A credit repair service can be the perfect solution for people who need help improving their credit. Unfortunately, there are a lot of scams out there. Here’s how to avoid them.
Credit repair scams: Red flags to watch out for
These are some telltale signs of a credit repair scam:
- Asking for payment upfront before you use their service.
- Encourage you to give false information on any credit applications.
- Tell you not to directly reach out to any credit reporting agencies.
- Suggest you dispute information that you know is accurate.
- When talking about their services, they do not explain your legal rights.
- They promise you a quick fix, a new credit identity, or an erasure of bad credit.
Any company that offers you a “new credit identity” is likely committing major fraud. If you work with a fraudulent company and follow their advice, this can get you into serious legal trouble.
According to the Credit Repair Organization Act (CROA), it is illegal for credit repair agencies to lie about their services, or demand payment upfront. This law was passed by the Federal Trade Commission.
The FTC requires all credit repair companies to disclose:
- Your legal rights with a detailed explanation of their services
- That you have 3 days to cancel without charge
- The amount of time it will take to get results
- The total costs of their service
- Any additional guarantees
What about reputable credit repair companies?
Now that you know what red flags to look for, you may feel hesitant to seek out help. Thankfully, there are reputable credit repair specialists who actually can help!
A legitimate credit repair specialist will always provide the following:
- A written contract.
- The ability to cancel without charge within three days.
- An estimate of how long it might take to get results.
- Information on any guarantees they offer.
- A list of total fees you will pay for their services.
Why hire a credit repair specialist?
Credit is incredibly complicated. There’s a reason why there are experts who deal with the ins and outs of credit issues every day.
A credit repair specialist may be able to correct false information on your report more quickly. In addition, they can help you manage any negative items on your credit report such as late payments or bills sent to collections. A specialist may even be able to negotiate with your creditors on your behalf.
Another thing to keep in mind, if you have negative information on your report, trying to fix these issues on your own might actually create more problems, especially if you’re in the process of applying for a loan.
Even if you’re not a credit expert, it’s a good idea to understand the best practices for maintaining healthy credit. However, for complicated issues that arise when you apply for a home loan, it may be best to speak to a reputable credit counselor who can help.