Is credit repair a scam?
Credit repair is not a scam, however there are thousands of credit repair companies around the country and of course there is a difference between them. Just like in any industry and especially the financial services industry there are credit repair companies that are very reputable, there are credit repair companies that could be a “scam”, and there are companies that are just inexperienced. Credit repair in general is absolutely not a scam though. The Fair Credit Reporting Act states that every item on your report must be accurate, complete, and verifiable, however consumer advocacy groups estimate that at least 80% of consumer’s credit reports contain errors. You have the legal right to challenge the items on your credit report that you feel are inaccurate, incomplete, or verifiable and you can also hire a credit repair company to do so for you. The fact is you of course can dispute items on your credit report yourself with the 3 main credit reporting agencies Experian, TransUnion, and Equifax, however that process is not as simplistic as it may seem. The fact is the credit reporting agencies are paid by the creditors and collection companies that report to your credit. So of course, they don’t want to have to remove items placed on your credit report by their customers. There are many types of investigations that can be launched by the credit reporting agency, but that all depends on the type and reason of the dispute that a consumer initiates. The credit repair process can be a long and tedious process that has been estimated to take consumers at least 40 hours to complete on their own and quite a bit of money in the process. As well that does not guarantee the desired results. The fact remains as well that a consumer doing it themselves or hiring an inexperienced credit repair company could yield undesired results and then those accounts could be “flagged” by the credit reporting agencies and they may either use stall tactics and not investigate at all or they may not continue to reinvestigate the items on your credit report as the may consider your disputes frivolous and/or erroneous. This is why most consumers elect to hire a credit repair company; however this is where many go wrong. Not every credit repair companies are the same; in fact they may not even be close. Due to the economy many consumers have unfortunately seen their credit scores drop which has caused a rapid increase in the number of credit repair companies over the last few years. Many of these companies are not a scam as much as they are inexperienced or uneducated about the laws regarding credit and the why credit reporting and scoring actually works. This is why it is important to do your research and find a company that has experience and knowledge of how the credit repair process works, how the credit reporting agencies and the creditors operate, and all of the consumer protection laws protecting you. A reputable credit repair company can work on your behalf to assure you the best results possible and an accurate credit report. Credit repair company’s results may vary so make sure you are choosing one with a strong reputation and a strong track record and you will be happy with the results.
Tips to avoid a credit repair scam
Do not sign up with a credit repair company that uses pay pal or that can’t take your check card or credit card!
This is important because companies who are set up with this ability for merchant processing have to go through a process and many of them will not accept credit repair companies, especially without a track record. Some credit repair companies have misled merchant processing companies as to the type of business they are doing or some might be rather new so just because they can process your payment does not make them reputable either. However, if they don’t have a history of processing this should raise a red flag when choosing a credit repair company.
What kind of guarantee does the credit repair company have?
A guarantee is important, because it shows the company’s confidence in their ability to get you results. However, a guarantee is only as good as the company offering it so this should only be one of the pieces, but an important one, to look for when choosing a credit repair company. Always make sure that the guarantee is in writing don’t ever take an individual’s word for it on a guarantee. Look at the agreement before you sign it and see if the guarantee is there and what it entails. Of course, enrolling with any credit repair company takes your involvement as well, but a company should stand behind their work with a guarantee. Many credit repair companies offer very limited guarantees, because they render a service and don’t believe they are required to. Don’t accept that when spending your hard earned money with a credit repair company.
What kind of reviews does the credit repair company have?
Any credit repair company that has experience and has had a lot of clients will always have some complaints. There will always be people that are dissatisfied with their services, but how active are they in resolving those complaints and taking care of their clients. It is important to look into any company you are considering. However, there are some strong cautions here. The first is that many credit repair companies are using affiliate programs where credit repair company ranking sites are created and the companies at the top of the list are paying that marketer to put them towards the top. You will typically see a lot of the same credit repair companies over and over at the top and all this means is that they are using an affiliate program not that they are actually a reputable company. Of course, this doesn’t mean they are not reputable, but this is not something you should base your decision off of. Another strong caution is using the Better Business Bureau or BBB when looking for a credit repair company. Each BBB is operated individually in each major city or geographical area and they all have a different set of standards regarding credit repair. There has been to this date no uniform approach to appropriately grading credit repair companies. There are 18 different Better Business Bureaus in Texas alone. Some will allow credit repair companies to be members and some will not allow membership by credit repair companies at all. Some also have completely different interpretations of the law governing credit repair and advance fees than other despite the legal precedent established. Some Better Business Bureaus will actually consider complaints unresolved even if they company attempted to resolve them because of them being labeled as an advance fee credit repair company despite not being an advance fee credit repair company. The BBB is very unreliable when looking for a credit repair company as they are not consistent at all. There are some credit repair companies who have gotten themselves listed by a different BBB and were given an A while having an F in their previous location. The best thing you can do is look at who recommends the credit repair company. If the credit repair company is recommended or referred by reputable companies or financial companies such as mortgage and real estate companies that could be a good indication that they trust them, because they want to get their clients qualified.
