Many credit issues can be addressed by dealing directly with the credit bureaus or by working with a credit counseling service, and the Credit Repair Organizations Act lays down rules for credit repair firms.
If you’ve ever been besieged by debt that hurt your credit score, you might have considered turning to a credit repair service to help contain the damage.Unfortunately, that’s not a magic solution that will help revive your credit situation, in spite of any promises the service might make.
The Consumer Financial Protection Bureau reports that in 2020, credit repair companies resolved, either with an explanation or relief (either monetary or non-monetary) about 94% of the approximately 1,000 consumer complaints forwarded to it for review. It seems 200 of these resolved complaints fell in the “fraud or scam” category.
How to avoid credit repair scams
Credit repair firms could send you a barrage of advertisements making all sorts of promises. They could make it sound as though they are the solution to all your bad credit problems. Some signs of scams the CFPB says to watch out for include:
- Asking for payment before taking you on as a client
- Making tall claims such as guaranteeing results or promising a specific hike in your credit score
- Inability to address your specific questions about their programs
- Withholding information or providing misinformation about your rights (you have the right to get a written contract and also to cancel the agreement within three business days, for one)
- Asking you to misrepresent yourself (they could advise you to apply for an employer identification number and use it to create a whole new credit history)
You could resolve credit issues yourself
Oftentimes, the issues that you turn to a credit repair service to resolve are things that you can take care of on your own. You should ask for a free copy of your credit report from the credit bureaus and go over it to verify the information. If there is any incorrect input, you could file a dispute and the credit bureaus will have to address the situation. They will follow up with the party that provided this input (the furnisher of the information) as required by the Fair Credit Reporting Act.
In case there is information about a bankruptcy on your credit report, it will stay there for seven to 10 years depending on the type, and information about missed or late payments could linger for about seven years after the payments first became delinquent.
If there’s an unpaid judgment on your credit report, it could stick around for the longer of seven years or until a statute of limitations expires. And if there’s any input about a criminal conviction, it could linger indefinitely (along with input reported in connection with your application for a job that pays north of $75,000 a year).
If you would rather work with a third party, your best bet would be to turn to a non-profit credit counseling firm to help you sort out your situation. They could help you deal with the credit agencies and your creditors and develop a debt management plan for you. You will likely pay them for the service, but you can be assured that their services are legitimate.
If a credit repair service is not satisfactory
If you have already engaged with a credit repair service and are not satisfied with the results, you do have legal recourse. The Credit Repair Organizations Act, which is enforced by the Federal Trade Commission, lays out certain rules for credit repair services to follow.
For instance, they will have to tell you how long it will take to fulfill their promises (which they should outline, along with explaining your legal rights, in a contract) and the total cost to you. The Telemarketing Sales Rule also states that a credit repair service should only charge customers for its services six months after it achieves promised results.
The FTC advises that you could sue a credit repair firm that fails to live up to its promises for the higher amount of the actual loss you sustained or whatever you paid it. You could also ask for “punitive damages” as a punishment for the company’s violation of the law. Another recourse would be to band with a group of people to file a class-action lawsuit against the firm, which would have to also pay out your attorney’s fees if you win the case.
Or you could file a complaint with the FTC, which would take action against the company if there is a pattern of people complaining about it. (The FTC would not resolve individual cases, though.) Another avenue is a CFPB complaint, which the agency would ask the credit repair service to address with you.
You could even file a complaint with your state attorney general’s office.
Be careful before engaging a credit repair service since they are known to make false claims about their results. In all likelihood, you can take care of matters by dealing directly with the credit bureaus.
If you are overwhelmed, you can turn to an accredited non-profit credit counseling service for help. In the event that you do fall prey to an unscrupulous credit repair company, you could take recourse to the protections of the Credit Repair Organizations Act.
Contact me at firstname.lastname@example.org with your credit card-related questions.