How To Avoid Credit Repair Scams

Fraud artists often prey upon those in difficult or desperate situations. Storm victims, the unemployed, those with medical problems and homeowners facing foreclosure rank among the targets of scams. 

The inability to qualify for loans and other credit may hamper your ability to own a home or vehicle. Credit scores and other financial problems may contribute. 

In these circumstances, some organizations promise to repair your credit. Among the legitimate ones, however, are many unscrupulous credit repair organizations that take advantage of your desperation to improve your scores and qualify for credit. Below are some ways to detect and avoid credit repair scams.

Get a name and do your research

Anonymous, vague or assumed names may allow scammers to evade lawsuits or other legal action. Obtain the specific name of the person, people or entity that operates the credit repair agency. Search your state’s business registration or local land records or clerk of court’s office to search for assumed names. If registered, you should have the identity of the individuals or company that registered it.

Many states require credit repair organizations to hold a license. A lawyer in credit repair law firms must be licensed to practice in your state. The state bar of your state or the credit repair organizations licensing board will have the identity of the licensee and whether the license is suspended or revoked.

Don’t pay upfront

You don’t have to pay in advance for credit repair. In fact, a credit repair company breaks federal law by charging you upfront. This includes making you pay the total fees as a lump sum or by installments. To earn payment, the repair company must fully perform its promises to you. Normally, this means fashioning a settlement agreement between you and your creditors. 

Debt settlement is an agreement with your creditor that allows you to pay a lump sum to settle the amount you owe, which is usually less than the amount you actually owe. However, it comes with its own risks that could potentially cost more or damage your credit. 

Don’t act without a written contract

Avoid companies that cannot furnish you a written explanation of or contract for their services. The federal Credit Repair Organizations Act mandates that agreements between the company and you be in writing and signed by you. 

The contract must state the name and specific address of the business, price, the scope and specifics of the services to be rendered and when the company will complete its work. You also have the right to cancel the contract within three days (not counting Saturdays, Sundays or holidays).

Some things are already free

Advice by the credit repair company to not contract a credit bureau should also raise red flags. With such statements, the company may imply that it must charge you to get your credit report or else it can’t help you.

Federal law entitles you to one free credit report every 12 months from the major credit reporting agencies – Equifax, Transunion and Experian. You may obtain a report from each through www.annualcreditreport.com

When requesting a copy of your report, you need to have your Social Security Number, your current and previous addresses and a list of your known or existing loans, credit cards and utility bills. Some of the information forms the basis of security questions designed to verify your identity. These are often items of which only you would have knowledge.

You are also entitled to a free report upon request if:

  • A mortgage, vehicle loan, credit card, employment or insurance application was rejected based upon information in your credit report, provided you request the report within 60 days after notice of the adverse action;
  • You are unemployed, provided you plan to seek employment within 60 days
  • Inaccuracies on your report, including for identity theft or other fraud against you

You may also request correction of errors on the report on your own for free. This requires that you submit a dispute that identifies what you contend is wrong. It may help to submit supporting documents, such as payment records, your Social Security Number or current address. 

Upon your request and without charge, the credit reporting agency must investigate your dispute. This includes sending notice of it to the entity that furnished the information and requesting information to verify the accuracy of the information. The bureau must correct your report if it determines the presence of an error. 

Learn how to fix errors on your credit report by yourself (at no cost) here. 

Do not accept incomplete or incredulous claims

Ask the credit repair company how it specifically repairs credit or proposes to repair yours. Questions may include:

  • What does the company mean by “credit repair”?
  • Has the company negotiated or reached settlements with your creditors or others?
  • How long does it take?
  • How will you know if the creditors have agreed to a settlement?
  • What is the cost?

Vague, inconsistent or incomplete answers should tell you that the organization does not have a plan. Similarly, be wary of guarantees by the repair company of specific results or that it can replicate precisely what it has done for others. Your financial situation differs from that of others. You should not expect the same treatment from your creditors as other debtors – even if you have the same creditors. 

