Credit Repair Scams
How Do Credit Repair Services Improve Their Customers' Credit Reports? They often guarantee results, claiming they can remove all negative information from credit reports.
Credit repair services get negative information removed from credit reports by using provisions contained in the Fair Credit Reporting Act (FCRA). The FCRA requires a credit bureau to do a reinvestigation whenever a consumer notifies them that they dispute the accuracy of information contained in their credit report. The FCRA also requires that they do this reinvestigation in a "timely manner", which is a period of about 30 days. When you inform a credit bureau that something in your credit report is not accurate, they are required to notify the company reporting the information and re-verify its accuracy. If the information cannot be re-verified within a "timely manner", federal law requires the credit bureau to delete the disputed information from your credit report until such time that it is re-verified. If it is never re-verified, it is permanently removed from your credit report.
Disreputable credit repair services simply send numerous requests for reinvestigation to the credit bureaus. They simply dispute all negative information on their clients' credit reports, regardless of whether it is true or not, and despite the fact that such disputes are illegal. Their aim is to overwhelm the credit bureaus with re-verification requests with the goal of getting as much negative information removed as they possibly can, or hope that a few requests slip through and result in the removal of negative information. Aggressive companies that use this tactic will dispute information repeatedly in hopes that it is eventually removed.
In the late 1990s, Congress passed the Credit Repair Organizations Act, regulating credit repair companies and forbidding them from this practice (but many of them do it anyway or operate outside of the USA). Any credit repair company that uses the above technique today might be shut down by the Federal Trade Commission, prosecuted by a state attorney general's office, and be fined or forced to pay restitution to its clients. Attorneys, mortgage brokers and CPAs are generally exempt from this law, which is why these professionals often operate a credit repair business on the side, skirt the law, and spam the credit bureaus with requests for re-verification.
Should you use this tactic yourself? If you tried to use this tactic yourself, it is likely that the credit bureau would ignore your requests for re-verification entirely, as they are allowed to ignore "frivolous requests for re-verification" under a provision in the FCRA. In any event, if you do decide to dispute any negative information to try to get it removed, do not dispute all negative information in your credit report at the same time as this sends a clear signal to the credit bureau that you are trying to do some quick credit repair.
There is absolutely no need to hire anyone to improve your credit rating as you can easily do it yourself. However, if you are determined to hire a credit repair service, look out for these warning signs that it is a disreputable company.
1. "We guarantee results"
Congress passed a law years ago that forbids credit repair companies from guaranteeing their results. This means that no credit repair service can guarantee you that they can remove a bankruptcy notation or any other negative information from your credit report. Therefore, any company that tries to convince you that they can positively get the results you want, watch out, because they're not only breaking federal law; they're also fibbing, since no one can guarantee specific results.
2. A large lump sum payment is due upfront
Per federal law, a credit repair service cannot accept payment before work is done unless the company is a registered non-profit or operated by an attorney or CPA. Usually, the request for a large lump sum payment is a tip-off that you are being scammed. Odds are that the credit repair clinic will take your money and run off and you'll never see them again. A similar scam is the pay each month program where customers are asked to pay a specific amount each month "until your credit is improved". You can be sure the service is going to stretch out the process for as long as possible to collect as much as they possibly can from you -- you'll likely end up paying $800 or more for work you can easily do yourself.
3. Watch out for credit repair services or websites operate by attorneys and CPAs
Some attorneys and accountants have realized that they can make some quick, easy money offering credit repair services on the side, raking in hundreds of dollars for very little work. Usually, their marketing literature will lead one to believe that they have specialized skills, training or knowledge to perform credit repair. This is not true. Of course, attorneys and CPAs would object to our characterization that they are operating a credit repair scam, but what they are doing is dishonest, since they know that their clients can easily dispute negative information on their credit reports themselves without having to pay anyone. In any event, be aware that if you pay an attorney or CPA to do your credit repair work, he or she will spend about five minutes filling out some paperwork (or an assistant will actually fill out the paperwork) and you will be billed hundreds of dollars for work you could easily and quickly do yourself.
4. "Our software can delete negative information from your credit report"
This is one of our favorite scams and one it is hard to believe the public actually swallows. The three big credit bureaus -- Experian, Equifax and Trans Union -- do not allow the public to access their computer databases and alter or delete information. The idea that one can install software on their computer and it will remove all negative information from credit reports is ridiculous.
5. "You can establish a new credit identity / new credit file"
You've probably received a few spam emails claiming that you can establish a new credit file. This is not true. If you ordered the information being sold to you in these spam emails, you would be told that you can establish a new credit identity by getting a nine-digit EIN (Employer Identification Number) from the IRS and using that in place of your social security number on loan applications and such. Or, you might be told to submit a false social security number, perhaps one belonging to someone else. The problem with doing this is that it is a felony to lie on a loan application and you would be committing bank fraud, which happens to be a felony. If you used an EIN on a loan application and the bank discovered this (and there is a good chance that they will since they are aware of this scam and use a system to verify social security numbers) they can turn your loan application over to your local district attorney for prosecution. You could go to jail for a few years for attempting to commit fraud. In any event, your name will be in the paper "arrested for bank fraud" and your boss will see it and you will have to spend thousands defending yourself.
If you can improve your credit rating, you can do it yourself. Actually, if you just started paying down your debt, paying all your bills on time, and not accumulating anymore debt, your credit rating and credit score would improve over time. Eventually, you would achieve a good credit score. See Credit Repair Program