Avoid a Credit Repair Rip-Off

The credit repair industry is a $10 billion dollar per year industry and growing every year. With that much money involved, there will undoubtedly be some dishonest people trying to make money off the unwary. They know that most people who are looking for help repairing their credit have never done it before. They also know that they can take advantage of people who don’t know what to look for when seeking help to repair their credit. Being aware of your rights and the laws that these companies must follow will prevent you from becoming a victim of a credit repair scam.

Some of these unscrupulous companies tell you that they can “hide” your bad credit history. They say you can start over with a new credit file. This is often done by giving you a number that they might call a “credit privacy number”, “credit profile number” or something similar. The number will look exactly like a Social Security number and they tell their customers that this number can be used in place of a Social Security number. They say you can start a completely new credit history with this number. Chances are they are selling a stolen Social Security number. Customers who fall for this credit repair scam can be convicted of identity theft.

A similar credit repair scam is to have customers obtain an Employer Identification Number (EIN) from the IRS. An EIN, also known as a Federal Tax Identification Number, is what businesses use to report financial information to Social Security and the IRS. The scammers tell their clients that it is perfectly legal to use an EIN in place of a Social Security number. It is not! Using an EIN on an application for a personal loan or a personal credit card is considered fraud. Even worse; doing this on a mortgage is considered mortgage fraud which is a felony!

An old credit repair scam that is still used is the “Credit Management Plan Scam”. A credit management plan is when the customer makes payments to the credit repair company and then the company pays the customer’s debts. Legitimate companies provide this service but the scammers never pay the debts. They usually tell the customer not to check their own credit report or talk to their creditors. The say “if a creditor calls, tell them they have to talk to us”. If you agree to a credit management plan, make sure you get a receipt directly from the creditor every time a payment is made.

A credit repair company that wants payment up-front is also a bad sign. Under the Credit Repair Organization Act (CROA) it is illegal for companies to charge for services before the service is performed. The CROA, which is part of the Consumer Credit Protection Act, states “No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed”. So if you find a company that insists on payment before they do any work, look for another company.

The CROA also requires the company to provide you with a written contract that explains what services they will do, how soon you will see results, how much it will cost and what rights you have. One of these rights is the right to cancel the agreement within three days and owe nothing. They are required to inform you of this right. The written contract must also include any guarantees that they have given you.

If a credit repair company tells you to do anything that just feels wrong to you, then it is probably a credit repair scam. It could be something like telling you to dispute an item on your credit report even though you know it’s correct, or encouraging you to falsely claim you were a victim of identity theft. It could also be telling you to lie on an application for a credit card or loan. If you take their advice on any of these suggestions, you might end up with legal problems in addition to your credit problems.

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