Avoiding Credit Repair Scams

Posted April 23, 2009 in Creditor/Debtor by

A piece of spam landed in my mailbox this morning. "Want a better credit rating?" the subject line asked. "Don’t let a poor credit score ruin your future," it urged me. "Let our credit repair specialists take care of your credit rating so you can enjoy your financial future."

If you’re up to your eyeballs in debt and getting a lot of calls from collection agencies, such an offer may have some appeal. What’s not to like about the idea that a company can erase your bad credit and give you a new credit identity? But if it sounds too good to be true, that because it is.

Every day, companies pitch their services to people with poor credit scores. But here’s the catch: Some credit-repair companies are promising you the impossible. Or they may be taking your hard-earned money to perform simple services that you could do yourself. Worst case, they may encourage you to commit fraud. In any event, credit-repair assistance may only worsen your financial situation by wasting your time and putting you further behind on your debts.

If you decide to look into a credit-repair offer, look for the following warning signs offered by the Federal Trade Commission (FTC):

  • The company wants you to pay before any services are provided
  • They don’t tell you your legal rights and what you can do by yourself for free
  • They recommend that you not contact a credit bureau directly
  • They suggest you invent a new credit identity by applying for an Employer Identification Number to use instead of your Social Security number
  • They advise you to dispute all information in your credit report or do something else that seems illegal

Legally, credit-repair companies can help you review your credit reports and remove erroneous information that may be dragging down your credit score. For example, perhaps your report shows information that is wrong or misleading. Maybe it even shows someone else’s bad credit information. By law, after credit bureaus are notified of mistakes, they have to work with the companies that provided the incorrect data to either confirm its accuracy or remove it from your report. Removing the bad information may raise your credit score.

But there’s no reason to hire a company to dispute the information for you. You can call the credit bureaus and dispute the errors yourself. I’ve done it. It took me less than an hour to dispute the information with all three credit bureaus, then review the corrected reports about a month later.

Less ethical credit-repair companies may offer illegal advice that could land you in hot water with law-enforcement agencies. For example, it’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number or to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.

Credit Repair Organizations Act

Under the Credit Repair Organizations Act, credit-repair companies cannot make false claims about their services, require you to pay until they have completed the services they have promised or perform any services until they have your signature on a written contract and have completed a three-day waiting period. During that time, you can cancel the contract without paying their fees.

Any contract you sign with a credit repair company must include:

  • The payment terms for services (including the total cost)
  • A detailed description of all services to be performed
  • How long it should take to get results
  • Any guarantees
  • The company’s name and business address

What You Can Do

Everything a credit-repair company can do for you legally, you can do for yourself at little or no cost. You may do the following:

  • Dispute mistakes or outdated items for free.
  • Receive a free report if a company takes adverse action against you, like denying your application for credit, insurance or employment, and you ask for your report within 60 days of receiving notice of the action.
  • Receive one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
  • Request and receive a free copy of your credit report once every 12 months from each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion. The three companies have set up a central website (annualcreditreport.com), a toll-free telephone number (1-877-322-8228), and a mailing address (Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281) through which you can order your free annual report. If you opt to request a free copy of your credit report via mail then you will need to complete the Annual Credit Report Request Form, which can be printed from the FTC Web site.

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