How to Recognize Credit Repair Scams
Have bad credit and looking for a way to "repair" the damage from mistakes you've made in the past? You might think a credit repair service can help. But before you decide to go the credit repair route, make sure you understand exactly what how credit repair operations work.
The truth is, credit repair companies can't do anything more than you can do yourself. Credit repair companies do one thing – they dispute any and every negative piece of information in your credit reports, even if it's accurate. They basically bombard the credit bureaus with dispute letters hoping that the bureaus won't be able to validate the information and therefore, remove it from your credit reports. (By law, if the credit bureaus are unable to complete the investigation and verify the dispute within 30 days, the item must be removed from your credit report.)
What the credit repair companies don't tell you is that even if they're successful in
getting a legitimate negative item removed (for the reason stated above), it doesn't stop the information from being re-reported at a later date.
Credit repair companies are really nothing more than glorified letter writers. Think about it, you could send the dispute letters yourself and all it would cost is a stamp and the time it would take to write the dispute letter yourself. And if the information is accurate, the likelihood of it being verified and confirmed as accurate is pretty high.
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And while there may be a one or two good seeds in the plethora of credit repair services, the easiest way to avoid becoming a victim of a credit repair scam is to save yourself the money (and the risk) by improving your credit on your own.
It's worth noting that there is a big difference between a credit repair company and a legitimate credit counseling service. A certified credit counseling service will work with you to create a personalized budget and if needed, enroll you in a debt management plan. Debt management plans are a great way to eliminate late payment penalties, stop over-limit fees, and slash those 29 percent penalty interest rates. But most importantly, they'll work with your creditors and come up with one easy monthly payment that you can afford so that you can get back on track to financial stability.
Studies show that more than a million Americans each year call on credit repair services to help out when credit woes threaten to capsize their financial lives. The flashy advertisements that promise to erase or eliminate any past credit blemishes from your credit profile? Not likely.
So, how do you make sure that you're working with a legitimate credit counseling service and not some fly by night credit repair company? The last thing you need is to fall victim to a credit repair scam. Here are a few guidelines:
- If it sounds too good to be true, it probably is. Don't be pulled in by a big, flashy advertisement – and beware of telephone calls or e-mails that arrive "out of the blue" from credit repair companies offering their services. Reputable credit counselors usually rely on past clients for referrals, so they don't need to solicit your business through television, telemarketing or "spam" e-mails.
- Do your due diligence. Interview several agencies before making a choice, and don't be afraid to ask around for recommendations. (You can do an online search for independent consumer credit counseling services, or look up the National Foundation for Credit Counseling at www.nfcc.org for more info.) Look for an agency whose counselors are certified by an outside organization, and don't get paid on commission.
- Personalized plan. Financial solutions are rarely one-size-fits all, so find out if the counselor will devise a plan tailored to your personal circumstances. Ask for a clear presentation – in writing – of the fees you will be charged and what they're based on. And if you're really looking for a credit repair service (versus a credit counseling service), don't pay anything upfront. Under the Credit Repair Organizations Act (CROA), credit repair firms cannot legally charge you until they've provided the service.
Another key tip: Don't be pressured into a snap decision. Of course you want to act promptly to address your debt problems, but a reputable credit counselor will allow you time to evaluate their offer, ask around and choose the solution that best suits your circumstances.
As stated above, the National Foundation For Credit Counseling has some good tips for recognizing and avoiding credit repair scams.
- No one can remove negative information from your credit history if the information is accurate.
- Negative credit information will remain in your credit reports for seven years from the date it is reported – up to 10 years for bankruptcies.
- Fraudulent companies will offer different tax ID's or social security numbers in order to create a new file. THIS IS ILLEGAL.
- Many unsolicited emails or mailings from credit services should be viewed with skepticism.
- Credit services cannot collect a fee upfront until they have kept their promises.
- You can do everything that any service can, and you can do it for free.
Federal law requires that credit repair services give you an explanation of your legal rights, a detailed written contract, and three days to cancel. This applies to for-profit and non-profit organizations, banks, credit unions or the creditor.
That's the deal. If you find yourself in debt and falling behind on important bills, credit counseling can be a financial lifesaver. But avoid financial disaster by knowing the risks of encountering a credit repair fraudster. Do your homework, dig up an accredited counseling agency, and get yourself back in the black – without the risk off falling victim to a credit repair scam.