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Credit Repair Scams and Choosing A Credit Counselor
Credit Repair Scams & Choosing A Credit Counselor
Don't be taken in by quick fix and other offers that sound too good to be true
With a slowing economy where more people are struggling to keep their heads above water and a credit crunch that makes it harder to qualify for a loan, advertisements for credit repair help may sound enticing. In newspapers, on the radio, TV, and the Internet, the claims are familiar: "Credit problems? No problem!"... "Overhaul your credit in 30 days!"... "Erase bad credit- Guaranteed!"...Create a new credit identity-legally!" The truth is, there are no quick or easy cures for a poor credit history, and you can't buy good credit. Don't be taken in by offers for a miraculous credit repair fix. If you decide to work with a credit counseling agency to help with financial problems, research your options and carefully select a reputable agency that offers personalized services from trained counselors.
Recognizing a credit repair scam
Whether reviewing services, do it yourself guides, even software to start your own work-at-home credit repair business, be wary of companies that promise, for a fee, to clean up and fix your credit report. No one can legally remove accurate and timely negative information on a credit report. Some tell-tale signs that a credit repair offer is up to no good include:
- The offer wants you to pay for credit repair services up-front, before any services are provided. Under the federal Credit Repair Organizations Act and Michigan Credit Services Protection Act, a credit repair company cannot require payment until they have completed the services they have promised.
- The offer says the company can get rid of most or all negative credit information in your credit report, even if the information is accurate and current. A consumer reporting agency can report most accurate negative information for seven years and bankruptcy information for ten years.
- The offer includes a suggestion that you create a "new" credit identity - and then a new credit report - by applying for an Employer Identification Number to use instead of your Social Security number. It is illegal to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
- The offer includes advice that you dispute all the information in your credit report, regardless of its accuracy or timeliness. The offer includes guaranteed results. Guaranteeing or stating that the company is able to delete negative credit information (which is not inaccurate or obsolete) is illegal under the Michigan Credit Services Protection Act.
Know Your Rights
If you respond to a credit repair offer, know your rights.
- You have the right to cancel a contract with a credit repair organization for any reason within three business days from the date the contract was signed.
- Before you sign a contract, a credit repair organization must provide you a copy of a one-page document that outlines consumer rights in disputing inaccurate information on their credit report, and rights in dealing with credit repair organizations (entitled Consumer Credit File Rights Under State and Federal Law).
- Before providing any services, a credit repair organization must provide a written contract that spells out your rights and obligations.
- A credit repair organization cannot charge you until they have completed the promised services.
For More Information and Self-Help Credit Repair
Federal law allows consumers to ask for an investigation of information on their credit report that is disputed as inaccurate or incomplete. There is no charge for this. While some people hire a company to investigate on their behalf, anything a credit repair clinic can do legally, you may be able do for yourself at little or not cost.
- For information on how to order your credit report and what to look for when reviewing it, please refer to the Attorney General's Consumer Alert "Free Annual Credit Reports-What Consumers Should Know."
- For information on how to ask for an investigation of information on your credit report that you dispute, and how to improve your credit worthiness, please see the following Federal Trade Commission publications.
- How to Dispute Credit Report Errors - Explains how to dispute and correct inaccurate information in your credit report, including a sample dispute letter.
- Building a Better Credit Report - Learn how legally improve your credit report, how to deal with debt, how to spot credit-related scams, and more.
Choosing a Credit Counselor
Credit counseling, if done by a reputable organization, can be a lifesaver in helping address financial problems. The right credit counselor can provide personalized advice on managing your money and debts. With the rise in consumer debt, however, disreputable or ineffective credit counseling offers abound and can actually leave you in a worse financial position. Choosing a credit counselor should be done with care.
Credit Agency Cautions:
- Check that the organization will help you manage your finances better through counseling and education. If possible, find an organization that offers in-person counseling.
- Carefully read through any written agreement that a credit counseling organization offers. It should describe in detail the services to be performed; the payment terms for these services, including their total cost; how long it will take to achieve results; any guarantees offered; and the organization's business name and address.
- Beware of high fees or required "voluntary contributions" that, with high monthly service charges, may add to your debt and defeat your efforts to pay your bills.
- Make sure that your creditors are willing to work with the agency you choose. If they are, follow up with those creditors regularly to make sure your debt is being paid off.
- Check with state agencies and your local Better Business Bureau to find out about a specific credit counseling organization's complaint record.
- Avoid offers that arrive "out of the blue" by telephone calls, email, or direct mail, as well as offers that make unrealistic promises that sound too good to be true. Promises to "help you get out debt easily" or settle your debt for "pennies on the dollar" are a red flag.
- Conduct independent research and verify company representations.
Additional Resources for Choosing a Credit Counselor
Federal Trade Commission
Please refer to the following FTC publications:
- Fiscal Fitness: Choosing a Credit Counselor - What to look for and key questions to ask when selecting a credit counselor or Debt Management Plan
- Coping with Debt - Options for dealing with debt; tips on getting back in the black
- For People on Debt Management Plans: A Must-Do List - Warnings and advice for anyone considering a Debt Management Plan
Consumers may also get free information from the Federal Trade Commission by calling, toll-free 877-FTC-HELP (877-382-4357); TTY: 866-653-4261.
For a list of IRS approved counseling agencies:
Please refer to Department of Justice website where consumers can search by state.
Contact the Attorney General if You Have a Complaint
If you have a consumer complaint, you may contact the Attorney General's Consumer Protection Division at:Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909
Toll free: 877-765-8388
Online complaint form