Credit Repair Scams - 11 Warning SignsIt is an unfortunate but no less true characteristic of our society; whenever there are people desperate or in need, there are those who would take advantage of them. Gas stations were caught price gouging fleeing Hurricane Katrina victims, trusted caregivers abuse and steal from the elderly, and credit repair scammers target people suffering from bad credit or looking to hide a bankruptcy.
As with all cons, there are things you can look for to help prevent your becoming a victim of a credit repair scam. The most obvious is to remember that anything that sounds too good to be true probably is. But with credit repair, there are a number of other traits you can look for to help keep you, your pocketbook, and your credit score safe.
Here are 10 warning signs to look out for when researching credit repair companies. Some are sure signs of a credit repair scam and some are just red flags, but any credit repair services that exhibits one or more of these traits should definitely be regarded with care.
Offers to create a new credit reportsSeverity: Avoid completely, this is a sure sign of a credit repair scam.
This classic credit repair scam is not as common today as in the past, but you can still find credit repair clinics who claim to be able to create a brand new credit identity that you can use when applying for loans. These companies frequently target people who have just gone through a bankruptcy and tempt them with the prospect of starting over with a clean slate. They will help you obtain an EIN number that you then use on credit applications in place of your Social Security number.
These file segregation schemes are illegal and could cause to to be charged with state or federal crimes.
Requires upfront paymentsSeverity: High, it is illegal for a credit repair organization to accept any payment for work that has not been accomplished.
Just like other cons, a common trait of the classic credit repair scam is to charge a large upfront fee totaling many hundreds or even thousands of dollars. The scammers then do not perform the work expected of them. there many reports of credit repair clinics popping up, accepting tens of thousands of dollars in payments, and then when people start complaining, simply disappear with their money only to set up shop again at a new address and under a new name.
To help prevent people from becoming a victim of a credit repair scam, the Credit Repair Organizations Act includes a provision that makes it illegal for any credit repair organization from accepting payment for services before they have been performed.
Note that the severity listed for this trait of credit repair scams is only listed as high because it is possible for people to wrongly assume that a credit repair company is breaking this law. Many credit repair companies charge set up fees that appear to be upfront payments but are in truth not charged to your credit card or checking account until after they have performed a number of contractual obligations and not for a number of days after you have signed up and signed their service contract. Because this can seem confusing, make sure you completely understand a credit repair company's billing policies before signing up for the service.
Does not require you to sign a contractSeverity: High, the law requires that any company offering credit repair services must provide you with and have you sign a contract before any work can be performed.
In addition, a contract for credit repair services must meet specific requirements as defined by the Credit Repair Organizations Act such as the terms of payment, a detailed list of the services to be performed, and the specific statement "You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right."
If you are not provided with a contract and a notice of cancellation form, then you will have no record of the services you signed up for. As the adage says, make sure you get it in writing.
Unsatisfactory BBB RatingSeverity: Moderate, the BBB exists to help you avoid shady companies. If the BBB cannot endorse a company, you should be concerned.
Anytime you identify a credit repair company you are considering working with, be sure to check out that company's BBB report. These reports will show where the company is located, how long the company has been in business, complaints that have been submitted about the company, and how the company has responded to those complaints. Sometimes these reports also detail problems the BBB has identified with regards to how the company operates.
The BBB will typically assign a rating to each company based on a variety of characteristics. If they assign an unsatisfactory rating, they will explain the reasons why.
No published physical addressSeverity: Moderate, at the very least, a company that does not publish a physical address warrants additional investigation before you should trust them.
Because so many credit repair scams operate by popping up, taking people's money, and then disappearing only to re-emerge, it is a red flag when a company does not appear to have a stable presence. When shopping for a credit repair service, you are looking for a company that will likely be working on your credit report for 6 months or more. You'll definitely want the confidence of know that they will still be there 6 months down the road.
No phone numberSeverity: Moderate, regardless of how enticing their website makes the service sound, you never know when you will need to talk to someone.
Pretty much the only reason not to have a phone number these days is if you don't want people to be able to reach you. If a credit repair company is willing to take you money but is not willing to talk to you, how confident can you be that they really have your best interests at heart? Even when working with the most upstanding of organizations there can be complications. Don't you want to peace of mind in knowing that if your credit card accidentally gets double billed, you can call and talk to someone about the problem?
