4 Tips On How To Avoid Credit Repair Scams

By Rebecca Lake. May 7th 2016

Lenders use your credit score to measure your ability to repay debts. The better your score is, the more likely you are to qualify for credit cards and loans at favorable interest rates. Therefore, removing negative or incorrect information from your credit report can help to boost your score but it can take time, particularly if your credit history reflects serious delinquency, bankruptcy or foreclosure. Unfortunately, many consumers fall prey to credit repair scams which promise a fast credit fix but fail to deliver on their claims. Knowing how to spot a credit repair scam can help you to avoid doing further damage to your credit. Read on for four tips on how to avoid credit repair scams.

1. Do Your Research

Before you enlist the services of any company advertising credit repair services, it’s important that you do some independent research to determine whether the business is legitimate. You can begin by contacting the Better Business Bureau in your state to find out if any negative reports or complaints have been filed against the company. Additionally, you can contact your state attorney general’s office or the Federal Trade Commission (FTC) to inquire about complaints. Your attorney general can also tell you whether credit repair companies are required to be licensed before doing business in your state of residence and what agency to contact in order to verify the company’s licensure if applicable. If the credit repair company claims to be accredited, you should also attempt to verify this with their accrediting organization.

2. Recognize The Warning Signs

Credit repair scams use marketing tactics to convince customers that they can provide a fast and easy credit fix. In reality, the tactics these companies employ are more likely to hurt your credit than help it. There are a number of red flags that consumers need to be aware of when spotting a credit repair scam. The Federal Trade Commission advises consumers to avoid doing business with any company that:

  • Asks for payment upfront before they provide services. The Credit Repair Organizations Act prohibits credit repair companies from requiring payment before services have been rendered.
  • Does not explain your rights or tell you what you can do to repair your credit on your own.
  • Tells you not to contact any of the three major credit reporting bureaus (Equifax, Experian and TransUnion) regarding information on your credit report.
  • Claims they can get rid of negative information on your credit report, even if the information is accurate.
  • Claims they can help you establish a new credit history using a federal tax identification number or by “piggybacking” on someone else’s credit.
  • Advises you to dispute all of the information contained in your credit history, regardless of whether the information is accurate or how old it is.

You should also be wary of credit repair companies that claim they can remove bankruptcies, liens, judgments or foreclosures from your credit history. Generally, the only way to remove a judgment or lien against you is to repay the debt it’s connected to. Once the debt is satisfied, you must petition the court where the judgment or lien was entered to have it removed from your credit report. Bankruptcy can be listed on your credit report for up to ten years, depending on which chapter you file. Foreclosures, defaults on student loans and other debts can remain on your credit for up to seven years. (To learn more about the two types of consumer bankruptcy, see Understanding The Differences Between Chapter 7 And Chapter 13 Bankruptcy.)

3. Know Your Rights

Federal law requires credit repair companies to inform consumers of their legal rights which means telling them how they can go about disputing incorrect or inaccurate information on their credit report. The Fair Credit Reporting Act (FCRA) governs the accuracy, fairness and privacy of the information contained in your credit report. Under the FCRA, you’re entitled to know what information is in your credit history and how the information is used.

The Fair Credit Reporting Act also outlines the procedure for disputing errors contained in your credit report. If you find information that you believe is inaccurate or incorrect, you must initiate a dispute by sending a written notice to the credit reporting agency. The notice must include your name, address, the nature of the information you’re disputing and why you believe it’s incorrect or inaccurate. The credit reporting bureau must investigate the dispute within 30 days. If your dispute is verified, the agency is required to remove or correct the relevant information. If the information is accurate, the credit bureau is required to send you written notice informing you that it has been verified. (For more information on how to fix a credit report error, see How To Fix A Credit Report Error.)

4. Seek Legitimate Help

Repairing your credit takes time and patience and it also means making smart financial decisions. Paying your bills on time, getting rid of debt and using credit wisely are the best ways to rebuild your credit score. There are a number of legitimate organizations that can help you get your finances back on track. Non-profit consumer credit counseling agencies exist specifically to help consumers who are struggling with credit and debt management. These organizations can evaluate your financial situation so that you can create a realistic budget, develop a strategy for repaying debt and offer advice on how to legally improve your credit score.

As a general rule, if a credit repair company seems too good to be true it probably is. These companies rely on misinformation and a lack of financial knowledge in order to draw in unsuspecting consumers. Taking the time to educate yourself regarding your rights and the way credit repair scams operate can save you time, money and unnecessary headaches in the long run.

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