In light of the recent financial crises, the “credit repair” industry has arisen as consumers seek ways to address personal economic issues such as bad credit. Various credit repair organizations have been created within the past decade in response to the growing desire among consumers to address their bad credit, and these new credit repair organizations often make promises to help people regain good credit scores.
While there are many bona fide credit companies that offer financial counseling, some of the newer credit repair organizations make sensational or impossible promises, such as guarantees to “erase bad credit” or completely eliminate credit debt. As a result, many consumers have fallen victim to credit repair scams.
Are Credit Repair Organizations Legitimate?
In general, credit laws allow for the existence and operation of credit repair organizations. However, they are subject to many different limitations and regulations. For example, credit repair groups cannot:
- Engage in misrepresentation or deceit to obtain a person’s credit history or score
- Obtain identification information without the consumer’s authorization
- Engage in otherwise unlawful business practices such as fraud
- Make misrepresentations regarding the types of services they offer
- Collect payment for services that have not been rendered yet
One of the main problems with identifying the quality of a credit repair organization is the licensing and certification. That is, it may be difficult to identify a valid credit repair organization as opposed to a sham organization, since licensing requirements may vary by jurisdiction.
What Is a Credit Repair Scam?
Credit repair scams are methods that bogus credit repair companies use to obtain profit or information from vulnerable consumers. There are many different types of credit repair scams, such as:
- Misrepresentation: The organization may misinform a potential client by stating something like, “You cannot get credit for 10 years if you have filed for bankruptcy. Therefore, you need to enroll with our services so you do not ruin your credit.” Such bankruptcy information may be misleading or completely untrue
- Misuse of EINs: A common scam is where the credit repair organization instructs a private citizen to obtain an employment identification number (EIN) as if they were a business, in order to set up a new credit record. It is against the law to use an EIN for the purpose of establishing a fake identity.
- Social Security Number Abuse: Some alleged credit repair agencies actually offer no services, but attempt to get vital information from consumers like their social security number. They will then use the person’s SSN to access other important information or records.
There are many other forms of credit repair scams. You should be wary of any organization that makes outlandish promises, or that asks for your information without clearly explaining their intentions for the use of that information.
What Are Some Tips When Dealing With Credit Repair Companies?
While credit assistance may be necessary for some people, there are many steps you can take to avoid fraudulent credit repair practices. Some considerations that you should follow are:
- DO NOT deal with any “credit repair organization” that forbids you from contacting major credit bureaus.
- DO NOT work with any repair organization that disregards industry regulations.
- DO NOT be enticed by offers to “wipe out debt,” remove negative credit records, or provide credit “regardless of your history.
- DO NOT deal with credit repair companies that claim to exploit loopholes or “secrets” of the industry or credit system.
- DO ask for a written disclosure of your rights.
- DO review any contract thoroughly before signing it. You may wish to have a lawyer review any agreements you are asked to sign.
- DO inquire about your right to cancel contracts or agreements.
Do I Need a Lawyer to Help With Credit Repair Issues?
Credit repair can work for some people who need financial assistance. However, you need to make sure that you are dealing with a legitimate, trustworthy organization in order to protect yourself from fraud. It is in your best interest to contact an experienced financial lawyer before forming a relationship with a credit repair group. If you have any legal issues, disputes, or concerns, a lawyer can represent you throughout the course of a lawsuit.