Beware: Credit Repair Scams & How You Can Help Yourself

You see the advertisements on newspapers, on TV, and on the internet and hear them on the radio.  You get fliers in the mail and telephone calls offering you credit repair services.  They make the same claims and promises:

Credit problems? No problem!”
“We can remove bankruptcies, judgments, liens, and ban loans from your credit report forever!”
“We can erase your bad credit- 100% guaranteed.”
“Create a new credit identity- legally!”

The Federal Trade Commission (FTC) advises to not believe these claims, they are likely scams and you can do yourself a favor and save money by ignoring them.  Attorneys at the nation’s consumer protection agency say they have NEVER seen a legitimate credit repair operation making such outrageous and facetious claims.  There is NO QUICK FIX for credit.  You can improve your credit legitimately but it takes time, a conscious effort, and sticking to your personal repayment plan.  

How to Recognize a Credit Repair Scam

These companies are targeting consumers with poor credit history and promising to repair their credit making them eligible for a car loan, home mortgage, insurance, or even a job once they pay fee for their service.  This is not true and these companies cannot improve your score using the tactics they promote.  IT IS ILLEGAL; no one can remove negative, yet accurate, information from your credit report.  The end result is you have paid them hundreds or thousands of dollars in fees and you are are left with the same credit report.  

If you are offered a credit repair, here are some tips to tell if the company is illegitimate and illegal:

  • The company wants you to pay their fees PRIOR to any services.  Using the Credit Repair Organizations Act, credit repair companies cannot require you to pay until THEY HAVE COMPLETED THE SERVICES THEY PROMISED.
  • The company will not tell you your rights and what you can do yourself for free.
  • The company advises you to not contact any of the three major national credit reporting companies directly.
  • The company tells you they can get rid of all or most of the negative information on your credit report even if it accurate and current.
  • The company suggests that you try to invent a “new” credit identity and thus, a new credit report, by applying for an Employer Identification Number to use instead of your Social Security number.
  • The company advises you to dispute ALL information in your credit report, even that which is accurate and current.

By following the illegal advise you are receiving from these credit scam companies, you are COMMITTING FRAUD and you may find yourself in legal trouble.  It is a FEDERAL CRIME to LIE on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service (IRS) under false pretenses.  You can be charged and PROSECUTED FOR MAIL OR WIRE FRAUD if you use the mail, telephone, or internet to apply for credit using false information.

Your Rights Regarding Credit Repair

There is no legal route to remove accurate and current negative information from your credit report.  The law entitles you to request an investigation of information that you dispute as inaccurate or incomplete and there is no charge for this.  Some people will hire a company to investigate on their behalf but anything that a credit repair clinic can do legally, you can do yourself at minimal, if any, cost.  

According to the Fair Credit Reporting Act (FCRA):

  • You are entitled to a free report if a company takes “adverse action” against you (denying your application for credit, insurance, or employment).  You need to ask for your free report within 60 days within receiving notice of the action.  The notice will provide you with the name, address, and phone number of the consumer reporting company.  You are entitled to one free report each year if you  are unemployed and planning to look for a job within 60 days, are on welfare, or if your report is inaccurate because of fraud or identity theft.
  • Each of the three nationwide consumer reporting agencies- Equifax, Experian, and TransUnion- are required to provide you with one free copy of your credit report every 12 months if requested.  You can contact the three companies to request your annual free report using their websites, toll-free telephone number, or mailing address.  To order, view annualcreditreport.com, call 1-877-322-8228, or complete an Annual Credit Report Request Form and mail it to:

    Annual Credit Report Request Service
    P.O. Box 105281
    Atlanta, GA 30348-5281

    You can use this form in brochure form, or print it from ftc.gov/credit.  You can order your free report from all three bureaus at the same time or different times throughout the year form thee central address.  It is best to request your report from the central website, toll-free number, or address compared to their individual contact information, because you may end up paying for the report you should receive for free.  Each consumer reporting company may charge you up to $10.50 to purchase an additional copy within a 12-month period. 

  • It doesn’t cost you any money to dispute mistakes our outdated item on your credit report.  The FCRA established that both the consumer reporting company and the information provider (person, company, or organization that provided the information to the consumer reporting company) hold responsibility for correcting any inaccurate, incomplete, or outdated information.  Take advantage of the rights you are entitled to under the FCRA, and contact the consumer reporting company and information provider.

Helping Yourself

Step 1:  Tell the consumer reporting company, in writing, what information you believe to be inaccurate, incomplete, or outdated.  Include copies (not the originals!) of documents that support your dispute.  Provide your name and address and your letter should identify each and every item in the report you are disputing.  State the facts and the reasons why you are disputing it and ask for it to be removed or corrected.  You should consider including a copy of your report and circle or highlight the areas you are disputing.  Send the letter by certified mail with “return receipt request”, so that you document that the consumer reporting company received it.  Keep all copies of your dispute letter and enclosures and any information related organized in a folder. 

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Sample Dispute Letter

Date
Your Name
Your Address
City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam,

I am writing to dispute the following information included in my credit file and on my credit report.  The items I wish to dispute are highlighted on the copy of my credit report that I have attached.  

This item (identify the time(s) you are disputing by name of source, such as creditors or tax court, and identify the type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why).  I am requesting that you delete this item (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe what documents you have enclosed such as payment records, court documents, etc.) supporting my position.  Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely, 
Your name

Enclosures: (a list of the attached items)
————————————————————————————————————————————————

Consumer reporting companies are required to investigate your claims within 30 days unless they consider the dispute frivolous.  They are required to forward all relevant data you provide about the disputed claim to the organization  that provided the information.  After the information provider receives notice of  a dispute, they are required to investigate, review the relevant information, and report the results back to the consumer reporting company.  If this investigation reveals that the disputed information is inaccurate, the information provider has to notify the nationwide consumer companies so they can correct the information in your credit report.  

