Desperate people, whether they’ve suffered a job loss, illness or natural disaster, are too often victimized by predators who take advantage of their vulnerability. If you’re frustrated by credit problems, you may be vulnerable to a credit repair scam.
While the idea of a quick fix to your credit can be appealing, the truth is that if you have legitimate negative information on your credit report, it will take time for that information to drop off your report. On the positive side, as time passes, the influence of a negative item on your credit score fades. In other words, a collection item from six months ago will drop your credit score more than one from two years ago.
Many people get confused between the services offered by a legitimate credit repair service and a potential credit repair scam. A legitimate credit repair service can help you correct errors on your credit report and help improve your credit score by recommending specific actions for you to take such as paying off certain bills.
Warning Signs: Credit Repair or Credit Fraud
The Federal Trade Commission (FTC) published a list of warning signs that could indicate credit repair fraud. Beware of companies that:
- Insist you pay them before they will help you with your credit problems
- Recommend creating a new identity
- Promise to erase your bad credit orremove a bankruptcy or judgment from your credit report
- Tell you not to contact the credit reporting bureaus yourself
- Tell you to dispute information on your credit report even if you tell them the information is correct
- Tell you to provide false information on your credit applications
- Don’t explain your legal rights when they tell you what they can do for you
Criminal Activity and Credit Repair
Some of the recommendations of a credit repair company could be illegal, particularly if the company provides you with a “credit profile number” that looks like a Social Security number or if they tell you to apply for an Employer Identification Number (EIN) from the Internal Revenue Service. If you follow their advice and apply for credit using one of these numbers, you could find yourself not only a victim of fraud but also subject to prosecution. It’s a crime to lie on a credit application, use someone else’s Social Security number and to apply for an EIN under false pretenses.
Credit Repair Organization Act (CROA)
The FTC enforces the provisions of CROA, which makes it illegal for a credit repair company to lie to you about what they can accomplish and to you charge you before they’ve have helped you. Here’s what a credit repair company must do under CROA:
- Provide a written contract that explains your legal rights and details the services the company will perform for you
- Allow you to cancel free of charge within three days
- Tell you how long it will take to get results
- Tell you how much their services cost
- Provide you with any guarantees they offer
If you feel you many have been the victim of a credit repair scam, you can sue the company, but you should also report this to your state attorney general, your local consumer affairs office and the FTC.
Alternatives to Credit Repair Companies
If your credit score is low or you have unresolved debt problems, you may want to consult a nonprofit credit counselor who can give you advice on how to improve your credit score in addition to helping you create a budget.
If your problem is inaccurate negative information, each credit reporting agency provides information on their website as to how to correct information. This can be time-consuming and you must keep extensive records on each step of your credit dispute, but at least you will know that you won’t be a victim of a credit repair scam.