Repairing Your Credit

*For-profit debt consolidators
Debt consolidators work by assuming your debt and charging you a fee to pay it off with your creditors. They do so for a total amount less than what you currently owe by working with your creditors to negotiate a lower settlement amount.

For example, if you owe $50k in debt, they will pay your creditors 40 cents on the dollar and will charge you a 15% fee for doing so. On paper, this looks great. You pay $20K (the settled amount that goes to your creditors) plus $7500 to the debt agency. Instead of $50k in debt, you are now looking at paying $27,500 (plus interest).

Here are the two major problems:

1. Although your debt is paid off to your creditors, your credit report will show "Settled" next to the creditor and the amount settled for. This amount will be larger than the initial difference between what you originally owed and what the debt agency paid since it will include penalty fees and interest that accumulated during a 90 day period when no payments are made. Obviously, this will hurt your case when seeking new credit/loans in the future.

2. The total amount settled for is reported to the IRS and becomes taxable income. Not taking penalty fees, etc... into account for this example, if your debt agency pays $20K out of the $50K you owe to your creditors, $30K will be reported as "settled" to the IRS and will now become taxable income for you.

If you need more information, call Consumer Credit Counseling of Maine or check them out at .

compiled by Rod Thompson (Maine SBDC at NMDC - Caribou)

Federal Trade Commission - Free Credit Report

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies -- Equifax, Experian, and TransUnion -- to provide you with a free copy of your credit report, at your request, once every 12 months. The FCRA promotes the accuracy and privacy of information in the files of the nation's consumer reporting companies. The Federal Trade Commission (FTC), the nation's consumer protection agency, enforces the FCRA with respect to consumer reporting companies.

A credit report includes information on where you live, how you pay your bills, and whether you've been sued or arrested, or have filed for bankruptcy. Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

The three nationwide consumer reporting companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report.

To order, visit, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The form is on the back of this brochure; or you can print it from Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.


A Warning About "Imposter" Websites

Only one website is authorized to fill orders for the free annual credit report you are entitled to under law -- Other websites that claim to offer "free credit reports," "free credit scores," or "free credit monitoring" are not part of the legally mandated free annual credit report program. In some cases, the "free" product comes with strings attached. For example, some sites sign you up for a supposedly "free" service that converts to one you have to pay for after a trial period. If you don't cancel during the trial period, you may be unwittingly agreeing to let the company start charging fees to your credit card.


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