Avoiding Credit Repair Scams

There are counselors who can help you with your credit report, and others who take your money but don’t help you.

Repairing your credit history after a setback can feel overwhelming. Unfortunately, that’s why some credit repair companies use confusing and misleading messaging to target anxious consumers who are just trying to get their financial lives back on track.

Warning signs for credit repair scams include companies that ask you to pay before providing services. The company may claim that it can guarantee a specific increase in your credit score or get rid of negative credit information in your credit report, even though the information is accurate and current.

More than half of people who submit complaints to the CFPB about credit repair chose the issue “fraud or scam” to describe their complaints.

Many people don’t know the full set of protections they have or understand the laws that govern credit repair companies.

These companies must follow numerous federal laws, including the Credit Repair Organizations Act and often the Telemarketing Sales Rule, both of which forbid credit repair organizations from using deceptive practices and from accepting up-front fees.

If you see advertisements or receive offers to fix your credit, look out for these example red flags:

• They demand payment upfront: The company wants you to pay before it provides any services. Under the Credit Repair Organizations Act, credit repair companies can’t request or receive payment until they’ve completed the services they’ve promised. Some companies will structure monthly payment plans to avoid this requirement, and you should know that no form of upfront payment is legal. A simple rule to follow is “Don’t pay upfront.” If the company uses telemarketing such that the Telemarketing Sales Rule applies, the company may not request or receive fees until it has provided you with a credit report generated more than six months after the promised results that shows the results.
• It sounds too good to be true: The company tells you it can get rid of the negative credit information in your credit report in a short period, even if that information is accurate and current. Also, if they promise a specific increase in your credit score or guarantee a certain result. No one can guarantee this. It simply takes time to repair your credit file.
• They can’t answer questions: The company representative can’t explain the specifics of the services they are offering you or the total cost for those services. Asking a few simple questions can help you determine if you are dealing with a reputable organization.
• They hold back or provide misinformation: The company doesn’t inform you of your rights, including your right to obtain a written contract outlining the details of your arrangement, as well as having the ability to cancel your contract with the company within three business days. The company does not disclose the full cost of its services, and/or the company suggests that you should not (or cannot) contact any of the nationwide credit reporting companies directly (you can).
• They ask you to misrepresent information: The company suggests that you try to invent a “new” credit identity – resulting in a new credit report – by applying for an Employer Identification Number instead of your Social Security number.
• They request you dispute accurate information in your credit report: The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness.

 

Know your rights

Don’t pay a company upfront. According to the Telemarketing Sales Rule, it’s illegal for a telemarketing or sales company to charge you for credit repair services unless it has been six months since the company achieved the promised results and the company has proven to you that it achieved those results.*

Credit repair companies are subject to numerous federal laws, including the Credit Repair Organizations Act and as mentioned above, often the Telemarketing Sales Rule, both of which forbid credit repair organizations from using deceptive practices and from accepting up-front fees.

These laws prohibit many deceptive practices by credit repair organizations. You may have a right to sue a credit repair organization using these laws.

Under the Fair Credit Reporting Act, you have a legal right to dispute credit history errors yourself for free. You don’t have to pay a credit repair company to do it for you. The first step is to get your free annual credit report from one or more of the three nationwide credit-reporting companies to identify any errors.

If you think you might be the victim of a credit repair scam, or if you’ve had other issues with a credit repair company, you can submit a complaint to the CFPB.

If you have more questions about credit reports and scores, check out Ask CFPB, our online database of frequently asked financial questions and answers.