Millions of Americans have bad credit, and want to increase their scores as quickly as possible. But legitimate credit repair often takes a great deal of time and effort to do correctly, and in accordance with the law. Being desperate for a better credit profile can encourage people to take shortcuts, which can leave them vulnerable to credit repair scams. We’ve all seen advertisements for credit repair companies. Some of these are legitimate businesses but many of them are not. The first thing to keep in mind with credit repair is that there are steps you can take to repair your credit on your own, at no cost. Only time, and a personal debt repayment plan will improve your credit.
You've may also have seen ads from companies specifically promising a “new credit identity” – or a fresh start for your credit history. It may seem like just the thing you need to get your credit back on track, but it’s actually a scam. These companies often sell Social Security numbers illegally. If you use a number other than your own to apply for credit, not only won’t you get credit, but you also could face fines or criminal charges.
Companies promising a “new credit identity” say they can help you hide bad credit history or bankruptcy for a fee. If you pay them, these companies will provide you with a nine-digit number that looks like a Social Security number. It may be called a CPN (a credit privacy number or a credit profile number.) Or, they may direct you to apply for an EIN (or Employer Identification Number) from the Internal Revenue Service. EIN’s are legitimate numbers, typically used by businesses to report financial information to the IRS and Social Security Administration, but an EIN is not a substitute for your Social Security number. You know you are encountering credit repair fraud if a company:
- insists you pay them before they do any work on your behalf
- tells you not to contact the credit reporting companies directly
- asks you to sign a contract before you have had a chance to view it
- tells you to dispute accurate information in your credit report
- asks you to create a new social security or federal tax ID number
The Credit Repair Organization Act (CROA) makes it illegal for credit repair companies to lie about what they can do for you, and to charge you before they've performed their services. This law, which is enforced by the Federal Trade Commission, requires credit repair companies to explain:
- a written contract that details the services they'll perform
- your legal rights clearly stated within the contract
- your three day right to cancel without any charge
- the time frame to see tangible results on your credit report
- the total cost you will pay for the service, and any guarantees
If you’re considering a credit repair service, keep in mind there is legally nothing a credit repair company can do to improve your credit that you can’t do yourself. Many of these companies promise to remove harmful negative information from your report. If the information’s wrong, you have the right to dispute it off your report. You only need to write the credit bureau providing the report. However, when the information is correct, you don’t have the right to dispute it, nor does a credit repair company.
Don’t let supposed credit repair organizations get away with scams. Take action if you feel your rights have been violated!
Federal Trade Commission
You can file a complaint against credit repair companies with the Federal Trade Commission. Although the FTC can't resolve individual credit disputes, it can take action against a company if there's a pattern of possible law violations. File your complaint online or call 1-877-FTC-HELP.
State Attorneys General
Many states also have statutes regulating credit repair companies. If you have been scammed, report it to your local consumer affairs office or to your state Attorney General.