Orders credit reports for youSeverity: Moderate, make sure you find out exactly how your credit reports are being ordered. Ordering your credit reports through a "partner" mortgage broker or lender is illegal and could lower your credit score.
The Fair Credit Reporting Act has a section that defines the "permissable purposes" for ordering copies of consumer's credit reports such as in response to a credit or employment application. Some credit repair companies will use loan providers to illegally order your credit reports instead of asking you to provide credit reports to them. They claim this makes their service easier for you, but regardless of whether or not you agree with the law, doing so is illegal.
You may feel that this is an understandable "bending" of the rules, but how much faith do you want to put in a company that does so? Hoe much confidence do you have that this is the only transgression?
Promises to erase all negative informationSeverity: Moderate, no company can guarantee that something will be removed from your credit reports because ultimately it is up to your creditors and the credit bureaus. Any company that says they can is lying.
Credit repair companies utilize a number of tactics when working to repair your credit that, hopefully will result in negative credit from being removed from your credit reports. At the end of the day, however, all a credit repair company can do it put forth a best effort. All credit repair companies are at the mercy of the creditors and the credit bureaus. If there is a negative item on your credit reports that your creditor can and does prove is accurate, then that item will remain on your credit reports.
There are no secret back doors and no unpublished loopholes and any company that claims otherwise should be avoided.
Does not inform you of your rightsSeverity: Moderate, don't allow a credit repair company to keep you in the dark about what you can do about your credit, free of charge.
How is it possible to know what you do not know? If a credit repair company does not tell you something you were not aware of in the first place, how will you know.
Here is a simple way to tell. According to the Credit Repair Organizations Act which sets rules for how credit repair companies must operate, a credit repair company must provide you with a document titled "Consumer Credit File Rights Under State and Federal Law". This document must be provided before you have entered into a contract with a credit repair organization and must be signed by you either physically or electronically.
As the title implies, the document tells you about your credit rights specifically your right to order copies of your credit reports and work to repair your credit on your own. Given that you are searching for a credit repair company to do this for you, it is likely that you were already aware of the possibility that you can repair your credit on your own. Ultimately, knowing this is not the important part. It is the fact that the law requires a credit repair company to provide you with this document that is important. Do you really want to hand over your credit card and Social Security number to a company that is obviously operating illegally?
Only accepts cash, personal check, or money orders for paymentSeverity: Moderate, there may be some upstanding mom and pop credit repair organizations that don't have the ability to accept credit cards, but odds are the credit repair scam you are looking at isn't one of them
Criminals like cash. It is much harder to trace. There are no bank charge backs. Nobody purchases a bag of marijuana using their VISA card.
Credit repair scammers are the same way. After you have forked over your money, they don't want you to find them again. Also, accepting credit card payments requires that you invest some time and capital in your business. Credit repair scammers don't have the time or desire to jump through all those hoops.
Plus, even if a credit repair company is 100% legal in all of their operations, it makes sense for them to want to offer credit/debit card payment options for their customers. Not only does this make things easier for the customer, but it eliminates the risks associated with dealing with cash such as lost mail. Offering credit card payment options is simply smart business.
Paypal or some other third party shopping cartSeverity: Moderate, basically the same as only accepting cash except that now they don't even have to give you an address to send the payment to.
PayPal is a great tool allowing people to exchange money securely over the Internet. That said, a credit repair company that only offers PayPal payments or merely supplements cash payments with PayPal should be regarded carefully.
Part of the reason why companies who offer credit card payments are generally more trustworthy is because of the work that has to be done in order to facilitate this transaction. There are merchant accounts to set up, security certificates to purchase and maintain, and website integration that needs to be handled. PayPal makes it so companies do not have to perform all this work and, while it may seem like the company is trying to be more customer friendly, the opposite is probably true.
If you try to sign up with a credit card company and are directed to a PayPal page to enter your credit card information, you may want to look elsewhere. Paying for credit repair services this way is no better, and possibly worse, that handing over cash.