We all know maintaining a good credit score is essential, not just to get a loan at a good interest rate but also to rent an apartment and even get a job. Unfortunately, this is easier said than done. Sometimes, life happens, and your credit takes a beating. What to do? Many companies promise they can help you improve your bad credit—for a price. Often, some unscrupulous "credit repair" companies can and will leave you worse off than before.
What Honest Credit Repair Companies Do
First, anything a credit repair company can do legally to help you, you can do yourself for little to no cost. That said, honest credit repair companies may uncover errors you miss. Technicalities in the dispute or reporting process may also help you get some negative information removed from your credit report, which credit repair companies can help with. Some will also educate you on how credit works and what to do to improve your score on your own. But, many companies are outright scams set up to steal your hard-earned money.
Understanding Credit Repair Scams
A missed loan or credit card payment can be reflected on your credit report and hurt your score, making it more complicated and expensive to get a new loan. Sometimes, a lender will outright decline to lend you money at all. If you want to buy a house or a car, your credit needs to improve quickly. This is where "credit repair" companies come in—they know you need help and will tell you they can guarantee an increase in your score in a short time frame. They may also use devious tactics to get you to pay heavy fees and use illegal methods to improve your score. While this might seem good in the moment, it can leave your credit in shambles down the road and trick you out of hundreds, sometimes thousands, of dollars. Another clear sign that a company is probably a scam is that the name of the company is close to or sounds like an official government agency or a larger, reputable company.
Red Flags to Be Aware Of
- Paying Upfront Fees:
Legitimate credit repair companies are legally forbidden from charging fees before providing services. If any company demands up-front payment, move on. - Guaranteeing Results:
Be wary of anyone who guarantees getting rid of negative information in your credit file and quickly boosting your credit score. No one can make that promise, and no reputable company will declare guarantees as the outcome depends on individual circumstances and the accuracy of information contained in your credit report. Similarly, if they claim to have insider knowledge or are vague about their techniques to improve your score quickly - No Contacting Credit Bureaus Directly:
This is a huge red flag. If any company tells you not to contact credit bureaus or respond to official letters, they are trying to scam you. While a credit bureau may not be your friend, they are there to help you in different ways. - Promises to Restore Your Credit or Remove Negative Factors:
In most cases, you can deal with credit problems on your own or with the help of a non-profit credit counselor. You can find someone in your area by visiting the National Foundation for Credit Counseling website. The truth is it takes time to repair a credit file. No one can get negative information removed from your file IF that information is accurate. - Use of Pressure Tactics:
This includes pressure to sign up for services and pay today, right now. If you feel hurried, confused, or stressed while talking to a company, it's a sign that you should consider doing business with a different company. Take your time, research, and make an informed decision. - Lack of Transparency and Unsupported Claims:
If they are vague about how exactly they will fix your credit or won't explain the process, move on. They may use unscrupulous or even illegal methods. Transparency is critical when doing legitimate business. Similarly, if they say they have insider knowledge or other secret techniques to improve your credit score quickly, it's most likely too good to be true. - They Suggest Using a CPN or EIN:
It may be suggested that you buy and use a credit privacy number (CPN) or employee identification number (EIN). What they don't say is that the CPN they're selling you is likely someone else's Social Security Number, often belonging to a child or elderly or incarcerated person since they don't usually check or use their credit. This is illegal and considered identity theft or fraud. While using an EIN to build credit isn't illegal (that's how a business builds credit), using an EIN in place of your SSN could be a crime. - Offers to Sell You a Tradeline or Authorized User Account:
This is where things get tricky—and, in many cases, fraudulent. If you are being sold a service like this, your name could be added to an unsuspecting person's account. Even if that'`s not the case, you never know how doing this will impact your score in the future. - Asking You to Sign Blank Forms:
This is a big one. Never sign a blank form or provide personal information without knowing the exact reason and who you're dealing with. This can lead to identity theft and bigger problems in the future. - Filing False or Dishonest Disputes:
You might be told or encouraged to dispute accurate information on your credit report. Even if it's harmful, filing disputes about accurate information is illegal, and you could be penalized for it.
Tips for Protecting Yourself from Credit Repair Scams
The most important thing to remember is that anything a credit repair company can legally do for you, you can do yourself for little to no cost. If you're unsure where to start, your bank should be able to recommend a non-profit credit counseling program that can help. Other ways to protect yourself from credit repair scams:
- Do Your Research:
Before contacting any credit repair company, look up reviews and other information about the company online, and check with the Better Business Bureau to see any complaints filed against them. - Understand Your Rights:
Read the Credit Repair Organizations Act (CROA) and the Fair Credit Reporting Act (FCRA) to understand what credit repair companies can do and what they legally cannot do. This will help you protect yourself from fraudulent companies and avoid scams. - Review Contracts Carefully:
Any credit repair contract must legally include any services they will provide you, along with a three-day right to cancel without charge or penalty. You must also be provided a written cancellation form if you change your mind. The contract should include how long it will take to see results, the total cost, guaranteed results, and other terms. Before signing, read the contract thoroughly and ask as many questions as you need to fully understand what you're signing, including any cancellation policies. - Monitor Your Credit Report:
This may cost you a small fee, but it's essential to regularly review your credit reports from all three major credit bureaus to spot inaccurate information and any signs of unauthorized activity. The three major credit bureaus are Equifax, Experian, and TransUnion. - Trust Your Instincts:
If something tells you to wait or not to move forward, trust yourself and walk away. It's always better to be safe than sorry!
What to Do Instead of Hiring a Credit Repair Company
Credit is not built overnight; it can take months to years to improve. Instead of turning to a credit repair company, consider a credit counselor. They can negotiate with your creditors to get you a more affordable payment plan and help you set up and stick to a budget and pay off your debt. Counselors don't get negative information removed from your credit report, but they can help you build your credit over time. Look for organizations that are accredited with the National Foundation for Credit Counseling and offer certified credit counseling. Many offer free consultations to review your budget and explain your options. The Department of Justice provides a list of approved credit counseling agencies to choose from.
How to Report Credit Repair Scams
If you have a problem with a credit repair company, or if you see a scam, fraud, or bad business practice, report it to:
- The Federal Trade Commission at ReportFraud.ftc.gov
- Your state's attorney general
- Your state's consumer protection office
WaFd Bank is Here to Help
With products and services to make banking easy, WaFd Bank is also here to answer all your questions, both big and small. Whatever your question is about money, scams, and more, our friendly and knowledgeable bankers are happy to answer them. We also offer checking accounts that come with rewards to help you save money, plus a budget tool so you can stay on top of your finances. To learn more, take a look at our checking account options, stop by your local branch, or give us a call at 800-324-9375.
