Beware of Credit Repair Scams

You have seen the ads offering easy or instant credit repair. Maybe you have gotten spam in your email inbox promising to erase your bad credit. If you are one of the many Americans burdened with poor credit, these offers can be enticing. While there are a few (very few!) legitimate ways to improve your credit score quickly, many of these offers are nothing more than a scam. At best, you will spend your money and get very little, if anything, in return. In the worst case, you may unknowingly do something illegal and be stuck with criminal charges in addition to bad credit. You can avoid becoming a victim of credit repair scams by learning about the different types of scams and what to watch out for.

In this scam, the company claims that they can remove negative information from your credit history. They may claim that they have special contacts at the credit bureaus or know some backdoor secrets. Credit Bureaus are lawfully required to keep accurate negative information records on your credit report for seven years, or ten years for a bankruptcy. There is not secret or easy way to remove this information.

What these companies will do is use underhanded techniques to make your credit report appear clean long enough to collect your money. These companies file disputes against the delinquent debts on your credit report. When the credit bureau receives a dispute, it must contact the creditor and the creditor has 30 days to verify the debt. If the creditor doesn’t respond before the deadline, the credit bureau removes the disputed item from your report. The credit repair company can then show you a cleaner credit report and collect their pay. However, if the negative information is accurate, the creditor will respond eventually and the information will be put back on your report again, landing you right back where you started.

Some credit scams may require you to apply for a new employee identification number, as if you were a business. They tell you to use that number when you apply for a loan so that the lender does not see the negative information associated with your own social security number. While applying for an EIN number is not illegal, using this number solely for the purpose of falsifying your identity and starting a new credit history is. Your EIN number will still have your same name and address associated with it and it can be tracked.

If a company tries to get you to set up a new social security number with false information, run away fast. This is illegal plain and simple. Any company that talks about file segregation, setting up a new credit file or a fresh credit history is a scam.

Some companies may tell you that they will deal with the creditors and all you have to do is send them regular payments. Supposedly, they will keep these payments in an escrow account to collect interest until there is enough in the account to cover the debt. Meanwhile, the credit repair company deducts regular administration fees from your account and your creditors are kept on hold. Because your creditors are not being paid, they will continue with their collection procedures and may even take legal action.

Beware of any credit repair company that charges you an upfront fee. According to the Credit Repair Organizations Act, no credit repair company can charge you until they have done what they said they would. Any company that asks you for money upfront is almost always a scam.

Credit repair scams prey on desperate people who want nothing more than to get their finances in shape. You can avoid being taken in by these scams by asking questions and researching the company. Here are some things you can do to avoid a credit repair scam.

• Be wary of any company that uses words like quick, easy or instant. There is very little you can do to improve your credit quickly.
• Never pay money upfront and make sure the company has delivered exactly what they said they would before you cut them a check.
• Don’t be suckered into paying for things that you can get for free. You are allowed one free credit report from each of the credit reporting bureaus each year; in some states you are even allowed to get two copies before you have to pay for them. Ordering a credit report is easy, so there is no reason you should pay for another company to order one for you. There is also no cost to dispute any inaccurate information on your credit report, so do it yourself and save some cash.
• Similarly, don’t pay large amounts of money for things that should cost very little. There are some legitimate nonprofit organizations that specialize in helping people get control of their credit. The National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agency are two such organizations. You can get help for a minimal fee instead of spending excessive amount of money that could otherwise go toward paying off your debt.
• Be suspicious of any company that contacts you first, whether it be by mail, phone or email.
• Check the better business bureau and other regulatory government offices to see if anyone has filed a complaint against the company before you do business with them. Also, ask for references and check them out.
• Read all contracts and make sure you understand them completely before you sign. Have the contract looked over by a lawyer if you are not sure what everything means
• Avoid companies that dodge your questions or are vague about the details. Make sure you understand exactly what they are asking you to do and what they are promising in return.

If you do need help repairing your credit, there are legitimate organizations to turn to. You can give your local Consumer Credit Counseling Services a call to get solid, legal advice. Also, look for credit counselors that are associated with either the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agency. Keep in mind that these services cannot remove or change any legitimate information on your credit report. What they can do is guide you through the process of managing your credit and help you set up payment plans. You will be able to repair your bad credit over time as you change your spending habits and get caught up with any unpaid debts.