How To Identify A Credit Repair Scam
If you have been looking for ways to improve your credit score, you have more than likely come across a couple companies that promise to help you improve your credit score in record speed. While there are many reputable repair counselors in business, there are unfortunately many companies that give poor advice and take advantage of consumers. If you have a lower-than-desirable credit score, it may be tempting to accept help from anyone who is willing to offer it. This Tuesday Tips email will provide you with information you need to identify a credit repair scam.
How To Avoid A Credit Repair Scam
According to the FTC, you will know you’ve been targeted by a credit repair scam if a company:
- Insists you pay an upfront fee before they do any work on your behalf.
- Tells you not to directly contact the credit reporting companies.
- Advises you to dispute information in your credit report, even if you know the information is accurate.
- Promises it can remove negative information from your credit report.
- Tells you to provide false information on your application for financing.
- Does not explain your legal rights to you when they tell you what they are able to do for you.
What About Ads That Promise a “New Credit Identity”
Companies that promise you a “new credit identity” may claim through advertising that they are able to help you hide your bad credit history or bankruptcy. If you pay for this type of service, the company will provide you with a nine-digit number that looks like a social security number. The company will call this number a CPN, (credit profile number or a credit privacy number).
A fraudulent company may request that you apply for financing using your CPN instead of your social security number, and will assure you that this process is legal. Don’t be fooled. In many instances, CPNs are stolen social security numbers, and if you apply for financing with this number you could get involved in identity theft, which could have major legal repercussions.
As an alternative, a fraudulent credit repair company may ask you to apply for an EIN, (employer identification number) from the IRS. While EINs are legitimate numbers, it is illegal to apply for financing using an EIN in place of your social security number.
The bottom line:
If a company claims that they can hide your bad credit history or bankruptcy, be highly skeptical. Never apply for financing using anything other than your social security number to avoid being involved in identity theft, and never pay any up-front fees before receiving service.
How To Protect Yourself
1. Know Your Rights
Under the Credit Repair Organization Act, (CROA), credit repair companies are not allowed to lie about what they are able to assist you with, and they are not allowed to charge up-front fees for service. According to the FTC, this law requires credit repair companies to explain:
- Your legal rights in the form of a written contract. These rights will also include the details of the services they will perform for you.
- Your 3-day right to cancel without incurring any charges.
- The total cost you will pay for services.
- Any guarantees on service.
2. What To Do If The Company Doesn’t Deliver What Is Promised?
- You have the option to sue the company in federal court for your actual losses, or for the amount that you paid for services; whichever is greater.
- You can join others in a class action lawsuit against the company.
- You can seek punitive damages.
3. Know How To Find An Approved Credit Repair Company
The United States Department Of Justice provides a list of approved credit counseling agencies by state and judicial district. Always validate the legitimacy of a credit repair company before signing any paperwork or paying any fees.
4. Report Credit Repair Fraud
If you come across a credit repair scam, the FTC asks that you:
- Report the scam to your local consumer affairs office, or to your state Attorney General.
- File a claim with the FTC by submitting a complaint online, or by calling 1-877-FTC-HELP.
There are numerous articles on our blog to help you build a credit repair strategy such as:
- Credit Repair Not A Lost Cause
- Repair Credit After Bankruptcy. It Is Possible.
- Credit Score 101
- Credit Score Cheat Sheet
Story from Launch Federal Credit Union.