You need a good credit score for financial stability, secure loans, mortgages, and even better job opportunities. Often, people turn to credit repair companies for help while struggling with low credit scores. Besides legitimate credit repair services, many fraudulent companies exploit desperate consumers through scams. It’s essential to know how to protect yourself from scams.
What is a Credit Repair Scam?
A credit repair scam involves dishonest companies that make false promises to quickly improve one’s credit score, often for a low fee. These scams rapidly grab the attention of some desperate consumers struggling with low credit who want to remove negative marks from their credit reports quickly.
How do the Credit Repair Scammers Work?
Fraudulent credit repair companies often use deceptive tactics such as:
- They promise to increase the credit score with a guarantee, but no company can legally guarantee the results.
- These fraudulent companies charge upfront fees, claiming they need money to undergo a rapid procedure. However, according to the Credit Repair Organisations Act (CROA), credit repair companies cannot charge before providing their services.
- Some scammers propose adding false disputes to boost credit scores, which is illegal temporarily.
- Sometimes, these scammers suggest a new identity (Credit Privacy Numbers – CPNS), which is considered credit fraud and may result in severe penalties.
How to Identify the Red Flags of a Credit Repair Scam?
You need to be very careful when choosing credit repair companies to avoid scammers. Here are some warning signs
- Upfront Payment Requirement: Legitimate credit repair companies cannot charge fees until they have completed their services. If a company asks for a payment before any work is done, it’s likely a scam.
- “Guaranteed” or Unrealistic Promises: No honest company can guarantee a specific increase in credit scores. Always be aware of their fake promises, such as “we can erase bankruptcies, late payments, and collections completely or with a guarantee,” or “your credit score will improve by 100 points in 30 days.”
- Ignore the Written Contract: A legitimate credit repair company must provide a written contract that details the services they will perform, the total cost, estimated completion time, and your legal rights, including the right to cancel the contract within three days. If no contract is provided, it’s a red flag.
- Encourage False Information or New Identities: If the credit repair company advises you to dispute all negative items (even accurate ones) and apply for a new credit identity using a Credit Privacy Number (CPN), it’s a red flag. Using a CPN instead of your Social Security Number (SSN) is illegal and may result in criminal fraud charges.
- No Transparency About Your Rights: According to the law, you can dispute errors on your credit report for free. If any company claims they can only fix your credit, it is misleading. The Consumer Financial Protection Bureau(CFPB) provides free resources to help people manage their credit.
How to Protect Yourself from Credit Repair Scams?
To protect your finances from scammers, try to follow these steps.
- Know Your Rights: According to the Credit Repair Organisations Act (CROA), you cannot be charged upfront fees, you must receive a written contract, and you have the right to cancel the contract within three days.
- Verify the Reputation of Your Chosen Company: To avoid a scam, before finalising a credit repair company, check the Better Business Bureau (BBB) ratings (BBB website), consumer reviews on Trustpilot, Google, or Yelp, and complaints on the CFPB website.
- Follow the DIY (Do–It–Yourself) method: By following a step-by-step procedure, you can improve your credit on your own for free. You can get free reports from Annual Credit Report and dispute errors directly from credit bureaus: Experian, Equifax, and TransUnion. Also, you can negotiate with the creditor directly to plan better payment terms.
- Report Fraudulent Companies: If you suspect a credit repair scam, report it to the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB) or your state’s attorney general’s office as early as possible.
What Are the Best Alternatives to Credit Repair Companies?
If you need help improving your credit, follow these legitimate options-
- Nonprofit credit counselling service providers, such as the National Foundation for Credit Counselling (NFCC), offer free or low-cost financial advice.
- A secured credit card can help rebuild your score if you have a bad card.
- If you are struggling with multiple debts, a nonprofit credit counsellor can help you negotiate lower interest rates and manageable payments by following the Debt Management Plan (DMP).
- Tracking expenses and paying bills on time can naturally improve your credit score.
Credit repair scams can damage your credit, waste money, or even lead to legal trouble. Choosing a legitimate credit repair company is essential for your finances and credit.