Credit repair fraud
How to tell if a credit repair company is fraudulent
- They tell you to give false information on your applications for credit or a loan.
- Claims to be able to create a new credit report.
- Claims to know a secret loophole.
- Only accepts cash.
- Doesn't have a physical address.
- Promises to delete bad credit.
- The don't explain your legal rights when they tell you what they can do for you
- You’re asked to sign a form waiving your rights under the CROA. Fortunately, the CROA voids any waiver of rights.
- They charge fees up front: A simple rule is to never pay up front. Beware of monthly subscription fees! Many scams will also try to rope you into paying a monthly subscription fee that you have to tell them to cancel. The law prohibits credit repair companies from charging upfront fees. This is an area where many credit repair companies break the law; some companies may be unaware that they're not supposed to charge customers upfront.
- They try to guarantee a credit score gain: Offering a guaranteed point increase isn’t possible because no one can remove accurate and up-to-date information from your credit report.
- They tell you not to talk to a credit reporting company: No legitimate credit repair company will do this.
- They don’t or won’t tell you what you can do for free: People can obtain a detailed credit report for a very low cost, and often get a credit report for free. In addition, you can file disputes without the help of a credit repair agency. You aren’t given a copy of the “Consumer Credit File Rights Under State and Federal Law” letting you know your rights to obtain a credit report and dispute inaccurate credit report information. All credit repair companies are required to let you know that you can perform these services on your own.
- They won’t tell you how you can cancel: By law, you have the right to cancel, free of charge, any contract for credit repair up to three business days after you sign.
- They call you, you don’t call them: While it's not illegal to contact you through telemarketing, you should always be suspicious of any credit repair agency that cold calls to sell you their service. Instead, you can find a reputable credit repair company through a list of government-approved credit counselors.
- You aren’t given a copy of the contract to view before you’re asked to sign it. Do not agree or pay for services before you know what you're signing up for. Read through the contract to make sure it contains all the important information.
The contract doesn’t contain the following information:
- The amount you are being charged
- Details about the services being performed on your behalf
- The date by which the services will be performed (or the time period required to perform the services)
- The name and business address of the organization
- A statement letting you know you can cancel the contract within 3 days
- Tells you to dispute information in your credit report — even if you know it's accurate. The company promises to remove accurately reported information from your credit report. Legally, this information belongs on your credit report, but credit repair companies sometimes try shady tactics (like having you claim identity theft) to remove accurate information from your credit report.
- The company promises to create or asks you to create, a “new” identity with a new social security number or federal employer identification number (EIN). In one credit repair scheme, the credit repair company creates a new credit profile and you apply for all future credit products with that information instead of your old social security number.
They could be stealing your identity
Since repairing your credit requires divulging your most sensitive Personal Identifiable Information (PII), there are many phishing websites that pose as credit repair companies with the intent to steal your PII.
How to identify a legit credit repair service
Since most Credit Repair companies are fraudulent, approach any company you're considering with a healthy dose of skepticism. Remember, it is always best to consult with a financial adviser or banking professional when making the effort to repair your credit.
- The credit repair company consults with you before discussing a strategy for your credit: No company can tell you exactly what they can do for your credit if they're not aware of your credit history. An honest credit repair company will ask questions about your credit history and may even view your credit reports before talking about what it will do.
- The company makes sure you know your rights: You can dispute information on your own by writing to the credit bureaus, but many people would prefer to pay a company to do this work for them.
- Avoid a company that is secretive about their methods or makes it seem like they are the only ones who can repair your credit. An honest credit repair company will have a proven track record of success and can tell you why their services are better than those of other companies.
- The company doesn't promise to raise your credit score by a specific number of points: A credit repair company who's had success with other clients can tell you the results that previous customers have experienced, but they cannot tell you how much your credit will improve if you use their services.
Don't break the law
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. They may call it a CPN — a credit profile number or a credit privacy number. Another option is to have you apply for an EIN — an Employer Identification Number — from the Internal Revenue Service (IRS). EINs 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.
The credit repair companies may tell you to apply for credit using the CPN or EIN, rather than your own Social Security number. And they may lie and tell you that this process is legal. But it's a scam. These companies may be selling stolen Social Security numbers, often those taken from children. By using a stolen number as your own, the con artists will have involved you in identity theft.
If you follow a credit repair company’s advice and commit fraud, you might find yourself in legal trouble. It’s a federal crime to:
- lie on a credit or loan application
- misrepresent your Social Security number
- obtain an EIN from the IRS under false pretenses
The bottom line is that if you use the number they sell you, you could face fines or time in prison.
Know your credit rights
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:
- Your legal rights in a written contract that also details the services they'll perform.
- Your three-day right to cancel without any charge. Be certain that the contract includes a form to provide notice of cancellation as any contract you sign can be revoked within three days.
- How long it will take to get results
- The total cost you will pay
- Any guarantees
- They must provide you with a disclosure statement called “Consumer Credit File Rights Under State and Federal Law”