Credit and Repair Scams: How to Identify, Avoid and Report Them
Are you looking for ways to increase your credit? Beware of credit repair scams: Here’s how to spot them.
Bad credit affects millions of Americans, and many people seek services to help them repair their credit and get out of debt.
Thomas Nitzsche, Certified Financial Educator at Money Management International, recently sent the VERIFY team a screenshot of a Facebook post from someone claiming to offer low-cost credit repair services. Nitzsche says social media posts like the one below are usually scams, but many people have trouble telling the difference between them and legitimate services. Here are some tips for spotting similar fraudulent offers.
WHAT WE FOUND
Red flags to help you spot credit repair scams
Credit repair companies typically promise to clean up credit reports for a fee, but the chances that these companies can do anything account owners couldn’t on their own are slim, according to the Better Business Bureau ( BBB) and the Federal Trade Commission (FTC). ). That’s because every person has the right to correct inaccurate information on their credit report, but no one can delete accurate negative information, says the BBB.
The BBB and FTC share red flags that can help people identify potential credit repair scams on their websites. These include credit repair companies that:
- Charge fees before your debts are settled
- Forcing you to pay fees disguised as “contributions”
- Try to look like a government program
- “Collateral” to make debt disappear or quickly improve a credit score
- Tell you to stop paying your debts and contact your creditors
- Say you can’t get more information without providing personal financial information
- Promise to repair your credit without actually reviewing your financial situation
- Offering a debt management plan (DMP) without teaching budgeting and money management
- Promise they can erase bad credit or remove information from your credit reports
- Don’t explain your legal rights when they tell you what they can do for you
“If there’s an organization or a person that claims they can improve your credit by 50 points in the next two weeks or some other claim like that, that’s really a red flag,” Thomas Nitzsche told VERIFY. .
People who worry about credit debt are often vulnerable to quick fixes, but the BBB, FTC and Nitzche all say that only time and conscientious payments will truly fix a person’s credit.
“There are no guarantees when it comes to credit, because it’s really just good, healthy financial habits over time that will gradually improve your credit,” Nitzsche said.
VERIFIED tools to help you get out of credit debt
Credit counseling is the most comprehensive solution to repairing credit because it uses a variety of resources to help solve financial problems, according to the BBB. These resources include budgeting, educational programs, access to counselors, and sometimes a personalized debt management plan (DMP).
A DMP is a system that allows a person to pay a monthly payment that covers all of their included debt, according to Money Management International. Once your creditors accept the plan, you make a single payment each month to your DMP facilitator, who then divides and distributes the payment to your creditors each month.
The BBB says people seeking credit counseling services are protected under the Credit Repair Organizations Act (CROA). The CROA prohibits false or misleading representations and requires certain affirmative disclosures in the offering or sale of credit repair services, according to the FTC.
Legitimate businesses joining CROA must provide the following:
- A written contract detailing your rights and the services to be performed
- A free three-day withdrawal period
- Details on how long it will take you to see results
- Accounting for all costs and fees
- All the guarantees they make through their marketing
The Consumer Financial Protection Bureau (CFPB) and the FTC can guide you to legitimate nonprofit resources to use to improve your credit online. The US Department of Justice (DOJ) also shares a list of approved agencies for people seeking credit debt reduction help on its website.
Additionally, the National Foundation for Credit Counseling (NFCC), which is the umbrella organization for all nonprofit credit counseling organizations in the United States, can connect you with local credit counseling agencies in your region on nfcc.org.
Nitzsche says trusted financial organizations, like your bank or credit union, also typically offer free financial wellness tools to their customers.
Report Credit Repair Scams
If you have a problem with a credit repair company or if you are the victim of a scam, fraud, or poor business practice, you can report it to the FTC at ReportFraud.ftc.gov, CFPB at [email protected] or the BBB at [email protected]
You can also contact your attorney general or local consumer affairs office to file a report.