Life with a bad credit score can be expensive. Once your score drops into the low 600s (or lower), you will likely find it difficult to obtain affordable credit. If you are suffering from a low credit score, you might find the advertising of credit repair companies appealing. But you need to beware. When a company offers to "Erase your bad credit – 100% guaranteed," you should immediately be wary of a scam.
Credit repair companies tend to come in two flavors:
- A reputable credit repair company will charge a fee to help you dispute and remove inaccurate information from your credit report. Any consumer can dispute charges on their own, but credit repair companies charge a fee for a service. Think of a credit repair company like a car wash: you could do it yourself, or you could pay someone else to do it for you.
- Some credit repair companies are scams. These companies engage in highly questionable or illegal tactics. Just remember that credit repair companies do not have secret weapons that are not available to the general public. What they can do, you can do. And if a credit repair company is promising a miracle, it is probably illegal. Here are four credit repair tactics that are scams—and that you should avoid.
1. Removing Accurate Negative Information from Your Credit Report
Some companies promise to remove negative information from your credit report, even if the information is accurate. According to the New York City Department of Consumer Affairs, "no one can legally remove negative information from a credit report that is accurate. Most negative information generally stays on your report for seven years while bankruptcy information can remain on the report for ten years." Disputing accurate information is against the law.
2. Asking For an Up-Front Fee
Credit repair companies are required to abide by the Credit Repair Organizations Act, a federal law enforced by the Federal Trade Commission. The law prohibits credit repair companies from asking consumers to pay for their service until it has been completed. If a company makes big promises and asks for an up-front payment, it is breaking the law. You have a right to sue a credit repair organization that breaks the law.
3. Creating a "New Credit Identity"
One of the worst practices is when a company suggests you try to create a new credit identity and credit report by applying for an Employer Identification Number to use, instead of your Social Security number. According to the Consumer Financial Protection Bureau (CFPB), "it is a federal crime to misrepresent your Social Security number or to obtain an Employer Identification Number under false pretenses." You do not want to break federal laws.
4. Asking You to Sign Blank Paperwork
If you are asked to sign blank paperwork and provide personal identifying information, you need to beware. By signing blank paperwork, you are making it easy for identity theft to happen. In a worst case scenario, you make an up-front payment and sign blank documents. Not only do you lose money today, but you can become the victim of identity theft.
If You Want to "Do It Yourself"
Only time and good behavior can help improve your credit score if you have accurate, negative information on your report. However, if you have incorrect information on your credit report, you can easily dispute the information yourself. Just follow these three simple steps:
- Download a free copy of your credit report from all three reporting agencies at AnnualCreditReport.com to check for reporting errors.
- Review the report and dispute any incorrect information. You can learn how to dispute credit reporting errors here.
- If the dispute is not resolved to your satisfaction by the credit reporting agencies, you can complain online to the CFPB here.
If you have a low credit score, you might be hoping for a miracle. Unfortunately credit score miracles aren't generally available, and you should avoid paying someone who promises one. Instead, focus on removing inaccurate information from your reports, keeping your credit utilization low and paying all of your bills on time. Eventually, all negative information will fall off your credit report. You just need time and discipline.