Under the Fair Credit Reporting Act, you have a legal right to dispute credit history errors yourself for free with the three major consumer reporting agencies: Equifax, Experian and TransUnion. You don’t have to pay a credit repair company to do it for you.
Nonetheless, there are countless companies who say they will clean up your credit for a fee. Many consumers pay those fees because they feel overwhelmed by the seemingly daunting task of taking on the three big credit bureaus.
“Unfortunately, that’s why some credit repair companies use confusing and misleading messaging to target anxious consumers who are just trying to get their financial lives back on track,” writes Desmond Brown for the U.S. Consumer Financial Protection Bureau. More than half of the people who relayed complaints to the CFPB about credit repair frims over the past several months used the words “fraud or scam” in describing their experiences.
These credit repair companies must follow federal laws, including the Credit Repair Organizations Act and often the Telemarketing Sales Rule, both of which forbid credit repair organizations from using deceptive practices and from accepting up-front fees. All U.S. consumers are entitled to one free credit report annually from each of the three credit reporting agencies at AnnualCreditReport.com.
The CFPB says to look out for these red flags:
They demand payment upfront: Under the Credit Repair Organizations Act, credit repair companies cannot request or receive payment until they’ve completed the services they’ve promised. Some companies will structure monthly payment plans to avoid this requirement, and you should know that no form of upfront payment is legal. A simple rule to follow is “Don’t pay upfront.” If the company uses telemarketing such that the Telemarketing Sales Rule applies, the company may not request or receive fees until it has provided you with a credit report generated more than six months after the promised results that shows the results.
It sounds too good to be true: The company tells you it can get rid of the negative credit information in your credit report in a short period, even if that information is accurate and current.
They can’t answer questions: The company representative can’t explain the specifics of the services they are offering you or the total cost for those services. Asking a few simple questions can help you determine if you are dealing with a reputable organization.
They hold back or provide misinformation: The company doesn’t inform you of your rights, including your right to obtain a written contract outlining the details of your arrangement, as well as having the ability to cancel your contract with the company within three business days.
They ask you to misrepresent information: The company suggests that you try to invent a “new” credit identity – resulting in a new credit report – by applying for an Employer Identification Number instead of your Social Security number.