How to Recognize a Credit Repair Scam
When you're struggling with bad credit, credit repair companies sound like the perfect solution to help you get your credit back on track again. For a fee, these companies promise to remove bad information from your credit report, replace it with good information, and leave you with a much better credit score. Unfortunately, the credit repair industry is full of companies whose only goal is to scam consumers.
Being desperate for better credit can leave you vulnerable to credit repair scams. Don’t let yourself be taken advantage of.
Credit repair organizations are governed by a law known as the Credit Repair Organizations Act. This federal law requires any credit repair service to fulfill certain obligations to you. Any credit repair company that doesn't follow these rules is potentially a scammer.
Seven Signs of a Credit Repair Scam
You could be getting scammed if any of the following are true:
- You aren’t given a copy of the “Consumer Credit File Rights Under State and Federal Law” letting you know your rights to obtain a credit report and dispute inaccurate credit report information. All credit repair companies are required to let you know that you can perform these services on your own.
- You aren’t given a copy of the contract to view before you’re asked to sign it. Do not agree or pay for services before you know what you're signing up for. Read through the contract to make sure it contains all the important information.
- The contract doesn’t contain the following information:
- The amount you are being charged
- Details about the services being performed on your behalf
- The date by which the services will be performed (or the time period required to perform the services)
- The name and business address of the organization
- A statement letting you know you can cancel the contract within 3 days
- You’re asked for payment before the services have been performed. The law prohibits credit repair companies from charging upfront fees. This is an area where many credit repair companies break the law; some companies may be unaware that they're not supposed to charge customers upfront.
- The company promises to remove accurately reported information from your credit report. Legally, this information belongs on your credit report, but credit repair companies sometimes try shady tactics (like having you claim identity theft) to remove accurate information from your credit report.
- The company promises to create or asks you to create, a “new” identity with a new social security number or federal employer identification number (EIN). In one credit repair scheme, the credit repair company creates a new credit profile and you apply for all future credit products with that information instead of your old social security number.
- You’re asked to sign a form waiving your rights under the CROA. Fortunately, the CROA voids any waiver of rights the credit repair company signs.
Can Any Credit Repair Company Be Trusted?
It would be an overstatement to say that all credit repair companies are scammers. Shop around among a few different companies rather than settle on the first one you see. Approach any company you're considering with a healthy dose of skepticism.
- The credit repair company consults with you before discussing a strategy for your credit: No company can tell you exactly what they can do for your credit if they're not aware of your credit history. An honest credit repair company will ask questions about your credit history and may even view your credit reports before talking about what it will do.
- The company makes sure you know your rights: You can dispute information on your own by writing to the credit bureaus, but many people would prefer to pay a company to do this work for them. That's ok. But, avoid a company who is secretive about their methods or makes it seem like they are the only ones who can repair your credit. An honest credit repair company will have a proven track record of success and can tell you why their services are better than those of other companies.
- The company doesn't promise to raise your credit score a specific number of points: A credit repair company who's had success with other clients can tell you the results that previous customers have experienced, but they cannot tell you how much your credit will improve if you use their services.
If a company sounds too good to be true, there's a very good chance that it isn't true. Before you use a company’s credit repair services, do some research with the BBB, FTC, and your state attorney general to find out if there are any existing complaints. Avoid companies that consumers have already complained about.
What to Do If You've Been Scammed
Don’t let a company get away with a credit repair scam. Take action if you feel your rights have been violated. Start by reporting the organization to your state attorney general. You can visit the National Association of Attorneys General’s website to find an attorney general in your state. Send a complaint to the Federal Trade Commission, the Better Business Bureau, and the Consumer Financial Protection Bureau.
Consult with an attorney. You may be able to file a lawsuit against the credit repair company. This won't fix your credit, but you may be able to get back the money you paid for the services.