Instead of reliance on guarantees, learn about the company’s processes and policies. Ask the following questions, for starters: 

  • Does the company offer a free consultation to discuss your debts and financial situation? 
  • Does it promise confidentiality of your information? 
  • How often does it update you on the progress of negotiations or other services? 
  • Does the company assign you a specific person to work with you? 
  • How accessible is the staff of the company? 
  • How do you register complaints or resolve disputes with the company about its services? 

Consult credible reviews or the Better Business Bureau about the particular company.

You likely will find that reputable credit repair companies do not work solely on settlements or correcting faulty credit information. Many will address with you the root causes of low credit scores or other credit problems. 

No one can necessarily make it all disappear

Although the credit bureau must remove erroneous information, neither you nor a credit repair company can force removal of accurate information. A company that tells you the contrary misleads you.

Under the federal Fair Credit Reporting Act, negative information may stay on your report for several years. Here’s how long some common negative information can stay on your credit report: 

  • Chapter 7 bankruptcy (liquidation): 10 years after the date you filed;
  • Chapter 13 Bankruptcy (wage-earner’s plan): Seven years after the date you file the petition
  • Money judgments: Seven years after entry of the judgment
  • Late payments: Seven years after the date you missed the payment
  • Collection accounts: Seven years after the date the delinquency date as reported by the creditor to the credit reporting agency 

Don’t try to overwhelm the credit bureaus

Legitimate credit repair organizations will help you dispute incorrect information on a report. By contrast, scammers claim to clean credit reports through “jamming.” In this tactic, the agency disputes (or advises you to dispute) everything in your report. Here, the legitimacy of your dispute does not matter. Organizations may submit repetitive, voluminous and even misleading documents to bolster your dispute. 

With jamming, illegitimate repair businesses hope that the credit bureaus lack sufficient time and resources to investigate the disputes. This supposedly causes the credit bureau to just adjust your credit report in your favor. 

However, such an approach ignores that bureaus actually possess considerable resources and can process disputes automatically. Your participation in jamming could open you to civil and criminal liability for making false statements. Credit repair lawyers who do this violate ethical rules and face discipline, including the loss of law licenses.

Avoid the promise of a “new you”

Credit repair scammers may entice you to create a new identity in an effort to erase negative credit information from your history. Specifically, for a fee, the company provides you a nine-digit number. It has the nine-digit format of a Social Security Number, but the company will call it a “credit profile number” or “credit privacy number” (CPN). 

You apply for credit using the CPN in lieu of your real Social Security Number. Presumably, none of the bankruptcies, judgments, late payments, high balances or other negative history will appear.

Ultimately, such an approach does not work. With a CPN that has not been associated with you, the credit bureau treats you as if you do not have a credit history. This absence of a track record undermines your chances of a strong credit score.

More importantly, creating a false number can land you in prison. Federal law declares it criminal to falsely represent your Social Security, apply for an Employment Identification Number (EIN) under false pretenses or with false information, or give false statements on a mortgage, loan or other credit application. 

Aside from criminal liability, your fraudulent activity could make any debt you incur by these methods not dischargeable in bankruptcy. If you declare bankruptcy, these debts will survive and the creditor can still pursue you for what you owe.

Consider credit building instead

The alternative to credit repair is credit building. Unlike credit repair, which focuses purely on past errors and removing negative information from your credit report, credit building focuses on adding new information to your credit report and fostering positive financial behaviors, such as making your payments on time and in full each month. 

Read the blog post “How to Build Credit” for practical tools you can use to add new information to your credit report. 

Bottom line

Fixing and restoring your credit takes time and discipline. Reputable credit repair organizations will not promise you quick fixes, advise you to deceive others or hide from your questions or concerns. Research these companies carefully. If you find a trustworthy one, heed the advice of its staff. Often, they will have helpful tips to go along with their advocacy of you with creditors or credit bureaus.

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