This post was originally published on July 7th, 2021. It has been updated to include the latest information on credit repair scams, how to avoid them, and how to repair your credit.
This is a frustratingly common situation: Your credit isn’t great, and you want to fix it. You’ve tried doing it on your own but that hasn’t been working. You need some support.
So you do a search for credit repair companies. Hundreds of sites come up, and you have no idea which one to pick. They all sound good at first glance. Some of them even promise to get your credit score up in 30 days or help you qualify for loans.
But there’s a catch. A possibly financial-security-damaging catch.
You may get sucked in by a credit repair scam. And there are a lot of them.
These Companies Target You, Based On Your Search History
Once you’ve started this search, you’ll see tons of ads making huge promises that sound really good. Probably too good to be true.
You’ll start seeing them pop up in your social media feed. You may even start getting calls or emails from people or companies offering to clean up your credit for you.
A lot of companies in this space are not legit.
And working with them could do the opposite of what you want and completely trash your credit score. Worse, they can saddle you with even more financial problems.
Unfortunately, it’s up to you to sniff out the scammers. Technically, the FTC (Federal Trade Commission) and CFPB (Consumer Financial Protection Bureau) are supposed to help you out here. But that’s typically after the fact… after you’ve lost money… after your credit score has taken a dive.
And these days all the once-helpful agencies have been so thoroughly gutted that you’re lucky to even get a real response if you do file a complaint. I’m not saying they’re completely useless, but you’re better off avoiding the problem in the first place.
7 Signs That Scream Credit Repair Scam
Luckily, most fraudsters throw up some bright red flags. If you spot any of these warning signs, you’re looking at a credit repair scam:
- They ask for money up front, before they do anything. That’s illegal. In fact, they can’t even ask you for payment until they’ve done everything they promised to do. Some practiced scam artists try to get around this by charging you a monthly fee – but upfront payments are illegal, no matter what they look like.
- They guarantee that they can raise your credit score by a fixed amount. That guarantee counts as a “deceptive practice,” and it’s against the law. No one can promise you a specific credit score or even a specific percentage increase. Your credit score comes from multiple sources. It’s not possible to increase your score by a fixed amount or percentage or to a fixed target. This is just a lie.
- They advise you to include false information on a credit card or loan application, which is a federal crime. Lying on application forms constitutes fraud. The potential legal consequences include up to $1 million in fines and up to 30 years in federal prison. But it also puts you at risk to obtain loans that you don’t qualify for and can’t pay back, sinking your credit score and financial security even further down.
- They recommend that you dispute everything in your credit report, even if you know the information is accurate. That’s illegal. You can’t mislead credit reporting companies to change your credit. If those companies suspect you’ve purposely tried to mislead them, they can take action against you for filing frivolous or fraudulent reports.
- They promise to remove negative credit information, even if it’s current and correct. This is another deceptive practice. Timely and accurate information can’t be legally removed from your credit report. And if they tell you to dispute the negative credit information anyway, see number 4 above.
- They warn you against contacting any creditors or credit reporting companies on your own. That’s because they don’t want you to find out that you can do this without them. They’re trying to control a situation that you have complete control over on your own. And they may try to scare you off of taking control yourself by talking about nightmare scenarios of people who tried to DIY – which are absolutely untrue.
- They offer you a “new credit identity” so you can restart your credit history. There are two main ways they do this: by providing you with a 9-digit “credit protection number” (CPN) or having you apply for an employer identification number (EIN). Either way, this practice is illegal. Doing this can land you in serious legal trouble. The risk is even higher with a CPN, which is most likely a stolen Social Security number… because that makes you an identity thief.
Some of these scams can be very subtle. And when you’re already feeling overwhelmed, insecure, and worried about your finances, their slick talk and convincing ways can make you feel like their help is your best option. It’s not.
You Have Other, Better Options
Rather than a credit repair company, you can work with a certified credit counselor… a trusted financial coach… or manage it yourself.
If you have signed up with a credit repair company and are having second thoughts, you have three business days to cancel that contract for any reason.
If you’re the victim of a credit repair scam, you can fight back. Visit the Federal Trade Commission to report credit repair scams and learn how to take the con artist to court and get your money back.
Credit Counseling Services Are Different
Unlike credit repair companies that take over for you, credit counseling services help you figure out how to better manage your finances. They provide education about budgeting, debt management, and personal financial skills. Their goal is to give you the tools to make better financial choices.
Though they charge fees, many credit counseling services are non-profit organizations. In exchange, they will help you work with your creditors to help you manage your debt. They may help you negotiate payment plans, pause late fees, or reduce minimum monthly payments (at least temporarily). They tend to have a set playbook that applies to most situations.
Financial Coaches Work With Your Situation
A financial coach will sit down with you and help you come up with solutions for your specific situation. Together you’ll look at your current debt and your credit history. And find the best ways for you to deal with your debt and repair your credit, legally and stress-free.
The goal is to find ways to make sure you can still live your life at the same time as improving your credit and building for your future. Plus, your financial coach will help you put together a plan to help you get out and stay out of debt by building a stable financial foundation that you’ll be able to build on going forward.
You Can Fix Your Credit Problem Yourself
Honestly, no credit repair service – even a legit credit counselor or a financial coach – can do anything for you that you can’t do yourself. And if lack of money is your primary concern, this might be the best solution.
In my book, Debt 101, I guide you through all the steps involved in fixing your credit on your own along with:
- The best ways to pay off high interest debt
- How to use borrowing to your advantage
- How to start building toward a better financial future
I make this easy to understand, with simple steps you can follow to get out of debt and improve your credit score.
Find out more and get your copy, so you can start fixing your own credit ASAP.
As frustrating as repairing your credit may feel, it is worth the effort. You’ll feel less stress about your finances, have more options when it comes to rebuilding your financial life, and know how to avoid ever being in this situation again. That alone, will be worth all the time, effort, and money you put into doing this for yourself, your family, and your future.