling financial hurdles and cleaning up credit scores, Mr. Sarenski said. Debtors who are mired in red ink and can’t afford professional help also can turn to non-profit agencies that provide credit counseling and financial educational services, such as the National Foundation for Credit Counseling of Silver Spring, Md. “You do some forensic accounting when you’re cleaning up credit,” said Mr. Baras, who has helped a number of clients trim their debt. “It’s a matter of knowing where the money is going, finding out where the costs are and making the tough decisions of cutting expenses.” But that doesn’t mean credit score kits will disappear anytime soon. “We’re still a free-enterprise economy, and Congress won’t be reactive enough to come up with legislation against the way these products are marketed unless it becomes a case of widespread fraud,” Mr. Sarenski said.