How to Identify a Credit Repair Scam

If you find yourself with a poor credit score, you may be wondering how to improve it quickly. Maybe you’ve been planning a big purchase, like a car, and have found that your low credit score will prevent you from doing so. Maybe you’re looking to buy a home, and you’re afraid a few less-than-stellar marks on your report are going to prevent you from qualifying.

If you find yourself in these situations, you’re not alone! A lot of people are looking for ways to improve their credit. But buyer beware: there are a lot of companies that will take advantage of your motivation to fix your credit. Credit repair scams target folks who are concerned about the state of their credit, or who are overwhelmed with loan and credit card payments.

Using one of these predatory services can damage your credit even more. Read on for more information about how to avoid credit repair scams.

Can Credit Repair Services Actually Work?

There are legitimate credit repair companies out there that can succeed in fixing true inaccuracies and errors in your credit file. But there are also a lot of companies that are just looking to charge you for a service they’ll never be able to deliver on.

Here’s the good news: there’s a lot you can do on your own, for free! Even the most trustworthy credit repair services can’t do anything beyond what you can accomplish yourself.

By filing a dispute with the three major credit bureaus—Equifax, Experian, and TransUnion—you can may be able to clear:

• Old derogatory marks that have been on your report for more than seven years
• Errors that aren’t supposed to be on the report
• Closed accounts that are still showing up as active

You can submit a dispute via letter, email, online, or even phone call. When you dispute a charge or account, the credit bureau will contact the lender for debt or account verification. If the owner of the debt cannot prove the existence of the debt or account, it will be removed. In certain cases, the credit bureau may ask you to follow up with the organization that supplied the information.

Be careful about a credit repair service that advertises the removal of all derogatory items. Credit bureaus are designed to report all correct information—it’s against their own interest to remove an account or charge that is correct. Disputing a charge is not going to make it go away automatically.

Signs of a Credit Repair Scam

There are credit counselors out there that can assist you in repairing your credit over time; the National Foundation for Credit Counseling and Financial Counseling Association of America are nonprofit organizations that can connect you with certified financial counselors.

But outside of reputable organizations, there are many companies looking to scam you. Look for these red flags to avoid credit repair scams.

They Request Up Front Fees

A clear indicator of a credit repair scam is a company that asks you to pay up-front fees before it provides any services. Many credit repair scam companies will put pressure on you to pay up-front so that they can get to work.

Under the federal Credit Repair Organizations Act (CROA), credit repair companies cannot request or receive fees until they provide a credit report more than six months after the promised results that shows those results were indeed achieved. Thus, if a credit repair company is asking you to pay up-front, what they’re doing is actually illegal!

They Promise to Remove Negative Information from Your Credit Report

A company may tell you that they can get rid of negative information from your credit report—even if that information is accurate. They promise to get any damaging information removed to raise your credit score. This claim is false. While it’s possible to successfully dispute inaccurate claims or errors in your credit report, no company can successfully remove accurate data. If a credit repair company is promising to do so, it’s a scam.

Remember: a credit repair company cannot do anything for you that you cannot do yourself. You can request a copy of your credit report from all three major credit reporting agencies. If you notice mistakes, such as somebody else’s credit card information being included, you can dispute the mistake. You don’t need a paid service to help you dispute errors on your report.

They Avoid Explaining Your Rights to You

Another clear indicator of a scam is a company that avoids telling you your rights and being honest about what you can do for yourself for free. For example, you’re eligible for a free copy of your credit report each year and you are free to dispute any errors you notice on your own. Credit repair scam companies will conveniently leave this information out.

In addition, if you have signed up for a credit repair service, you have the right to cancel your contract for any reason within three business days, at no charge to you. Credit repair scam companies aren’t likely to tell you this either.

They Claim You Need a New Identity

Scam companies may offer you a new identity, or promise you a clean slate with a new Employer Identification Number (EIN) or a Credit Privacy Number (CPN). No credit repair company can offer you a new identity—any company offering to do so is fraudulent!

A Better Alternative

Credit repair scams are common, but there are still reputable debt counseling services with counselors that are trained and certified to help you get to the root of your financial problems. They will help you take actionable steps, like building a monthly budget that works, and assist you in legally rebuilding and improving your credit score.

And once again, no credit repair company can do anything for you that you can’t do for yourself for free. You can get free copies of your credit reports, identify any negative items that may be affecting your score, and dispute any false claims or errors. By making payment arrangements, improving your credit history, and reducing your credit utilization ratio, you can safely and legally improve your credit over time.