How to Avoid Credit Repair Scams

Every day, there’s a new story about someone being scammed out of their hard-earned money. And while it’s essential to be aware of the many different ways criminals operate, it’s just as important to know how to protect yourself. This blog post will look at credit repair scams and how to avoid them.

These so-called “credit repair” services typically convince consumers to pay upfront fees for nonexistent or illegal services, such as deleting accurate negative information from their credit reports. If you are tempted by one of these offers, resist the urge to act immediately. Chances are, it’s a scam. 

How Do Credit Repair Scams Work? 

There are three main types of credit repair scams: 

1) Promising to delete negative information from your credit report: Negative information can stay on your account for up to seven years, so this is an impossible promise for anyone to make. 

2) Asking you to pay for credit counseling or debt management services before they provide any services: You should always get a detailed description of the services being offered and an estimate of the total cost before agreeing to anything. 

3) Directing you to create a “new” credit report by applying for an Employer Identification Number (EIN) from the IRS: This is an illegal practice called “file segregation” that can result in heavy fines from the Federal Trade Commission (FTC). 

So how can you avoid becoming a victim of a credit repair scam? The best defense is always a good offense, so arm yourself with knowledge about your rights under the law. 

The Credit Repair Organizations Act 

The Credit Repair Organizations Act (CROA) is a federal law regulating credit repair organizations’ practices. It prohibits companies from charging customers for services until they have been provided. It requires companies to give customers a written contract detailing their rights and obligations before any work begins. In addition, the CROA requires companies to notify customers if they plan to file suit against them and gives customers the right to cancel their contracts within five days if they change their minds about using the service. 

You Have the Right to Obtain Your Credit Report

Under federal law; you have the right to obtain a free copy of your credit report from each of the three national credit bureaus—Equifax, Experian, and TransUnion—once every 12 months. You can request your information online at www.annualcreditreport.com or by calling 1-877-322-8228. You may also be able to ask them in person or by mail using this form. 

Your Rights Under State Law

In addition to your rights under federal law, most states have laws regulating the activities of credit repair organizations operating within their borders. These laws may provide additional protections not found in the CROA, so you must know your rights under state and federal law before doing business with any credit repair organization. Contact your state attorney general’s office or your local consumer protection agency to determine your rights under state law. If you live in one of the following states, you may also want open an account with SAFE Credit, which provides free annual credit reports. 

There’s no shame in struggling with your finances—but there is shame in being taken advantage of by someone who promised to help but only made things worse. Before working with any credit repair organization, ensure you understand your rights under federal and state law. 

Remember: there’s no such thing as a quick fix regarding your credit—despite what some scam artists might try to tell you. If someone offers to “fix” or “improve” your credit for a fee, they’re almost certainly trying to rip you off. The best way to protect yourself is to educate yourself about how credit works and take steps to improve your creditworthiness over time. And if you’re ever unsure whether an offer is legitimate, remember: if it sounds too good to be true, it probably is!