People turn to credit repair when they end up in financial trouble and don’t know how to help themselves. There are plenty of honest, hard-working credit repair companies that look to aid people in a time of need. Unfortunately, there are also credit repair scams out there that people should watch out for.
Watch out for these common signs that might suggest you’re walking into a credit repair scam.
When you speak with a credit repair company, they should inform you of your rights upfront. For example, they should tell you that most credit repair actions are free for you to take entirely on your own. Under the Fair Credit Reporting Act, you have a legal right to dispute any information on your credit report that you believe is incorrect. You can do this process yourself and at no cost. While a credit repair company may offer to do it for you with more insight into what gets a dispute approved, they should not suggest that you can’t file a dispute without them.
Additionally, once you have signed up for credit repair services, you have a right to change your mind. Within the first three business days of signing the contract, you can cancel the contract at no charge to you. A solid, reputable credit repair company will make this very clear to you from the start.
The Credit Repair Organizations Act (CROA) makes it illegal for credit repair organizations to lie about what they can deliver. This includes advertising that blatantly overpromises what can be achieved.
Under the CROA, credit repair companies must always clearly explain to customers:
- The total cost of the service
- How long it will take to get results
- The three-day cancellation window without charge
- Your legal rights as outlined in a written contract
- The services that will be performed outlined in a document
- Any guarantees
When a credit repair company doesn’t live up to its legal obligations, consumers can take action.
If a credit repair company is promising you they can remove negative items from your report, consider that a giant red flag. Before they’ve done some investigation into your financial history, they have no idea if a negative item is accurate or not. And no matter what secrets and loopholes they tell you they have, no one can remove a fair and substantiated negative item from a credit report.
Making this promise is a blatant lie and an indication the company isn’t playing by the rules.
Federal law prohibits credit repair companies from charging fees before they’ve completed any services. Asking for payment in advance before any work is done is a sign the company has no issues crossing legal boundaries.
Some credit repair companies will try to get around this law with sneaky tactics. For example, they will request payment upfront and give you a tablet or a financial guide for signing up with them. They will then use that gift as a reason for collecting payment, stating that the money was for the present and not services. Challenge any credit repair organization that asks for money upfront by letting them know they are going against the law.
No one can give you a new credit identity. If a credit repair company offers to create (or asks you to create) a new identity with a new Social Security number, this is an illegal scam. The company will try to use this new identity to create a new credit profile for you and apply for all future credit products with this new Social Security number. When you’re caught using a fake Social Security number, you can be held legally responsible and may incur fines or jail time.
The Credit Repair Organizations Act prohibits credit organizations from making false or misleading representations of their services. Every proper credit repair company knows the details of the CROA and the limitations set on them. Companies whose practices willingly violate the rules of the CROA has little regard for the law and is likely a scam.
Reporting a credit repair scam can ensure that other innocent consumers aren’t taken advantage of. There are several avenues you can take if you wish to report a credit repair scam.
In addition to the Federal laws, most states also have laws regulating credit repair organizations. If you think you know a credit repair company that is operating illegally, report it to your state Attorney General’s office.
Next, you might want to file a complaint with the Federal Trade Commission (FTC). You should know that the FTC can’t resolve individual credit disputes. Still, it can and may take action against a credit repair organization with a pattern of possible law violations. Filing with the FTC ensures that if there are other consumers out there doing the same, a solid case is being built against the credit repair company.
You can file your complaint online at ftc.gov/complaint or call 1-877-FTC-HELP.
If a credit repair organization has taken actions prohibited by the CROA, it’s within your rights to sue them. As previously mentioned, if you sue:
- You can get your actual losses or what you paid reimbursed if you sue in federal court.
- You can seek punitive damages.
- You can join other consumers in a class-action lawsuit against the company. If you win this type of case, the credit repair company also has to pay your attorney’s fees.
Obviously, a lawsuit takes a lot of time, resources and money, so it’s not a route everyone will choose to take. You should evaluate with an attorney to see whether the risk is worth the reward before considering a lawsuit.
It’s essential to understand that there are legitimate credit repair companies out there; you just need to be discerning and do your research. Some tips for research include:
- Look at the company’s reviews on various websites.
- Look up when the credit repair organization was established. Scammers tend to come and go quickly, as they are often reported and shut down. The older it is, the more likely it can be trusted.
- Find credit repair organizations that have been featured in external publications. This is a sign that other organizations respect the company and stand behind it.
- Ask friends and family for recommendations. A lot of people don’t feel comfortable sharing when they’ve used credit repair services, but this isn’t necessarily the case for everyone. If you know someone who has sought these services, reach out to them and ask if they had a good experience with their company. There is no better assurance than a recommendation from someone you trust and know well.
There are good credit repair organizations that want to help consumers. If you take the time to find a good credit repair company, it can truly be a valuable asset and help you regain control of your credit and financial health.