Consultant: Some Credit Repair Shops Can Damage Loan Prospects.

Lenders often try to help borrowers clean up their credit issues to boost their all-important credit scores.

But they could be doing their clients a grave disservice if they send them to so-called credit repair specialists.

Such agencies can sometimes get derogatory information removed from someone's credit record. But the black marks almost invariably return to the file within 30 days or so, and that can trip up a borrower who is about to close on a mortgage.

Credit repair firms are successful in getting late payments, bankruptcies and other disputed items removed from files because they flood credit bureaus with dispute letters on behalf of borrowers. Under the law, the credit bureau must respond to inquiries within 30 days or remove the disputed items from their records.

But these companies, which have been labeled as scam artists by the Federal Trade Commission and others, don't deal with creditors at all. So when it is time for the credit repair company to report late payers to the credit bureaus, the disputed item once again becomes part of the borrower's file.

"Credit repair companies charge people a ton of money. But if they don't take the consumer's beef to his creditor, it's a waste because the item pops back up on the credit report, usually just about the time when the borrower is ready to close," says Eileen O'Neill of Gold Key Credit Consulting, Milford, Conn.

Speaking at the New England Mortgage Bankers Conference here late last month, Ms. O'Neill said consumers are far better off working with firms like hers because they deal with both the credit bureau and the creditor.