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Having poor credit can feel overwhelming and leave you grasping at any promise of assistance.
Credit repair companies may claim that they can eliminate negative marks from your credit report and improve your score for a fee, but the only way to get accurate information removed is to wait until credit bureaus stop reporting it.
There are a few clear signs that such claims are fraudulent — and some definitive steps to take to avoid credit repair scams.
Six signs of a credit repair scam
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB), which collect consumer complaints about, and take legal action against, credit repair companies, warn consumers to watch out for companies that do any of the following:
- Demand a fee upfront
- Tell you to dispute accurate information on your credit report (or promise they can remove it for you)
- Tell you not to contact credit reporting agencies (Experian, Equifax and TransUnion)
- Tell you to provide incorrect information on credit and loan applications
- Don’t notify you of your legal rights regarding their services
- Refuse to answer questions about their specific services
One common scam to look out for: credit repair companies that charge you to send meaningless dispute letters to credit reporting agencies requesting that they remove legitimate negative information from your report.
Andrew Pizor, staff attorney at the National Consumer Law Center, said those debts may simply reappear later, as the only way to remove accurate information from your report is to wait it out.
“Unfortunately, there's no shortcut or easy fix,” he said. “Paying someone to game the system is usually a waste of time and money.”
Another scam you could encounter is the promise of a new credit identity. Companies charge you for a so-called credit profile number (CPN) or employer identification number (EIN) to replace your Social Security number (SSN) and hide past credit issues. These new numbers are often stolen Social Security numbers, and this practice is illegal.
In 2017, the CFPB filed complaints against several California-based credit repair companies that charged fees in advance and misled consumers about their services and their limited money-back guarantee. The CFPB has also issued an advisory warning about companies that advertise paid credit repair services.
If a company charges a fee to improve your credit score, they’re not legitimate, Pizor said.
Bottom line: Anything a credit repair company can legally do is something you can do on your own at no cost. Credit repair schemes that sound too good to be true probably are.
Follow these steps if you suspect a scam
Fortunately, consumers are protected from these types of fraud under the Credit Repair Organizations Act. If you come across a credit repair scam, there are several steps you can take.
Report it. You can file a complaint with your local consumer affairs office, your state Attorney General, the FTC and/or the CFPB.
Take legal action. You can sue credit repair companies in federal court for your losses or the fees they charged you, or seek punitive damages. You can also join a class action suit if other people have had the same experience with the company.
Look for legitimate help. There are resources and financial avenues available to help you repair your credit on your own, such as nonprofit credit counselors. We’ll talk more about this below.
How to find reputable credit repair companies
These are tricky waters to navigate. According to the FTC, there could be legitimate credit repair companies out there, but any organization promising to remove accurate information from your credit report — and charging an upfront fee to do so — is not one of them.
Before you sign up for any kind of credit assistance or repair services, do your research. You can find more information about a company’s offerings and reputation (and any related complaints) with a quick Google search. Customer reviews may tip you off to any too-good-to-be-true claims.
Plus, credit repair companies should always provide information about your legal rights, how long it will take to get the results they promise, how much you’ll pay for services and any guarantees they offer. You should get a written contract and a cancellation form that details your right to back out within three days.
Again, though, there’s no way to remove legitimate marks from your credit history. So while you may find other types of assistance with budgeting or paying down debt, you should avoid credit repair companies that make these bold promises.
Repairing your credit on your own
You don’t actually need credit repair companies to make a meaningful impact on your credit history and score. There are steps you can take on your own to improve your credit.
#1: Review your credit report and dispute any errors
To know how to address any items that are affecting your credit, you first have to know what’s in your report. You can get a free copy of your credit report from each bureau once a year at annualcreditreport.com.
Review your credit report carefully — you’ll find information about credit lines and loans, including the total amount or credit limit for each, your payment history (including any missed or late payments) and bankruptcies or other public records.
Credit reports aren’t always accurate, thanks to anything from clerical errors to identity theft. If you find inaccuracies in your financial history or past names or addresses, you can file a dispute with the credit bureau.
“It's easy enough that there's no need to pay for help,” Pizor said.
#2: Pay down your debt
The amount you owe on your loans and credit cards make up 30% of your FICO credit score, and your payment history accounts for 35%. If you have outstanding debt, paying it off will both reduce the amount owed and help bring your accounts back into good standing.
Sometimes, this may be as simple as knowing debt exists and reallocating money toward it. But you might explore other options like credit counseling or debt consolidation, in which you combine outstanding balances into a single personal loan or balance transfer credit card.
This may reduce your interest rates and simplify your monthly payments, but if you haven’t addressed the underlying reason that you’re in debt, it may just put you further in the hole.
You may also encounter debt settlement programs. Like credit repair companies, these organizations often make unrealistic promises that they can reduce what you owe to lenders. In reality, you’re likely to rack up late fees and interest and see a negative impact on your score.
#3: Work on your budget
To better manage your existing debt and prevent additional bills from piling up, get a handle on your income and expenses and look for areas to improve. Ask for help with budgeting, if needed — a nonprofit credit counselor, which we’ll discuss below, can assist you with this.
“There's no point in trying to fix your credit report if you're still having trouble paying your bills,” Pizor said.
#4: Consult a credit counselor
Nonprofit credit counselors can help you evaluate your financial situation and develop a plan for budgeting or paying down debt. Unlike fraudulent credit repair companies, legitimate credit counselors won’t make you pay anything upfront. Plus, they’ll waive fees if you can’t afford their services, or charge very little otherwise, Pizor said.
Look for certified counselors via the National Foundation for Credit Counseling (NFCC).
The bottom line
Credit repair doesn’t have to cost you anything. Instead of falling victim to a fraudulent company making bold claims, take some basic steps on your own to learn about your credit history and improve your finances going forward.