Buying new furniture with a credit card, financing a car and agreeing to that variable rate mortgage all seemed like good ideas. That is, until you lost your job and couldn’t make your payments. Now, your credit score has dropped through the floor, and it feels like you’ll never get back on your feet.
Never fear! A credit repair company can undo the damage and have your score back to near-perfect condition in no time.
Or can they?
Credit repair scams are rampant. Sure, there are some legitimate companies that will help sort out the details of your credit report, but many others are simply preying on desperate people. Before you fork over what’s left of your hard-earned money, you should know that these five things you might hear from credit repair companies are all untrue:
Lie No. 1: You can start over
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Wouldn’t a do-over be nice? Some credit repair companies will say you can do just that. They may say you can get a new identification number that will make it easy to rebuild credit and erase past mistakes.
Some companies may refer you to the IRS website to request an employer identification number (EIN). The shadier ones may hand you a stolen Social Security number and tell you it’s a “credit profile number” or “credit privacy number.”
The problem is that it’s illegal to request an EIN under false pretenses. It’s also illegal to lie on a loan application or misrepresent your Social Security number by subbing in an ill-gotten EIN. And we certainly shouldn’t have to tell you that it’s illegal to use a fake Social Security number, regardless of how the credit repair company tries to sell it to you as a different kind of number.
Lie No. 2: Disputing negative records will solve all your problems
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Here’s another trick scam credit repair companies use. They tell you to dispute every bad record on your credit report. They don’t care if you really were delinquent on that account or that debt really did get written off without payment. It doesn’t matter. They want you to dispute it all, even if you know the information is true.
Once you file the disputes, you’ll then be encouraged to quickly apply for whatever loans or credit you need. That’s because the credit bureaus have to pull the disputed info off their reports while they investigate. It gives you a 30-day window with a clean report to get whatever new credit you need.
There are a couple of problems with this. First, it’s illegal, and you could find yourself in hot water for committing fraud. Second, once the credit bureaus substantiate the bad debt, they’ll put it back on your report. So you’ll have paid a credit repair company a ton of money and still have a crappy score.
Lie No. 3: It’s OK to fudge your income
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Getting some extra credit might help boost your score by reducing your debt-to-credit ratio. You might also be in a situation in which you need to take out a loan. Regardless of why you’re applying, a sketchy credit repair company may tell you it’s OK to inflate your income on an application to boost your chances of approval. No one will ever know.
Well, maybe you get away with it and maybe you don’t, but the credit repair company is lying when it says this practice is OK. It’s not. As you may have already guessed, it’s illegal to lie about anything on a credit application.
For more sage advice on deterring fraudsters, check out: “10 Golden Rules to Avoid Getting Scammed.”
Lie No. 4: You have to pay upfront
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If the first thing a credit repair company says to you is “show me the money,” you need to show them the door. You don’t need to pay a retainer or an upfront fee to use a credit repair company. In fact, the federal Credit Repair Organizations Act prohibits companies from collecting fees in advance.
What’s more, federal law requires you get a credit repair contract in writing to outline the services to be rendered. If a company doesn’t provide this and insists on being paid upfront, you know you’re dealing with a scam.
Lie No. 5: Only we can help you
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This is possibly the worst lie credit repair companies tell. It’s the lie that makes people think they are trapped into using a company’s service.
The reality is that you don’t need to pay anyone to fix your bad credit. There is nothing a credit repair company can do that you can’t do for yourself.
At MoneyTalksNews, we are always on the lookout for bad actors who take advantage of consumers. You can learn more about all manner of common scams by clicking here.
How to repair bad credit on your own
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So how do you repair credit on your own? It’ll require a little work, but you can do exactly what a legitimate credit repair company would do. Even better, you don’t have to pay a dime.
First, you need to request copies of your free credit reports. You can get them through annualcreditreport.com. That’s the official place to request your reports, and you’re entitled to one report from each of the three major credit bureaus every 12 months. Other websites will try to charge you for this information, so if you’re asked for credit card information, you’re on the wrong page.
Next, you need to comb through those reports for any incorrect information. Did you pay off that balance? Were you only late on that account once rather than the three times reported? Circle everything that may be wrong.
Now you can send letters of dispute to the credit bureaus asking them to review the info. You can even do this online now.
If the credit bureaus side with you, the negative reports will drop off and your score will rebound. Otherwise, you’ll need to wait seven years for the info to disappear.
So that’s what the credit repair companies do, but you have more options. Read about seven ways to boost your credit score fast and seven ways to build credit when you’re starting over. If you’re feeling overwhelmed, we can also connect you with a legitimate company that may be able to help.
Have you been through a period of bad credit? What was your way out? Share with us in comments below or on our Facebook page.