Bad credit has a rippling effect on your financial health, negatively impacting your credit card and mortgage interest rates and even your employment prospects. And just when it seems like you’ll have to wait years for the derogatory marks to fall off your credit reports, a credit repair company comes along with promises to help you improve your scores.
Is it too good to be true?
While there are legitimate credit repair companies, there are plenty running credit repair scams. Here’s a list of red flags to watch for when selecting a credit repair company.
All credit repair companies must provide you with a copy of the “Consumer Credit File Rights Under State and Federal Law,” which is part of the Credit Repair Organizations Act.
This information clearly outlines all of your credit-related rights and explains how you’re empowered to take certain actions, like dispute inaccurate information on your credit report or sue a credit repair organization that violates the Credit Repair Organizations Act.
Knowing your rights gives you the information necessary to make intelligent decisions — and sidestep a credit repair scam.
If the credit repair company insists you pay upfront fees, don’t take another step. Asking for upfront fees violates the Credit Repair Organizations Act, which requires a company to collect fees only after the service is completed.
Yes, credit repair companies are designed to help fix bad credit, but that doesn’t mean they can erase all negative marks. And if the company tells you to dispute negative information that’s accurate (debt you owe and didn’t pay, for example), this is a sign of dishonesty and possibly a credit repair scam.
Legitimate credit repair companies will fight to have errors and inaccurate information removed. Some examples include accounts and bankruptcies that aren’t yours, name misspellings, wrong dates and debts that should have been removed after seven years.
If the credit repair company doesn’t give you a cost and time estimate for services, it’s in violation of the law. You also have the legal right to cancel services at no charge with a three-day notice.
If the credit repair company doesn’t take a proactive approach to helping you manage your existing accounts on a go-forward basis, it’s not doing its job. The company should provide guidance on managing existing accounts, including helping you formulate a payment strategy to reduce your debt.
A credit repair company can’t guarantee you’ll see an increase in your credit score, and it certainly can’t tell you what your improved score will be. If you’re promised a certain score boost, it could be a credit repair scam.
While there are many credit repair companies that offer legitimate services, do your homework to ensure you’re picking one with good credentials and a solid track record. A good place to start: check out the list of government-approved credit counselors.