How to Spot a Credit Repair Scam and What to Do If You Are a Victim

If you are looking for a new mortgage, looking to increase your credit card limit, or even applying for a job, your credit score can help you or hurt you. That's why if if you think that your credit score is causing you a problem, you should review your credit report for errors.

If you have a credit score problem, what you shouldn't do is fall for one of those credit repair scams. You've seen the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail, and maybe even calls offering credit repair services. They all make the same claims:

- “Credit problems? No problem!”

- “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”

- “We can erase your bad credit — 100% guaranteed.”

- “Create a new credit identity — legally.”

Don’t believe these claims: they’re very likely signs of a scam. Indeed, attorneys at the nation’s consumer protection agency say they’ve never seen a legitimate credit repair operation making those claims. The fact is there’s no quick fix for creditworthiness. You can improve your credit report legitimately, but it takes time, a conscious effort, and sometimes it takes positive actions like coming up with a personal debt repayment plan and sticking with it.

Recognizing a Credit Repair Scam
Every day, companies target consumers who have poor credit histories with promises to clean up their credit report so they can get a car loan, a home mortgage, insurance, or even a job once they pay them a fee for the service. According to the Federal Trade Commission, these companies can’t deliver an improved credit report for you using the tactics they promote because those tactics are illegal: No one can remove accurate negative information from your credit report. So after you pay them hundreds or thousands of dollars in fees, you’re left with the same credit report and someone else has your money.

If you see a credit repair offer, here’s how to tell if the company behind it is up to no good:

• The company wants you to pay for credit repair services before they provide any services. Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.
  
  
• The company doesn’t tell you your rights and what you can do for yourself for free.
  
  
• The company recommends that you do not contact any of the three major national credit reporting companies directly.
  
  
• The company tells you they can get rid of most or all the negative credit information in your credit report, even if that information is accurate and current.
  
  
• The company suggests that you try to invent a “new” credit identity — and then, 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 the information in your credit report, regardless of its accuracy or timeliness.
  

If you follow illegal advice and commit fraud, you may find yourself in serious trouble: It’s 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 under false pretenses. You could be charged and prosecuted for mail or wire fraud if you use the mail, telephone, or Internet to apply for credit and provide false information.

Exercising Your Credit Repair Rights
No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Some people hire a company to investigate on their behalf, but anything a credit repair clinic can do legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):

• You’re entitled to a free report if a company takes “adverse action” against you, like denying your application for credit, insurance, or employment. You have to ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
  
  
• Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. The three companies have a central website, a toll-free telephone number, and a mailing address for consumers to order the free annual credit reports the government entitles them to. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the 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 the Annual Credit Report Request Form that you can find at the Federal Trade Commission web site. You may order reports from each of the three consumer reporting companies at the same time, or you can stagger your requests, ordering one from each company throughout the year from the central address. Don’t contact the three nationwide consumer reporting companies individually or at another address because you may end up paying for a report that you’re entitled to get for free. In fact, each consumer reporting company may charge you up to $10.50 to purchase an additional copy of your report within a 12-month period.
  
  
• It doesn’t cost anything to dispute mistakes or outdated items on your credit report. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under the FCRA, contact the consumer reporting company and the information provider.
  

Have You Been Victimized by a Scam?
Many states have laws regulating 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. While you may fear that contacting the government could make your problems worse, 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 the Blue Pages of your telephone directory for the phone number or www.naag.org for a list of state attorneys general.

The Federal Trade Commission works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.