Recently, I had an interesting back-and-forth conversation with someone who is frustrated over the fact that a mortgage he paid off is not appearing on his credit reports.

His mortgage was originated through a bank’s Trust/Private Banking Department, which does not report information to credit bureaus for privacy reasons. While the situation is unique, his question is one that I've received numerous times over the years:

How do I add a credit reference to my credit report if the lender does not report?

The answer is that typically you cannot.

The three major credit reporting agencies don't accept credit references from companies that are not approved to report information to them. Companies must be screened and sign contracts with the credit reporting agencies to make sure that they follow the requirements of the Fair Credit Reporting Act. As my colleague John Ulzheimer points out:

You have to have an account with the credit bureaus if you want to report to them.  It’s not free and it’s not cheap.  By reporting you open yourself up to possible FCRA liability and you have to have someone on your staff who will investigate disputes.  Smaller lenders are not equipped to absorb the cost for this.

If the lender from whom you borrowed money is not a subscriber to at least one of the major credit reporting agencies, your loan will not be reported, and there currently is no way to add an individual account.

There is an alternative credit bureau called PRBC which is set up to accept payment information that traditional credit reporting agencies don't. And while I like what PRBC is trying to do, it still doesn't carry the same clout as information compiled by the three major credit reporting agencies. Right now, though, it's your only option.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

Every so often, I come across a website promoting some “super-secret” method for deleting negative information from credit files. The ads make wild promises: Bankruptcy! Judgments! Collection Accounts! All can be cleared from your credit permanently!

After 22 years of seeing credit repair firms come and go, I am quite confident in saying there is no credit repair fairy who can waive a magic wand and remove negative but accurate information from your credit files (nor are their "loopholes" in the law that do the same.) But I will confess I sometimes wonder what these firms are doing to get results for their clients.

Now we know at least one credit repair company's "super-secret" method for deleting negative credit: pretend your clients are victims of identity theft. That’s the approach that got Sam Tarad Sky and his company, Credit Restoration Brokers LLC, into hot water with the Federal Trade Commission. The FTC just announced a settlement against Sky, his firms (which also included a debt settlement company Debt Negotiations Associates LLC), his attorney Kurt A. Streyffeler, and Streyffeler’s law firm, Kurt A. Streyffeler, P.A. (ever notice how many companies are involved in these FTC complaints?).

According to the FTC, Sky’s firm falsely told consumers he could improve their credit reports by removing negative information such as judgments, foreclosures, tax liens, bankruptcies, repossessions, and child support delinquencies from the reports regardless of how old or accurate the information was. The FTC’s complaint also alleged that he and his lawyer falsely told consumer reporting agencies, as a reason to dispute negative items, that consumers were identity theft victims.

Customers paid up to $2,199 for these services. Apparently Sky overlooked the federal Credit Repair Organizations Act (CROA) and charged customers upfront. He also apparently neglected to tell customers they could cancel the contract within three business days.

Oops.

I can completely sympathize with the desperation of many consumers today whose credit scores have taken horrible hits and who feel like they will never get credit again. But please be very careful before you decide to pay for services that make wild promises about what they can do to fix your credit. Before you even go down that road, use Credit.com’s (truly) free Credit Report Card to understand where your credit stands, then take advantage of the myriad free resources in our Learning Center to figure out what to do about it.

The fine print: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the force of law when signed by the judge.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

Last week I was on CNBC discussing the merits of charge cards for credit building, which are marketed to consumers in their 20s by Amex. The product is called the Zync card. I was joined by a gentleman from Amex. You can view the video below in a previous CreditBloggers posting. My argument was entirely specific to the downside of using a charge card, a credit vehicle with no credit limit, instead of a credit card. Here were my arguments:

1.  Charge cards have no credit limit, so the highest balance ever charged would be used as the denominator (the bottom number) when calculating utilization. And charge card balances tend to be lower than credit card balances because you have to pay it in full each month. Point being, it's not likely that you'll have a balance of $5,000, $10,000 or even $20,000 on your charge card, especially as a 20 something. That is, of course, unless you're a professional athlete. 

So, if the most I've ever charged was $1,000, then even a modest balance of $500 would result in that card being 50% utilized, and that's not good, because having a high revolving utilization percentage like this is not good for your credit scores. It's not terrible, but it's not good. You can play around with the number on each side and see how other charges/high balances would change utilization. This is the point I made on the air. 

2.  Consumers in their 20s have younger credit reports and fewer accounts. What this means is that they'll likely be scored in a "thin file" or "young file" scorecard. What this means is even modest balances will have more of an impact than the same balance belonging to a consumer who has a much older or robust credit history. I was not able to make this point on the air. It's a complicated topic and you have a finite amount of time to fully make your point.

Now, after the show aired, two things happened that I found interesting, but not surprising. First, someone from Amex's outside PR firm started following me on Twitter. And while I'm not a conspiracy theorist, I find the timing to be way too close to be coincidental. Second, I got a call and an email from Amex's VP of Public Affairs, who I called back that afternoon.

The point she made was that not all scoring models include charge cards in the calculation of utilization. And she's correct. One of the scores she referenced was the VantageScore. Admittedly, I'm not a VantageScore expert, because it has 5.7% of the market, so I have to take her at her word for that. She also referenced custom scoring models, which are models built either internally by a lender or by a 3rd party model developer for one lender's use. It is entirely possibly that she is also correct there, but nobody really knows for certain because custom models don't have the same amount of transparency as, say, FICO scores do. 

So, she might know for Amex's custom models, but not for the large collection of other custom models used by Amex competitors. She was also not willing to go on the record as saying that Amex uses VantageScore, so her argument, while valid, would have made more sense perhaps in a few years when Amex and the vast majority of other creditors can say that they do, in fact, use scoring models that don't count charge cards in utilization.

I even had someone, not from Amex, make the suggestion that you could go out and charge a large amount of purchases, run up the high balance, pay it in full, and then enjoy the higher "highest balance" in your score. That was the same argument people made years ago when Capital One wasn't reporting credit limits and high balance was being used for utilization instead. I didn't buy it then, and I don't buy it now. It assumes that you understand the whole issue and care enough about it to go buy a $10,000 antique lamp just to run up a huge balance and benefit your credit score. 

Essentially what it boils down to is this: What I said on CNBC was 100% accurate for some percentage of the credit scoring models being used by lenders today. And, it was 100% incorrect for some percentage of the credit scoring models being used by lenders today (those that don't use charge cards in utilization). And while Amex isn't going to agree with me, I still think charge cards aren't the best tool to build credit for young people, for the same reasons as I have stated above. 

We don't know what scoring models are being used by lenders or insurance companies when we go out and apply. As such, we don't know if it's one of the models that DOES or DOES NOT count charge cards in utilization. And we'll never know how a lender's custom models treat charge cards.

What we DO know is a credit card with a $10,000 credit limit will be treated as a card that has a $10,000 credit limit, which is what we want. And if we have such a credit card, and we charge $1,000, we are still only 10% utilized, which is the best scenario for our credit scores.

Amex is a perfectly fine credit card company. They're generally regarded as being the gold standard, and I don't disagree with that moniker at all. I have two Amex cards, which are surprisingly still open. A charge card DOES have benefit to your credit. Having a card on your file serves to build a credit history, and that's a good thing. Plus, it's true that you probably won't find yourself in crushing credit card debt because you know it has to be paid off in full each month. This serves to control the balance and teach good money management for people young and old.

My points are on the record and I stand by them. Perhaps next time we can have the discussion in a forum that allows a more complete investigation of the facts.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.