Beware of Credit Repair Scams

Unbiased financial information provided by Financial Finesse

 Credit repair encompasses a number of different services, from legitimate credit counseling and debt repayment programs to less scrupulous offers to clean up your credit report and pay off your debts for pennies on the dollar.

 For those whose debts are unmanageable, a debt repayment program through a national credit counseling organization such as National Foundation for Credit Counseling is ideal. Credit counselors will help you to prepare a budget, figure out how much you can pay towards your debts, and then negotiate with your creditors to accept a lower amount each month. You then pay the agency each month, and they in turn pay your creditors. Fees are nominal, usually in the range of $10-20 a month during the program. NFCC is a non-profit organization, and program costs are largely covered by the creditors themselves.

 Be aware that some organizations that claim to provide credit counseling really do nothing to help people get out of debt. Here are the warning signs of a less reputable organization:

Charging excessive upfront and/or monthly fees.
Pressure to make "voluntary donations" to be in the program.
Enrolling you in a debt repayment program without spending time to help you figure out how much you can realistically afford.
Refusing to send you information in writing; working only over the phone.

 Another questionable strategy is debt negotiation. Firms that offer this service often claim to be non-profit but are usually associated with a for-profit corporation. They suggest that you stop paying all credit card bills for a period of months, to give them a chance to negotiate a settlement for less than the full amount owed. They require that you deposit money each month into an account that they control, and they use this fund to pay off the settlements they arrange. However, you can negotiate the same type of payoff yourself, and avoid the heavy fees these firms usually charge.

 There is nothing a credit repair company can do for you that you can't do yourself, for free. If your credit is bad, the best way to improve it is to get caught up on your late payments, make future payments on time and remove any inaccurate information in your credit report. There is nothing a credit repair company can do for you that you can't do yourself, for free.

 By law, credit repair organizations must give you a copy of the "Consumer Credit File Rights Under State and Federal Law" before you sign anything and a written contract that details what you must pay and what services will be provided. Be sure to read these documents carefully before you sign. Stay away from those that employ any of the following tactics:

 Charging for a list of secured credit cards - these can be obtained at no cost from sources such as
Offering to provide you with a new Social Security number. If obtained legally, it is still connected to your original number, so it doesn't help your credit.

 Claiming to set you up with a new identity - new name, new Social Security number and a clean credit history. Clearly this is illegal, and likely to get you into serious hot water if you are caught!
One new twist on the above is called file segregation - aimed at those who have filed bankruptcy.

 Their pitch claims you will otherwise be unable to receive credit (car loan, credit card, home mortgage) for the next ten years. This is untrue - while bankruptcy may remain on your credit report for up to ten years, many lenders will extend credit after just a few years. Their solution is to use a Taxpayer Identification Number (meant for business use) instead of a Social Security number.

 Some credit repair enterprises promise you a free credit report. While some of these offers may be legitimate, a number are actually bait to steal your personal information for identity theft purposes. Request your free credit reports at annualcreditreport.com or by calling 877-322-8228.

 The best way to clean up your credit is to pay your bills on time. Since the best way to clean up your credit is to pay your bills on time, focus on making a budget based on your paycheck. If you can't make it work on your own, seek a reputable credit counselor for assistance.