Does the credit repair charge upfront or advanced fees?
The Credit Repair Organizations Act or CROA does not allow credit repair companies to charge upfront fees. A credit repair company can charge a “first work” or “initial suite of services fee”, but that can only be done after that work is fully completed and that work should be defined in the agreement. There may be a small difference to a consumer of what an advance fee is, but it is very important to make sure the credit repair company you are considering is operating in full compliance of the law. If they do not know the laws governing their industry it is unlikely they are very experienced.
Is the credit repair company a member of NACSO?
NACSO is the National Association of Credit Services Organizations and is the leading trade association of credit repair organizations. Although a company that is not a member of NACSO doesn’t mean that they are not reputable and a company that is a member of NACSO does not necessarily mean they are a good credit repair company; being a member of NACSO should be an important factor in your decision. NACSO has a code of ethics and is very active with congressional members and governmental agencies to increase awareness of credit repair and promote self-regulation to insure that credit repair companies remain compliant and consumers can get the help they need. NACSO is a very prestigious and recognized organization and using a credit repair company that is a member is something that should definitely be a part of your consideration.
Beware of a credit repair company offering a new identity or a new credit file
No credit repair company or individual can legally create a new credit file for you and it is considered a serious crime. Using an Employer Identification Number (EIN) to replace your social security number and create a new file is not legal and should never be suggested to you by a credit repair company.
Beware of credit repair companies who tell you they know credit repair secrets
Credit repair and credit reporting is very complex and a credit repair company may have a lot more experience or they may have someone who used to work within the credit reporting agencies, but there are having that knowledge and knowing “secrets” are two different things. There are no secrets and you should not believe a company that says they have someone on the “inside” that can erase items off of your credit and you shouldn’t deal with a company who tries to sell you on this.
Be careful of a credit repair company who doesn’t say you need to be involved
Credit repair is an extensive process and even when someone hires a credit repair company they must be aware that their participation is vital for the success of the program. The results of each investigation will be sent to the client and the client should always forward those results to their credit repair company. It is important for the credit repair company to know these results so they can go over them with you and respond swiftly to the appropriate parties. As well a consumer needs to make sure they are not making any late payments, getting any new collections, racking up any debt, or applying for a lot of credit. All of these things could negatively impact their credit score and whether the borrower is lendable to.
A credit repair company should inform you of your rights
Your consumer credit rights should be disclosed in your credit repair contract. It is federal law for these rights to be disclosed to you and if a credit repair company is not doing so then they are not operating in compliance with the law and that should raise some serious concerns. Any credit repair company that is not operating legally either is purposefully not operating legally or doesn’t know the law and if they do not know the laws governing their business then it is likely they are not very experienced in what they are doing.
Watch out for any company that claims they can remove accurate items from your credit report
No credit repair company can legally remove accurate, complete, and verifiable items from your credit report. The FTC warns of companies illegally promoting they can do so. The Fair Credit Reporting Act states that items must fit these criteria on your credit report and if they don’t they should be removed. Do not sign up with a credit repair company that says they can remove accurate items for you.
Do not sign up with a credit repair company who only lists a P.O. Box
If a company can’t give you their verifiable physical address it is likely they are hiding something or they are working out of their home. Doing this is not only likely illegal, but it also likely means your personal information is not safe. Also, if they are running a small operation like this; there are many factors that could lead to you being scammed or just not getting any results or your money back. A P.O. Box is not a safe bet for you. If your mail is just to be sent there, but they have a verifiable corporate address is an office building then you should be okay.