Credit Repair Scams: The Top Five Signs
They are all over the place—credit repair scams promising to wipe your credit report clean, to remove your errors so you can build credit … once and for all.
Here’s how the most popular credit repair scam works:
1. The credit “repair” company charges you an arm and a leg, then it bombards the credit bureaus with dispute letters, claiming that every negative item on your credit report is an error.
2. The law requires the bureaus to temporarily remove some disputed items from a report while the credit bureaus investigate the validity of the disputed item.
3. So the credit “repair” companies succeed in temporarily suppressing the items. What these illegal credit repair companies fail to say is that their “success” is only short-lived. As soon as the credit bureaus verify the original information (usually within 30 or 60 days), the derogatory items will resurface on your credit report, but the money paid to the credit-repair company will be gone for good.
If you ever sign up for a credit repair service, be sure you look for these credit repair scams.
Credit Repair Scam #1: The company asks you to pay for services in advance.
The facts: Per the CROA (Credit Repair Organizations Act), credit repair companies cannot require you to pay until they have completed the services they have promised.
Credit Repair Scam #2: The credit-repair company advises you to create a “new identity” by applying for an Employer Identification Number instead of your Social Security number.
The facts: If you do this, you may be subject to prosecution. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number under false pretenses. You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information.
Credit Repair Scam #3: The company doesn’t disclose your legal rights.
The facts: The CROA is packed with laws that protect you from unscrupulous credit repair companies. A legitimate organization will advise you of these rights.
Credit Repair Scam #4: The promises sound too good to be true.
The facts: Most credit can be verified, and negative information such as bankruptcy, foreclosures, liens, and judgments cannot be removed, no matter what the repair company says. Bankruptcies remain on your report for ten years. Delinquencies have a shelf-life of seven years, and liens and judgments are reported for seven years from the time they are satisfied.
Credit Repair Scam #5: The credit-repair company advises you to dispute all information in your credit report, regardless of whether it is correct.
The facts: This is a credit repair scam, and it is also illegal. It won’t help you build credit. Remember: Credit-reporting bureaus will disregard any disputes they deem frivolous, and this tactic might even come back to haunt you since it is illegal.