Credit Repair Scams: How To Spot Them

Consumers with poor credit naturally want to clean up their credit reports. But as Michelle Singletary reported in her Washington Post column last week, there are credit repair scammers out there that are perfectly willing to take consumers’ hard-earned cash and then fail to do anything useful. Worse, some of their “methods” can be unethical or even unlawful.

Consumers should look for these red flags in deciding whether a credit repair organization is legitimate. Beware of credit repair organizations that do any of the following:

  • 1) The company requires an upfront fee. Under the federal Credit Repair Organizations Act, it is illegal for companies to charge consumers money before performing the promised credit-repair services
  • 2) The company says it will dispute everything in the consumer’s file including information that is correct. This seems like a no-brainer: disputing legitimate information is lying. If a company wants to lie, it’s not reputable.
  • 3) Before the consumer signs a contract, the company fails to provide them with a copy of the FTC’s “Consumer Credit File Rights Under State and Federal Law,” which outlines what the company can and cannot do.
  • 4) The company tells the consumer not to directly contact the credit-reporting agencies. Sometimes this is the most efficient way to clear inaccurate information from consumer credit reports.
  • 5) The company tells the consumer that it can get them a new credit identity by applying for an employer identification number (EIN) from the Internal Revenue Service. If the consumer doesn’t own a business, this is not a legitimate way to repair the consumer’s personal credit history. It is a federal crime to obtain an EIN under false pretenses.

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