I have heard (from some unreliable sources) that if you challange
negative, but true, items on your credit report, you have a
significant chance of them being removed because the original creditor
can not provide proof of the negative account, or can't provide it
within the necessary timeframe the credit agency requires - 30 days I
believe.

Does anyone know if this is true?  Is there anything illegal about
this?  Is there anyway that these actions could damage a credit
report?

I know that darrel-ga, archerman2000-ga, clouseau-ga, livioflores-ga
and luciaphile-ga have addressed questions that are somewhat similar,
but I did not see any information that specifically addresses this
question.

I apologize in advance that the price for this question is low.  I am
unemployed, going on 5 months now, and in the process of trying to
clean up my credit report too (obviously).  Thanks for your
understanding.

Hi  heavylee-ga,

From your question, we are talking about items that are
damaging/negative, but which are being accurately reported.

What your sources have described to you is actually a strategy used by
many credit repair clinics who will inundate the various credit
reporting agencies with disputes. The idea is that the creditors are
not able to respond to all of the disputes and the items stay off your
report. As with so many things that sound too good to be true, this is
a problematic strategy. A rather accurate description of the technique
and the inherent flaw (that the creditor can indeed put the accurate
item right back on even past the 30 day time frame) can be found here:

Credit Repair Scams
http://www.bankrate.com/brm/news/advice/19980720c.asp

This technique was quite popular in the days when less automation was
the norm. Things have changed and technology makes this less effective
a technique.

Clean Up Your Credit Report
http://www.cccsoc.org/pages/credit_guide/credit_guide_10.phtml

I'm not a lawyer and certainly don't feel qualified to address your
question on the legality or illegality of an action. If you have
specific questions on that point, you really would need to take up the
question with an attorney.

As you probably have already discovered, credit reports fall under the
Fair Credit Reporting Act and the dispute process is described there.
This
paragraph may be of interest:

[15 U.S.C. § 1681i] of the FCRA states:
"A consumer reporting agency may terminate a reinvestigation of
information disputed by a consumer under that paragraph if the agency
reasonably
determines that the dispute by the consumer is frivolous or
irrelevant, including by reason of a failure by a consumer to provide
sufficient
information to investigate the disputed information" 

Procedure in Case of Disputed Accuracy/Fair Credit Reporting Act
http://www.ftc.gov/os/statutes/fcra.htm#611

"When the reinvestigation is complete, the CRA must give you the
written results and a free copy of your report if the dispute results
in a change.
If an item is changed or removed, the CRA cannot put the disputed
information back in your file unless the information provider verifies
its
accuracy and completeness, and the CRA gives you a written notice that
includes the name, address, and phone number of the provider."

Disputing Credit Report Errors
http://www.financialconsumerguide.com/credit/disputing_credit_report_errors.html

The key in the above paragraph is that if the creditor can prove that
the item is accurate, it can indeed be put back on your report--as
long as they
have proof the item is correct, it comes back on.

According to various credit repair sites, this is one of the big myths
of credit reporting, "If the credit grantor reports late, say after
six weeks,
and then verifies the negative listing, the credit bureau will often
reinsert the negative listing on the credit report and reverse the
credit
repair. This is often known as a "soft delete." Usually, though, the
creditor simply fails to respond and the negative listing is
permanently
deleted and repaired. If the item is verified by the credit grantor,
either before thirty days or after, the account may still be repaired
again at
some future time."

Common Myths of Credit Repair 
http://www.creditoptions.com/credit101/commonmyths.htm#succeeddeletecomecack

This particular paragraph is all over the web. I think it's worth
pointing out that the sites making this claim are pretty much the
credit repair places who make their living off of people in your
situation. I worked for a number of years in consumer credit and some
of their other "myths" seem more than
a bit iffy to me.

FindLaw has an article about credit repair clinics here: 

Don't Use a Credit Repair Clinic
http://bankruptcy.findlaw.com/articles/1576.html

Search strategy:
ftc fcra
disputing accurate "credit report" items
"soft delete" credit repair myth
"credit repair" scams disputes

I hope this answers your question. I wish there was an easier answer
to give you. If any of the links don't work or you have additional
questions, please ask for clarification before rating my answer and
I'll be happy to assist you.

Regards,
luciaphile-ga