Is Legally Erasing Your Debt Possible?

Unscrupulous companies make false claims about being able to erase bad debts. The U.S. federal government and consumer organizations take note of their claims and alert consumers to avoid companies that make such promises. Still, people looking for a quick fix to improve their credit histories fall prey to debt-relief scams. They should instead accept the fact that improving a poor credit history takes time and effort on their part.

Federal Trade Commission

The U.S. Federal Trade Commission website warns consumers about credit repair scams, noting that some companies target people who have poor credit histories and deliver empty promises to them. The companies may claim they can remove negative information from people's credit reports to help them get car loans, mortgages and better insurance rates. According to the FTC, no one can legally remove accurate negative information from a person's credit file. The FTC says consumers sometimes pay hundreds of dollars to have negative information removed but are left with the same credit report they had from the start.

Credit Repair Organizations Act

The Credit Repair Organizations Act prohibits credit-repair companies from making false claims about their services, which includes promises to erase consumers' bad debts from their credit reports. Credit-repair companies also must complete all services they promise to deliver to their clients before charging them. Furthermore, the companies must wait three days before carrying out any services for a new client, which gives the client time to cancel a contract with no obligation to pay for services. The Better Business Bureau lists debt-relief services among its top scams for 2010. BBB estimates indicate that consumer complaints the bureau received about debt-relief and settlement services increased by 30 percent in 2010.

Credit Report Errors

Accurate information can't legally be removed from your credit file, but you should handle any credit-file errors you discover, and you don't need to pay a company to do it for you. You can contact credit bureaus yourself to dispute any errors or outdated information you find in your credit reports. For instance, information about late payments made to creditors generally shouldn't remain in a person's credit file for more than seven years.

Considerations

Consumers can take steps to improve their credit ratings even though negative information can't immediately be removed from their credit files. Pay up past due accounts and keep them current to prevent additional negative marks on your credit history. Pay down or pay off credit card balances to reduce the total amount of debt you owe. Credit-scoring models typically give more weight to consumers' payment history and debt obligations. Therefore, making payments on time and paying down debt can be quickest way to improve your credit rating.