There are a number of credit repair scams out there. These scams often promise to help free you of bad credit, when in reality the “experts” offering these services will either overcharge you, involve you in illegal activity, or actually put you in a worse financial situation. Look out for these most common scams:
1) Credit repair companies that tell you to lie on loan applications or suggest that you develop a second identity. This is illegal and dishonest. If a company suggests that you open accounts in a new name or falsify your information on loan applications, run, don’t walk, away.
You can be charged with fraud for doing this – and you will be held responsible for your actions, even if you were acting under the company’s advisement. You certainly don’t want to add legal troubles to your credit woes.
2) Credit repair companies that charge you fees or hidden fees for things you could do for free yourself – such as work out a budget. Also be wary of companies that ask for money up front.
3) Credit repair companies that promise to pay your creditors from money you pay to them and which they keep in an escrow account. This is a common scam and it presents a huge problem for the debtor.
Here’s how it works: the debtor gives money to the credit repair company, presumably for paying off debts. The company places the money in an escrow account where it grows. The idea is that the company will eventually pay off your debts when the amount reached in the account matches the debts. The problem is that in the meantime, the credit repair company is removing some money from the account for administrative fees while creditors are becoming more and more anxious, increasing the interest on the debts and even starting legal action against the debtor. This type of “credit help” can actually ruin your credit rating!
4) Credit repair companies that pressure you, don’t listen to you, or want you to sign a contract you have not read. Such companies are not to be trusted and should be left well enough alone.
5) Companies that offer you fast or instant credit repair – no matter how bad your credit. This is simply a misleading a claim that no company can legitimately deliver on. If you have very bad credit, it may take years to fully repair.
In many cases, these companies will claim that they can remove your poor credit history from your credit report by disputing it. This is false information. You simply cannot remove true and accurate information from your credit report. It is true that a credit bureau must investigate a claim of inaccurate information within thirty days, but this does not mean that the company will automatically remove the information.
In fact, if the information is accurate, the data will stand. Credit bureaus are aware of this common credit repair scheme and have become very good at detecting it. Many credit repair companies (and even some individuals) will try to dispute every ding on a credit report, hoping that the backlog of disputes will cause the credit bureau to automatically remove the offending items from the report (the credit bureau is legally required to remove disputed items it has not investigated within 30 days). This technique is a scam and is dishonest since you are not disputing inaccurate information.
Refuse to do business with credit help companies that use this practice.
6) Companies that don’t tell you your rights or try to take money for things you could do yourself. You can get copies of your own credit reports and have the errors on them fixed for free yourself – a company that does not tell you can do this yourself ifs taking money form you for things you can easily do yourself.
It is a dishonest practice, and companies who follow such business practices should be avoided at all costs.
Also, if a company does not advise you of your credit rights, then that is an indication that they are not really on your side in the first place. Why would you want to do business with a company that does not help you?