Have you been rejected for new credit or denied the best rates because of negative marks on your credit report? Then it might be time to consider repairing your credit.
Credit repair might seem complicated, but it’s actually a very broad term. Basically, anything you do — or someone else does on your behalf — to improve your credit is considered credit repair. This could include a variety of actions, like paying down debt or disputing inaccurate information on your credit report.
The truth is, whatever needs to be done to repair your credit, you are able to do on your own. If you need to clear up mistakes on your credit report, for instance, you can contact the Credit Reporting Agency (CRA) — Equifax, Experian, TransUnion — without help from a third-party. However, if you prefer having someone navigate the process for you, there are plenty of credit repair companies willing to help.
Generally, a credit repair company will speak to CRAs and creditors for you, disputing inaccurate items and, hopefully, increasing your credit score in the process. But while there are reputable credit repair companies, there are plenty of scammers as well that will make false promises or encourage illegal activity, so it’s important to watch out for these common red flags:
They encourage you to assume a new identity.
Some credit repair companies may offer to help you establish a new Employer Identification Number (EIN) or Credit Privacy Number (CPN) to use in place of your Social Security Number (SSN) – which is tied to your (potentially negative) credit history. The idea is to use this new number to get approved for new credit and terms you likely wouldn’t have been offered otherwise. But buyer beware — misrepresenting your financial past by using these numbers is generally considered fraud and could land you in legal trouble. (Not to mention, CPN numbers themselves are actually a scam.)
They tell you to claim a negative item isn’t yours.
Some credit repair companies will offer to help you falsely claim an account isn’t yours to wipe negative-but-accurate items from your report. This can take a few different forms — like filing a false identity theft report or blaming the creditor for inaccurate reporting. This too could be considered fraud and could, in severe cases, put you at risk of jail time.
They offer to add you as an authorized user on someone else’s account.
If you are added as an authorized user to a credit account owned by someone with good credit, you could potentially see a boost in your score. Some credit repair companies exploit this fact by offering to do this for you, charging a hefty fee to add you to an account owned by someone you don’t know. While this shady tactic might not necessarily be illegal, it’s risky to intertwine your credit with that of a stranger.
They make promises they can’t keep.
Does it sound too good to be true? Then it probably is. A credit repair company cannot accurately guarantee a certain increase in your credit score in a specified period of time, nor can they guarantee the removal of negative-but-accurate items on your credit report.
They request payment in full before performing any services.
According to the Credit Repair Organizations Act (CROA), credit repair companies are not legally able to request payment for services before they are performed. In fact, even monthly payment plans don’t fall in line with the law, says the Consumer Financial Protection Bureau. Instead, credit repair companies should request payment after delivering the promised results.
They don’t provide a written contract.
A written contract tends to provide an extra layer of protection for you, should you run into issues down the road. And, according to CROA, providing a written contract is another obligation credit repair companies must fulfill in order to be in compliance with the law. They must also inform you that you have three days after signing the contract to back out with no financial repercussions.
They don’t explain your rights.
In addition to the right to a written contract and the right to exit that contract within three days after signing, there are a few other things a credit repair company should disclose — namely that you have the right to contact CRAs on your own at no charge. In other words, you could potentially perform the same credit repair services on your own, for free.