In 2020, Experian found that 31% of Americans did not have a good credit score. While some of this is attributed to individuals with no credit score at all, this percentage is still much higher than we’d like to see.
Are you trying to repair your credit?
You may be considering working with a credit repair company. However, be warned that some of the companies out there are actually scammers that are only looking out for their own interests.
Keep reading to learn 3 major signs of credit repair scams to avoid.
1. Asking You to Pay First
A legitimate credit repair company is not going to ask you to pay first because, legally, they are not allowed to do so. The CROA prohibits this act.
Scammers are well aware of this law, but they also know that many consumers don’t know about it. They will promise quick results or even give you a fixed time period in which your credit score will be prepared without actually doing any of the work yet.
Some credit repair companies will require you to pay a very large fee upfront with no cancellation options unless you pay an additional fee. By law, a legitimate credit repair company has to give you at least three days to cancel without penalty.
2. Promising a New Credit Identity
If a company is telling you that they can hide your credit history for a fee, this is a sure sign that they are trying to scam you. This process is not legal.
The way it works is they will give you a nine-digit number that is similar to what you would see with a Social Security number. They will probably call it a credit profile number or privacy number.
They may also ask you to apply for an Employer Identification Number through the IRS, which legally cannot be substituted for a Social Security number.
After you have one of these numbers, the scammers will tell you to use this to apply for credit instead of your actual Social Security number. This is not a legal practice and you may actually be using someone else’s stolen Social Security number if you go this route. As a result, you’ve now inadvertently committed identity theft.
It is a crime to lie on a credit application, mislead with your Social Security number, or receive an EIN under bogus claims. You can be charged at the federal level and face time in prison.
3. Requesting That You Don’t Contact Any Credit Reporting Companies
A real credit repair company, including these companies with great reputations, has to follow many different federal laws. The biggest ones (the CROA and the Telemarketing Sales Rule) don’t allow credit repair organizations to use misleading practices, which would include not telling you that you have the right to file a dispute with credit reporting companies.
Credit repair won’t magically solve all of your problems, but disputing actual errors that you have on your credit report will help you in the long run. After a month or two, the credit reporting company will be able to look into what you’ve sent them and tell you whether or not it is an error.
When reporting a discrepancy that you notice, you want to be as detailed as possible and provide documentation to back up what you say.
Watch Out for Credit Repair Scams
There are many other credit repair scams out there, so always go into these situations with caution. It is best to fact-check everything the company is telling you to be sure that you’re not getting tricked.
The best credit repair company is going to help you figure out what you can do to repair your credit in a way that is legal, safe, and effective. Remember that this is not something that will happen overnight; it’s going to take time for your credit history to get back on track.
Did you find this article helpful? If so, be sure to take a moment and look at some of the other financial articles we have to secure your financial future.