The media today is full of advertisements for credit repair companies. Through television, radio, social media, and internet advertising, folks with poor credit scores are continually blasted with offers to “fix” bad credit situations. Unfortunately, most of these services are just plain scams.
This Forbes Magazine article says it best: “The problem is that a lot of these companies are fly-by-night, they are making and charging for promises they cannot legally accomplish, and [they] are taking money for services that the consumer can perform for themselves for free. In some cases, credit repair companies are even set up to steal identities, which then drives the debtor farther into trouble.”
There are two main reasons why you should always use a legitimate credit repair organization:
- At best, the scammy companies will just take money from you (usually to the tune of a thousand dollars or so) and not actually perform any real service. They just shuffle paper around to make it look as if bad debts are getting removed from your credit reports.
- At worst, they’ll actually steal your identity and all of your credit information. Then they can access your bank accounts, open up accounts for themselves, and leave you with the bill.
Let’s Talk About Credit, Credit Scores, and How to Identify a Credit Repair Scam
What is Credit? It’s Complicated!
Credit is borrowed money that you can use to pay for goods and services. Credit is almost never free. You will pay interest, annual fees, administration fees, and late charges if you ever make a late payment.
Types of Credit:
- Revolving Credit is commonly used in the form of credit cards. You are given a maximum limit to what you can spend, and you carry a balance monthly until it’s paid off.
- Installment Credit comes in the form of home loans and auto loans. A creditor loans you a large sum and you agree to make monthly payments until the loan is paid off.
- Charge Accounts & Charge Cards might look like normal credit cards, but the balance must be paid off completely every month. They’re more common in business applications than consumer spending.
- Service Credit comes in the form of utilities, services, and cell phones. Paying for an expensive new phone over a period of months or years is using credit.
All About Credit Scores
Per Forbes Magazine, there are primarily two credit score systems that consumers need to focus on, but there are many more out there used by different industries. The two most popular are:
They are monitored by three credit reporting agencies (CRAs):
Credit monitoring becomes a challenge because you might have two different scores being recorded by three separate CRAs. You might have a FICO score of 700 and a VantageScore credit score of 720!
This is the reason that so many people agree to work with a credit repair company. It’s a lot to keep track of, even if you have great credit. That’s why new organizations like Credit Repair Cloud are taking hold in the industry.
Identity Theft & Credit Scams
Identity theft is a huge problem in the United States today. You probably know it’s an issue, but do you know how big this problem really is? ConsumerAffairs.com reports that, in 2018, the Federal Trade Commission (FTC) processed over 1.4 million reports of fraud in the US. Losses totaled $1.4 billion USD. These are only the known instances of fraud in a single year, and there could be many more. No one really knows how many people have been ripped off, but there’s certainly been billions and billions of dollars worth of credit crime.
Bad Credit Repair Companies: How to Sniff Out a Scam
The Credit Repair Organization Act (15 USC 1679) is the federal statute which defines the legal framework for credit repair companies. It identifies a credit repair organization as “any person or business who makes money in exchange for improving your credit.” It also sets the rules by which credit repair organizations must operate.
Here are some key points of the act. Know that credit repair scams might offer to do things they cannot actually do, or they might be ignorant of these laws:
- They cannot ask for money up-front, or ask to be paid before they perform the service.
- They cannot make false statements about your credit history or credit score to you.
- They must provide you with a disclosure statement known as “Consumer Credit File Rights Under State and Federal Law.”
- They must give you a written contract and you must sign it before they perform any services.
- You have three days to change your mind, cancel, and get a complete refund.
What Do Legitimate Credit Repair Companies Actually Do? Can I Do It By Myself?
There is nothing a legitimate credit repair organization will do for you that you cannot do yourself, assuming you have the time and energy to do it.
Legitimate companies will contact the three CRAs we list above and get copies of your credit report. Then they set up payment plans for the debts you owe and make sure everything on the report is correct.
Credit repair services are not cheap. You’ll be able to pay off your bills faster if you use the money to pay your debts directly. At Banks.com we offer some great resources to help you monitor and fix your own credit. The three CRAs linked above are also perfect places to start finding more information about your specific situation.