If you have a poor credit rating, you may be tempted by claims from companies that offer to help you create a new credit identity or boost your score by removing bankruptcies, judgments and liens from your file. Unfortunately, there's no such thing as a quick fix when it comes to bad credit. A legitimate credit repair company can help you dispute errors in your credit report, but nobody can erase bad credit.
Signs of a credit repair scam
A legitimate credit repair company will let you know your legal rights and inform you of actions you can take yourself, without charge. For example, they should let you know that you can dispute errors in your report for free by contacting any of the three national credit reporting agencies directly. A company that doesn't disclose this information may not be acting in your best interest. Other warning signs that a credit repair company is acting illegally include:
- Asking for a fee up front. Under federal law, credit repair companies cannot require you to pay until they have completed the services they have promised.
- Claiming to remove most or all of the negative information in your credit report. Only time can erase accurate and current negative information from your credit report. Most negative information will stay on your report for seven years, while a bankruptcy will be reported for ten years.
- Suggesting you create a new credit identity. Scammers may recommend you apply for an Employer Identification Number to use in place of your Social Security number when applying for credit. This could get you in trouble: It's a federal crime to lie on a loan application or get an EIN under false pretenses.
- Saying they will send you a nine-digit "credit profile number" or "credit privacy number" (both also called a CPN) to use on loan applications. In fact, the numbers are stolen Social Security numbers. If you use a so-called CPN number, you could face criminal prosecution or civil fraud charges.
- Advising you to dispute all of the information in your credit report.
What to look for when choosing a credit repair company
The financial counselors on your installation and Military OneSource will help you go over your credit report without charge. But if you choose to use a credit repair company, become familiar with your legal rights.
- The company must give you a copy of "Consumer Credit File Rights Under State and Federal Law." You should read this carefully before signing a contract.
- A credit repair company cannot make false statements about what it can do for you. Read the contract carefully to make sure the company is not promising services that are, in fact, illegal.
- The company can't charge you before it performs its services.
- You have three days between signing the contract and when the company performs its services. During this three-day "cooling off" period, you have the right to cancel the contract without penalty.
When you go over the contract, make sure it includes the following:
- A detailed description of the services. Merely saying "repair credit" is not enough. The contract should specify exactly how the service will be performed.
- The payment terms. This should include the total cost of the services, including extra fees and charges.
- The length of the contract. Make sure the timeframe seems reasonable to you.
- The name and address of the company. You'll need contact information in the event there's an issue or you're dissatisfied and need to get in touch with the company.
In addition to federal law, many states have laws that regulate credit repair companies. Check with your local consumer affairs office or call the consumer hotline at your state attorney general's office to learn about the laws in your state. You can locate the number for your state attorney general's office by clicking your state on the map at the National Association of Attorneys General.
If you feel you've been the victim of a scam, you should register a complaint with the Federal Trade Commission's Consumer Sentinel Military. While the FTC doesn't resolve individual complaints, the information you provide helps it, the Department of Defense and law-enforcement agencies target cases for prosecution, shut down scammers, spot patterns of fraud before they become widespread and alert the military community to scams.
If your credit is in bad shape, and you're looking to rebuild it, check out this podcast: Repairing Your Credit. If you have experienced an unresolved issue with a company about a financial product or service, submit a complaint on the Consumer Complaint Database.