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Your credit score impacts everything in your financial life, from whether you can rent a home to the interest rate on your next car. If your credit score has taken a hit, you may be looking for a way to pull your score up fast. That's where credit repair companies come in. They promise to help you repair and increase your credit score.
The scam
According to the Federal Trade Commission, credit repair scams target folks who are in over their heads with loan and credit card payments and concerned about the state of their credit. Smooth-talking scammers push consumers to purchase their services by claiming they can remove negative information from the consumer's credit report, even if the negative information is accurate. How much they charge for the service depends on the company and the level of service chosen. Unwitting consumers can easily pay hundreds of dollars.
The reality
The promise to "repair" your credit score implies that there is something wrong with it. If you have a history of missing loan payments, being late on credit card payments, or otherwise failing to live up to your financial obligations, there is no quick fix. The negative remarks reported to credit reporting agencies are correct.
By law, a credit bureau is only required to remove negative information that is demonstrably wrong. Say you request a copy of your free annual credit report from all three major credit reporting agencies -- Experian, Equifax, and TransUnion. As you look one of the reports over, you realize that someone else's credit card information has been included. You dispute the mistake. The credit reporting bureau in question has a set number of days to either prove the information is correct or remove it from your report. No matter how low your credit score, you don't need a paid service to help you look for mistakes.
Signs you're being scammed
If any credit repair companies contact you and offer to improve your credit, the following signs should serve as red flags:
- They promise to get damaging information removed from your credit report, thereby raising your credit score. If a credit repair service claims it can have both accurate and inaccurate data removed, you know it's running a scam.
- They instruct you to dispute every piece of information on your credit report, even if it's accurate. They're trying to overwhelm credit reporting agencies with bogus disputes, hoping the bureaus will be so buried in paperwork they will fail to verify the accuracy of the information. The credit repair company reveals itself as a scam operation by asking you to do its dirty work.
- They put pressure on you to pay fees so they can "get to work." The Credit Repair Organizations Act stipulates that companies calling themselves "credit repair" can't receive payment until they have completed all services. And, for cases handled over the phone, the Telemarketing Sales Rule states that a credit repair company can't receive fees until at least six months have passed and it has provided you with a credit report showing that it did what it promised. Credit repair companies try to get around this by charging monthly fees instead of one large fee. Any upfront payment is illegal, whether it's a lump sum or monthly.
- They discourage you from contacting credit reporting agencies on your own. They don't want you to meddle because they know you don't need their help to have inaccurate negative remarks removed from your credit report. They're worried you'll stop handing over your hard-earned money once you figure out that you've been exploited.
- They avoid explaining your legal rights. Scam companies fail to tell you that you're eligible for one free copy of your credit report each year and that you're free to dispute errors on your own. They don't want you to know that if you recently signed up for a credit repair service, you have the right to cancel your contract for any reason within three business days at no charge.
A better alternative
There are reputable debt counseling services around the country with counselors trained and certified to help you get to the root of your financial problems. These professionals will help you build a monthly budget that works and show you how to legally rebuild your credit score.
If you're in financial trouble, it may seem as though it's permanent. It's not. Millions of Americans have found themselves in rough economic waters, and millions of people have systematically turned their situation around. If you need help doing that, do yourself the favor of reaching out for legitimate help