After the investigation is complete, the consumer reporting company must provide you with the results in writing as well as a free copy of your report if the dispute results in a change to your file.  If an item is changed or deleted, the consumer reporting company is not permitted to put the disputed information into your file unless the information provider verifies that it accurate and complete.  The consumer reporting company must also provide you a written notice including the name, address, and phone number of the information provider.  If you request it, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months.  You can ask that a corrected copy be sent to anyone who received a copy for the past two years for employment purposes.  

If an investigation does not resolve your dispute with the consumer reporting company, you can request that a statement of the dispute is included in your file and in your future credit reports.  You can also request that the consumer reporting company provide your statement to anyone who has received a copy in the recent past but there will be a fee for this service.

Step 2:  Tell the creditor or other information provider, in writing, that you are disputing an item.  Include copies (NOT ORIGINALS) of documentation that supports your claim.  Most providers specify an address for disputes.  If the provider reports the item to a consumer reporting company, it must include a notice of your dispute.  If your dispute is found to be valid and the information is inaccurate, the information provider may not report it again.

Reporting Accurate Negative Information 

When negative information included in your report is accurate  the only way to remove it is waiting until the period of time in which it is on your report is concluded.  A consumer reporting company can report most accurate negative information for 7 years and bankruptcy for 10 years.  Unpaid judgments against you are typically reported for 7 years or until the statute of limitations runs out,  whichever is longer.  To calculate the 7 year reporting period, start from the date the event took place.  There is no time limit for criminal convictions  information reported in response to your application for a job paying more than $75,000 per year, and the information you reported because you’ve applied for more than $150,000 worth of credit or life insurance.  

The Credit Repair Organizations Act

Credit repair organizations are required to give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign any contract.  Another requirement is that they provide you with a written contract outlining your rights and obligations.  Read ALL documents before signing anything and know that a credit repair company cannot:

  • make false claims about their services
  • charge you until they have completed the promised services
  • perform any services until they have your signature on a written contract and have completed a three-day waiting period during which you can cancel the contract without paying any fees.

Before signing a contract, be sure it specifies:

  • the payment terms for services, including total cost
  • a detailed description of the services the company will perform
  • how long it will take to achieve the result
  • any guarantees the company offer
  • the company’s name and business address

Have You Been Victimized?

Most states have laws in place that regulate credit repair companies.  State law enforcement officials may be helpful if you’ve lost money to credit repair scams.  Don’t be embarrassed to report a problem with a credit repair company   You may think that contacting the government will exacerbate the problem but remember that laws are in place to protect you.  Contact your local consumer affairs office or your state Attorney General (AGs).  Many AGs have toll-free consumer hotlines; check your directory for the phone number or visit www.naag.org for the list of state attorneys general.  

If You Need Help

Just because you have a poor credit history and poor credit report doesn’t mean you cannot receive credit.  Creditors set their own standards which differ from another and they look at your credit history in different ways.  Some people look only at recent years to determine your risk for credit and thus, they may give you credit if your bill-paying history has improved.  It may be worth your time to contact creditors informally to discuss their particular credit standards.

If you not financially disciplined enough to create a budget and stick to it, work out a repayment plan with your creditors, or consider contacting a credit counseling organization to keep track of your bills.  Many credit counseling agencies are non-profit and will work with you to solve your financial problems.  Remember non-profit does not always mean free, affordable, or even legitimate.  Some credit counseling organizations that claim non-profit may charge high fees or hide fees by pressuring consumers to make “voluntary” contributions that actually cause more debt.

Most credit counselors will offer services either through local offices, the Internet, or on the telephone.  If possible, find an organization that offers in-person counseling.  Universities, military bases, credit unions, housing authorities, and branches of the US Cooperative Extension Service operate non-profit credit counseling.  Your financial institution, local consumer protection agency, and friends and family may also be good sources of information and referrals.

If considering filling for bankruptcy, be cognizant that bankruptcy laws require you receive credit counseling through a government-approved organization within 6 months prior to filing for bankruptcy.  You can find a state-by-state list of the government-approved organizations at The U.S. Trustee Program’s website,  www.usdoj.gov/ust.  The U.S. Trustee Program is a subset of the U.S. Department of Justice which supervises bankruptcy cases and trustees.  Be cautious of credit counseling organizations that say they are government-approved, but are not on the list of approved organizations. 

Reputable credit counseling organizations can advise you on how to best manage your money and debt, can help you develop a budget, and offer free educational materials and workshops.  The counselors employed there are certified and trained in consumer credit, money and debt management, and budgeting.  The counselors will discuss your entire financial situation with you, and can aid you in developing a personalized plan to solve your financial problems.  An initial counseling session will typically be an hour in duration and there will be an offer of follow-up sessions.

Do-It-Yourself Check-Up

Irregardless of your credit history, financial advisers and consumer advocates recommend that you review your credit report periodically for the following reasons:

  1. The information in your credit report affects your ability to get a loan or insurance- and how favorable the terms will be.
  2. It is imperative you make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
  3. Checking your credit periodically can deter, detect, and defend against identity theft.  Identity theft is when someone uses your personal information (name,  Social Security number, or credit card number) to commit fraud.  Identity thieves may use your information to open a new credit card account in your name.  When you do’t pay the bills they have racked up, the delinquent account is noted in your credit report.  Inaccurate information resulting form identity theft can affect your ability to get credit, insurance, or even a job.
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