How to Avoid Credit Repair Scams

Guest Post by Steven Millstein

If you're going to care about one number in life, it should be your credit score. Is this number not as high as you would like it to be? It's not too late. You can take steps to improve your credit.

One of the most common ways to do this is by hiring a credit repair company. Some people have concerns about using these kinds of services. When looking for the right company, they don’t know where to start. And many are rightfully worried about getting ripped off.

When hiring credit repair services, you must do everything you can to ensure the company is legit. This will prevent you from wasting money and making your score even lower. 

Here are our best tips for finding a reputable repair company and avoiding credit repair scams.

Why is my credit score so important?

Your credit score is a crucial part of your financial well-being. It plays a big role in whether you qualify for a loan, how much interest you have to pay, etc. It can even determine whether you are eligible to buy a house. 

Why hire a credit repair company?

If your score is low, you should take action to fix it.

Your score can be low for a variety of reasons. Some of them may be your fault. If you make late payments or get too close to your credit limit, for instance, your score could drop. In this case, you will have to improve your financial habits. 

Your score may also drop because of factors beyond your control. Credit bureaus make mistakes when creating reports. They may mix you up with someone else with a similar name, list duplicated accounts, etc. 

Credit repair companies will catch these errors and report them to the bureaus. Once the bureaus correct these errors, your score should improve. 

Can I repair my credit on my own?

Some people choose to repair their credit on their own. They request free reports from the three major credit bureaus (TransUnion, Experian, and Equifax). Then, the individual goes through these reports. They notice any errors and report them to the bureaus on their own. 

Under federal law, you can dispute information that’s on your credit reports for free, and the credit bureaus have online systems you can use. However, it can still take a lot of effort. You have to put in the time to research credit laws and go through your reports. You also have to properly communicate with the bureaus to ensure they address the errors. 

Credit repair companies don’t get any special access or privileges when it comes to disputing. However, credit repair professionals may have more experience identifying questionable information in credit reports and understand the details of the laws that govern credit reporting. This is why many people decide to hire a credit repair company. In the long run, it can save you time and money. 

What should I look for? 

So, what should you look for when hiring a credit repair company? Consider the following factors:

  • Free consultations — Free consultations are a great way to get a feel for the company. Professionals will go over your report, informing you of what they can and can’t do. They will explain your options and help you determine the best course of action. 

  • Reputation — It’s good to know the reputation of the credit repair company you’re considering. If others have had success with its services, it may be a good option for you.

Check the reputation of the company by doing the following:

    • Scour online reviews. When people have a bad experience, they’re bound to complain about it online. Ensure the company has plenty of good, legit ratings before hiring it.
    • Consult guides. Check out this guide that provides reviews of genuine services. Cross-referencing guides will help you feel confident in your decision.
    • Look at the Consumer Financial Protection Bureau. This organization has a Consumer Complaint Database that you can use to see if consumers have consistent problems with a company. 

  • Certifications and licenses — In 1996, the federal government passed the Credit Repair Organizations Act. This law regulates how credit repair companies interact with clients, but doesn't require a federal certification or license to start a business. However, many states require credit repair organizations (CRO) to register with the state and hold a CRO bond.

    You could see if a company is registered in your state, although not all states require registration. You could also check if the company is part of a professional association, such as the National Association of Credit Services Organizations (NACSO).

  • Open communication — Do the professionals on your case practice open communication? Do they inform you of what they’re doing, provide constant updates, etc.?

What should I watch out for?

Perhaps even more helpful than knowing what to look for? Knowing what to watch out for. 

Stay far, far away if you spot any of these major red flags: 

  • Asking for payment upfront — Credit repair companies, by law, cannot demand payment upfront. They must complete their services before collecting your money. 

  • Neglecting to make a contract —The law says that companies must have a contract with you. In the contract, they should lay out the exact services they will complete, a transparent cancellation policy, etc. 

  • Guaranteeing results — Quick fixes are tempting. But, the reality is that no one can guarantee that they will fix your credit. If the company promises certain results in a certain time frame, be wary.  

  • Promising to fix mistakes you made — Agencies can’t get credit bureaus to remove completely accurate negative information from your report. One that says otherwise could be running a scam. 

  • Asking you to be dishonest — Professionals should never ask you to lie and claim something is inaccurate, assume a parallel identity, or sign up for a new tax identification number. These are underhanded tactics that won’t work and could leave you tangled up in a scam. 

  • Ignoring your questions —As a consumer worried about your credit, you should feel free to ask questions. Avoid companies that brush aside your concerns or don’t inform you of your legal rights. 

Think you’ve come across a scam?

Have you come across a credit repair scam? Start by reporting it to an organization like the Federal Trade Commission, Consumer Financial Protection Bureau, or your state’s attorney general. 

If you were affected by illegitimate services, you can take legal action. Victims can sue for losses, fees, and even punitive damages. If the company swindled other people, you may be able to pursue a class-action lawsuit. 

The bottom line

With all of the scams and ineffective services out there, finding the right credit repair company can be challenging. Do your research before choosing. You’ll be glad you did while others are throwing their money away at conniving, ineffective companies. 

Steven Millstein is a recognized credit expert and is the editor of CreditRepairExpert which is an online resource dedicated to all things credit. Steven has been featured in leading publications including Newsday, Yahoo Finance, MSN, NBC, and many others.

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