If you have poor credit, you may be tempted to use a credit repair service to boost your score quickly. Unfortunately, there are many unscrupulous credit repair scams out there that prey on people in your situation. They often charge exorbitant fees and make promises that they cannot keep. They could even leave your poor credit score in worse shape than ever. Here’s what you need to know in order to keep yourself from becoming a victim of a credit repair scam.
Written by Mark P. Cussen, CFP® , CMFC.
Updated August 23, 2021
Millions of Americans have found themselves behind on their bills at one time or another. When this happens, it can damage their credit scores severely. If you have poor credit, you may be tempted to use a credit repair service to boost your score quickly. Unfortunately, there are many unscrupulous credit repair scams out there that prey on people in your situation. They often charge exorbitant fees and make promises that they cannot keep. They could even leave your poor credit score in worse shape than ever. Here’s what you need to know in order to keep yourself from becoming a victim of a credit repair scam.
How to Spot a Credit Repair Scam
There are a number of telltale signs to look for when it comes to spotting a fraudulent credit repair company. Here is a list of the chief characteristics identifying these swindlers:
They charge you a substantial fee upfront - It is now illegal for any type of credit repair company to collect fees from you before they have completed their work on your behalf. The Credit Repair Organizations Act (CROA) has outlawed this practice, so if any organization that you encounter insists on charging you before it has rendered any significant services, it should be avoided.
Any company that guarantees that it can raise your credit score by at least a certain amount or promises to remove legitimate negative items that you have incurred is lying. Legally, no company can guarantee how much your score will increase regardless of what they may do to repair your credit history.
If a company advises you to dispute all of the negative information in your credit report, even if you know that some of this negative information is valid and accurate, this is not a legitimate company. For example, if you have made several late payments on your credit card, and the credit repair company tells you to contest them all, this is a clear sign of fraudulence.
Any credit repair service that tells you not to contact any of the major credit bureaus (i.e., Experian, Transunion, and Equifax) directly is a fraud. The credit reporting agencies are legally required to accept your dispute information for free and without assistance from a credit repair company. There is nothing that a credit repair company can do for you that you can’t do on your own, for free.
Any company that tells you to put false information on your credit applications with lenders should be avoided. This is a fraudulent activity and can land you in jail. You should immediately report these scammers to the agencies listed below.
If a company tells you to change your identity so that you have a new credit identity, run. They may try to sell you a credit privacy number (CPN) or credit profile number or advise you to get an employer identification number (EIN) and apply for credit under one of those instead of your legal Social Security number. A new CPN could be a stolen SSN, which could involve you in identity theft. Also, beware if they tell you to use someone else’s credit information on a loan application.
Any company that doesn’t tell you of your legal rights beforehand should be viewed with suspicion.
If the company doesn’t give you a written notice of the services that they will provide and how they will charge you for them, then they are most likely engaging in a scam.
Know Your Legal Rights
Under the Credit Repair Organizations Act, no credit repair company is allowed to charge you for services of any kind that they have not already provided. They also cannot misrepresent what they are doing for you in any way. All legitimate credit repair companies will provide you with a written contract detailing what they will do for you upfront. If you do choose to sign with a credit repair organization, you have three days from when you signed the contract to cancel with no financial obligation. You also have the right to know how long it will take to get results, as well as the total amount that you’ll have to pay for a company’s services. Any credit repair company that does not follow these rules should be avoided.
The Credit Repair Organizations Act is enforced by the Federal Trade Commission (FTC). If you have enlisted the help of a repair agency that you believe is fraudulent, visit the FTC website and report them to the agency. You can also get a free copy of your credit file there. You should also report this company to the Consumer Financial Protection Bureau for good measure. When fraudulent companies violate the rules listed above, they are violating federal law. It’s also a good idea to notify your state attorney general so that they can be made aware of your experience. By reporting fraudulent activity, you may help to shut these scams down so that they can’t hurt other consumers.
If The Credit Repair Company You Choose Doesn’t Deliver…
If a credit repair company that you’ve hired doesn’t follow through on what they promised to do in their contract, you can sue them in federal court either for the actual amount of losses that you sustained or the amount that you paid them for their services (whichever amount is higher). You can even sue for punitive damages in many cases. If there are others who are also suing the company that you have been working with, you may be able to band together with them to initiate a class-action lawsuit. If a class-action lawsuit has already been initiated, you can join it.
While there are many legitimate, reputable credit repair agencies and credit counseling services that serve their customers well, there are also many hucksters and unreputable firms that will try to take your money under false pretenses and leave you with nothing. Any company that engages in “red flag” behaviors listed above should be avoided; those that appear to be reputable should still be dealt with cautiously. Be sure to get a complete list of what they say they will do for you and how much they will charge you for it in writing before moving forward. Just remember that if something sounds too good to be true, it probably is.
Remember, no credit repair company can legally do anything that you cannot do yourself. With determination, discipline, and patience, you can repair your own credit. If you are unsure of what is on your credit report or what your score is, you can go to www.annualcreditreport.com and pull a free copy of your credit report from each of the three major credit reporting companies. You can get a free credit report from this agency once a year from each of the three bureaus. After reviewing your reports, dispute any incorrect information to boost your credit score and engage in other practices to repair your credit - slowly but surely - over time.