Posted by Michael Donelly

By John Richards

Read if: You have a bad credit rating and you want it fixed.

Gain: An insight into the people who prey on the desperate.

In these difficult economic times, many people are finding it necessary to take on more debt than they ever thought they would. In many other cases, people’s incomes are stagnating or shrinking, causing debt they had previously taken on to become unsustainable.

Unfortunately, many unscrupulous individuals are trying to make a quick profit by selling false hope to people who turn to them out of desperation. One of the biggest sources of financial stress that many people face in a bad economy is the inability to secure credit, or an inability to make payments on the debts that they have already incurred.
This usually results in a person’s credit rating dropping, which makes obtaining new credit even more difficult, creating a vicious circle. Many people view a repaired credit rating as one of the first steps to rebuilding their financial situation. Unfortunately, there is a lot of misinformation out there, with people claiming they have uncovered some secret formula that will allow you to game the system, and fix your credit rating practically overnight.

However, there is no quick way to repair your credit rating. And anyone who promises that you can do so quickly, without a lot of hard work and some sacrifice, is setting you up for disaster. The fact is, they are promising the impossible, and they probably know it.

Chances are, they’ll take your money, and do absolutely nothing to help you. They might even make your situation worse.

However, there are many attributes that most credit repair scams share, and which legitimate credit repair business will not have, which make it possible to spot these scams before you’re victimized by them.

This article will cover some of the major warning signs you should look for before you sign up with any of them.

First of all, you should note that there is a federal law governing credit repair organizations, known as the Credit Repair Organizations Act of 1996. There are many things that a legitimate credit repair service may not do, and if someone tries to do one of these things, you can be almost certain that they are attempting to scam you.

For example, a credit repair company cannot demand payment until they have actually performed a service, and delivered the promised result. Any credit repair company that demands payment upfront is, at best, ignorant of the law. At worst, they simply plan to take your money and run.

Another sign is that the company does not tell you your legal rights, and what you can do yourself for free (such as negotiating with your creditors directly, disputing inaccurate information on your credit report, etc.). They are required by law to make certain disclosures to you. If a company says that they’re the only people who can help you fix your credit rating, they’re up to no good. In fact, a scammer will usually recommend that you don’t contact your creditors, or any of the three major credit reporting companies directly, claiming that this will hurt your cause. This is simply untrue. Simply speaking to your creditors or a credit reporting company is extremely unlikely to make your situation any worse.

If a credit repair company claims that they can remove negative information from your credit report, they’re also pulling your leg. Remember this simple fact: nobody can remove negative information from your credit report, if the information is accurate and timely. If you find inaccurate information on your credit report, there is a process to have it removed, and a legitimate credit repair company may be able to help you in this process, but no legitimate business will ever, under any circumstances, claim that they can have accurate information removed.

It doesn’t cost you anything to have negative information removed from a credit report, so there’s often no reason to hire someone to help you, unless you run into significant problems in the process. Usually, the website of the credit reporting firm that issued the false report will have a built-in system for notifying them of inaccurate information on your report.

Sometimes, in an attempt to create the appearance that they deliver real results, without doing any of the necessary work, credit repair scammers will sometimes advise you to commit fraud yourself. Some will claim that they can help you set up a completely new credit identity, which would, in essence, write your slate clean. Typically, they will suggest that you set up an Employer Identification Number for yourself, to use in place of your social security number, and use your new EIN to obtain credit in the future.

If any credit repair company advises you to do this, no matter what else they’ve said or done, you should immediately walk the other way. They are essentially advising you to commit fraud. Setting up an EIN for a fraudulent purpose is a federal crime, and you could face very serious criminal charges if you do this. So, you can be 100% certain that anybody who advises you to take this course of action does not have your best interests in mind.

But suppose you’ve already been taken in by a credit repair scam, and have suffered financial losses as a result. You’re probably wondering if you still have options. Thankfully, you do. The federal government, and the governments of most states, have laws regulating credit repair companies, and a process for reporting fraud.

The first thing you need to remember is that you shouldn’t be embarrassed if you’ve been a victim of fraud. People from all walks of life have been taken in by scams. If nothing else, successful scammers are smart. Being victimized by a credit repair scam does not mean you’re gullible or unintelligent.

With that in mind, you should look up the phone number for the office of your state’s attorney general (AG). Most state AG offices have a special division for consumer affairs. Reporting the credit repair company that scammed you can, at the very least, put them on law enforcement’s radar, which can help prevent them from harming others in the future.

You may also be able to sue whoever victimized you for damages. However, this is heavily dependent on your ability to locate the individuals responsible for your harm. You should speak with an attorney who specializes in representing consumers if you want to try and sue a credit repair organization. Your attorney will be able to advise you about your chances of succeeding. More importantly, a good attorney will also give you a frank assessment of what it will cost, in time and money, to sue one of these companies, as well as what you’re likely to recover if you win.

With this information, it will be up to you to decide if suing a fraudulent credit repair company is worth all the effort.

Finally, I should leave you with one last piece of advice: trust your common sense. If an offer seems to good to be true, it probably is. If you’re in discussions with a credit repair company, you should try to vet them before you give them any money, or sign any agreement. Search for their name on the Internet to see if a large number of people have complained about them, contact your state AG’s office to see if they’ve been subject to legal action in the past. And even if none of the warning signs I’ve gone over in this article are present, you should still trust your instincts. There are plenty of legitimate credit repair agencies out there. If the one you’re speaking with seems fishy for any reason, trust your gut, and find somebody else to help you.

A commercial for a legitimate credit repair agency detailing the warning signs of a scam.

John Richards is a writer for LegalMatch.com and the LegalMatch.com Law Blog. The above article is for general informational purposes only, and should not be construed in any way as legal advice relevant to your particular situation. The only person qualified to give you legal advice is an attorney licensed to practice in your jurisdiction, who has been apprised of all the relevant facts of your situation.