How to Avoid Being Taken in by a Credit Repair Service Scam

There are several red flags to watch out for on advertisements and credit repair offers

How to Avoid Being Taken in by a Credit Repair Service Scam
Image: Pixabay
September 26, 2016

It can be overwhelming to try to repair your credit history after it has been damaged by a setback. Unfortunately, unscrupulous credit repair companies may try to take advantage of your anxiety, but there are several red flags you can watch out for in order to avoid them.

More than half of the consumers who submitted complaints to the Consumer Financial Protection Bureau (CFPB) during the past several months indicated the issue "fraud or scam" as the best description of their complaints.

Few people know about the full set of protections available to them, nor do they understand the laws regulating credit repair companies. These companies have to follow several federal laws—including the Credit Repair Organizations Act and frequently the Telemarketing Sales Rule as well—both of which prohibit credit repair companies from engaging in deceptive practices as well as from accepting fees upfront.

Whenever you see an advertisement or receive an offer about fixing your credit, look out for the following red flags:

  • Demanding Payment Upfront: Sometimes companies want you to pay before they will provide a product or service. The stipulations of the Credit Repair Organizations Act prohibit any credit repair organization from either requesting or receiving a payment until after they have completed the service they have promised. Some companies attempt to evade this requirement by structuring monthly payment plans, but it is still illegal to pay them before they have provided the service. Follow the simple rule "Don't pay upfront" when dealing with credit repair companies. If the company uses telemarketing so that it is governed by the Telemarketing Sales Rule, it is not allowed to either request or receive any fees until it has provided a credit report to you that has been produced more than six months after the promised results.
  • Sound Too Good to Be True? Some companies will tell you that they can erase or otherwise eliminate all negative credit information from your credit report in a short period of time, even if that information is correct and up-to-date. They may also promise an increase of a particular amount in your credit score or guarantee a specific result. No one is able to guarantee these things; repairing credit takes time. Period.
  • Can't Answer Questions: Is the company representative able to explain the specific details of the services you are being offered? How about the total cost of those services? If they are not able to do so, you are likely dealing with an unscrupulous company.
  • Holding Back/Providing Misinformation: The company should inform you what your rights are, including your right to get a written contract that outlines the details of your arrangement and your right to cancel your contract within three business days. It should also disclose the full total cost of its services, and it should not tell you that you should not (or cannot) contact any nationwide credit reporting company directly. You can.
  • Asking You to Misrepresent Information: Credit repair companies cannot suggest or request that you try to invent a "new" credit identity—which would result in a new credit report—by applying for an Employer Identification Number rather than your Social Security Number.

If you notice any of these red flags with a credit reporting company, seriously reconsider whether to use their services. Learning about your rights and the laws that govern such companies will lessen the likelihood that you will fall prey to a scam.

Consumers who feel that they may be the victims of a scam can submit a complaint to the CFPB either online or at (855) 411-2372.