You're up to your eyeballs in debt. You're getting a lot of calls from collection agencies. You're starting to feel desperate, and thought about filing for bankruptcy.
Then you see an ad or get a flier in the mail from a credit repair company. They say for a fee they can erase your bad credit and give you a new credit identity. Does it sound too good to be true? It is.
Every day scammers try to fool consumers with poor credit histories. But after you pay their fee they do nothing to improve your credit report. Choosing credit repair assistance from one of these companies will only worsen your financial situation. This costs money you don't have, wastes your time and puts you further behind.
You can't legally remove accurate, current information from a credit report, even if it's bad. Only the passage of time - seven years for most information, 10 years for bankruptcy information - can do that.
Warning Signs of a Scam
If you decide to look into a credit repair offer, beware of the following warning signs offered by the Federal Trade Commission (FTC):
- The company wants you to pay for credit repair services before they do anything
- They don't tell you your legal rights and what you can do by yourself for free
- They recommend you not contact a credit bureau directly
- They suggest you invent a new credit identity by applying for an Employer Identification Number to use instead of your social security number
- They advise you to dispute all information in your credit report or do something else that seems illegal
If you follow the advice of one of these companies you may be committing fraud. You could be sued, or worse, charged with a crime. If you use the mail, telephone or internet to apply for credit and provide false information you're committing mail or wire fraud.
It's also a federal crime to:
- Lie on a loan or credit application
- Misrepresent your social security number, or
- Get an Employer Identification Number from the Internal Revenue Service under false pretenses
Credit Repair Organizations Act
The Credit Repair Organizations Act (CROA) helps protect you from scams. It prohibits a credit repair company from making false claims about its services. Companies can't make you pay until they complete the services they promise to you. They also can't perform any services until they have your signature on a written contract.
CROA also provides a three-day cooling-off period after you've signed a contract. During that time, you can cancel the contract without owing any fees.
Any contract you sign with a credit repair company must include:
- The payment terms for services (including the total cost)
- A detailed description of all services to be performed
- How long it should take to get results
- Any guarantees
- The company's name and business address
Fix It Yourself
Everything a credit repair company can do for you legally, you can do for yourself at little or no cost. You can:
- Dispute mistakes or outdated items for free.
- Receive a free report if a company denies your application for credit, insurance or employment, and you ask for your report within 60 days of receiving notice of the action
- Receive one free report a year if you're unemployed and plan to look for a job within 60 days; if you're on welfare; or if your report is inaccurate because of fraud, including identity theft
- Request and receive a free copy of your credit report once every 12 months from each of the nationwide consumer reporting companies - Equifax, Experian and TransUnion. The three companies have set up a central web site (annualcreditreport.com), a toll-free telephone number (1-877-322-8228), and a mailing address where you can order your free annual report.
- If you want to request a free copy of your credit report by mail then you'll need to complete the Annual Credit Report Request Form, which can be printed from the FTC web site, and mail your request to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281
Questions for Your Attorney
- I signed a contract with a credit repair company two days ago, what do I need to do to cancel the contract?
- I disputed an item on my credit report over 30 days ago, I haven't received a response from the credit bureau and the item is still on my report. What should I do?
- If I negotiate a discounted payoff for a debt without going into bankruptcy, does it affect my credit score?