Bad credit has a rippling effect on your financial health, negatively impacting your credit card interest rate, mortgage rate and could even affect 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.
You Don’t Know Your Rights
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 action, 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.
Pay Now, Please
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 states that a company can only collect fees once the service has been completed.
Promises a Clean Slate
Yes, credit repair companies are designed to help fix bad credit, but this doesn’t mean they can erase all of the 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 for the removal of errors and inaccurate information. Some examples include accounts and bankruptcies that aren’t yours, name misspellings, wrong dates and debts that should have been removed after seven years.
There’s No End Game
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.
You’re On Your Own
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 advice on handling existing accounts, even helping you formulate a payment strategy focused on reducing your debt.
Predicts Your New Credit Score
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.
Are Credit Repair Services Legitimate?
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.