If you need to repair your credit history after a personal or professional setback, it can feel very overwhelming. Unfortunately, this is why some credit repair companies will use confusing and misleading messages to target concerned consumers who are just trying to get their financial lives back on the right track.
Over the past several months, more than fifty percent of people who had submitted complaints with the CFPB (Consumer Financial Protection Bureau) about credit repair companies, chose the specific issue of “fraud or scam” to describe their actual personal complaint.
Most people don’t know that they have a full set of protections and/or don’t understand the laws that govern the credit repair companies. These companies must adhere to numerous federal laws, that include the Credit Repair Organizations Act and often the Telemarketing Sales Rule. Both of these federal laws forbid credit repair companies from using deceptive practices and from accepting fees up-front.
If you receive offers or see advertisements claiming to be able to fix your credit, look out for these potential red flags:
- They will demand payment upfront: The company will want you to pay before it will provide any services. Under the Credit Repair Organizations Act, credit repair companies are not allowed to request or receive payment until they have completed the services that they have promised. Some companies will offer to structure a monthly payment plan to avoid this requirement. You need to know that NO form of upfront payment is legal. The very simple rule to follow is “Don’t ever pay anything upfront.” If the company uses telemarketing tactics where the Telemarketing Sales Rule applies, the company may not request or receive any fees until it has provided you with your credit report that was generated more than six months after the promised results AND that actually shows the results.
- If it sounds too good to be true: The company tells you that it can get rid of credit information that is negative on your credit report in a very short period, even though that information is current and accurate. Additionally, they may
promise a specific increase in your credit score or guarantee a certain result. No one is able to guarantee this.
- They can’t answer questions: The company representative is not able to explain the specifics of the services that they are offering to you or the total actual cost for those services. Just by asking a few simple questions, it will help you to determine if you are dealing with a reputable company or organization.
- They may hold back information or may provide misinformation: The company fails to inform you of your rights. This includes your right to obtain a written contract that outlines the details of your arrangement and you having the ability to cancel your contract with the company within three business days. The full cost of its services is not disclosed by the company. The company may also suggest that you should not or cannot directly contact any of the 3 nationwide credit reporting companies, when you actually can.
- They ask you to misrepresent your personal information The company will promise to create or may ask you to create a “new” identity. This is accomplished by you applying for a new social security number or federal employer identification number (EIN). In one credit repair scheme, the credit repair company will actually create a new credit profile for you. Then you apply for all future credit products with that new information instead of your old social security number.
- The company offers and promises to remove what is accurately reported information from your credit report. Legally, this information needs to be on your credit report. However, credit repair companies will sometimes try shady tactics (like you claiming identity theft) to remove accurate information from your credit report.
- Required disclosures are not provided. You are not given a copy of the “Consumer Credit File Rights Under State and Federal Law” disclosure. This lets you know your rights to obtain a credit report and to dispute inaccurate information on your credit report. All credit repair companies are required to inform you that you can actually perform these services on your own.
- You aren’t given a copy of the contract to view before you’re asked to sign it. Do not ever agree or pay for services before you know what you are pay for signing up for. Thoroughly read through the contract to make sure it contains all legal and important information.
- The contract should always contain the following information:
- The amount that you are being charged.
- The details of the services that are being performed on your behalf.
- The date that the services will be performed and completed (or the time period required to perform and complete the services).
- The legal name and the business address of the organization or company.
- A statement letting you know that you have the right to cancel the contract within 3 days.
- Waiving of your rights. You are asked to sign a form that waives your rights under the CROA (Credit Repair Organizations Act). Fortunately, the CROA will void any waiver of rights the credit repair company has you sign.
Know your rights
Don’t ever pay a credit repair company upfront. According to the Telemarketing Sales Rule, it is illegal for a sales or telemarketing company to charge you for their credit repair services unless it has been at least six months since the company achieved their promised results. The company must have also proven to you that it achieved those results. You also have additional contract cancellation rights if you put money into a special dedicated account that was requested by the credit repair company. You are able to withdraw from these services at any time without penalty, which includes receiving all funds that were put into that account (minus any permissible fees). The credit repair company is also required to comply with your request within seven business days.
Under the Fair Credit Reporting Act, you have a legal right to be able to dispute credit history errors yourself for free. You are not required to pay a credit repair company to do this for you. The first step is to get your Free Annual Credit Report from one or more of the three nationwide credit-reporting companies to help identify any errors on your reports. You can also go online to the websites of any of the three credit reporting companies and dispute errors.
What to Do If You’ve Been Scammed
Do no let a credit repair company get away with a credit repair scam. Take action immediately if you feel that your rights have been violated. You can start by reporting the organization or company to your state attorney general. You can visit the National Association of Attorneys General’s website to be able to find the attorney general in your state. You can send a complaint to the Federal Trade Commission, the Better Business Bureau, and the Consumer Financial Protection Bureau.
You can also consult with an attorney. You may have legal recourse and be able to file a lawsuit against the credit repair company. This is not going to fix your credit, but you may be able to get back your money that you paid for the services.
If you think you may have been a victim of a credit repair scam, or if you may have had other issues with a credit repair company, you can submit a complaint to the CFPB.
Thanks for taking the time to read this post on Credit Repair Scams. I hope it may have helped you in some way. I included many links within the text to help clarify and to add resources for further study. Please feel free to leave any comments or questions below. If you know of any Scams that need further review, please include them in the Comment section and I will be glad to investigate.