Is credit repair legal? It can be, but credit repair scams clearly are not.
As time goes on, credit scores are being used for more and more purposes by more and more entities that affect our lives. Way back when, a credit score was used only to validate a consumer’s reliability to pay for personal loans, credit cards, mortgages, and the like. But now even potential employers and landlords are increasingly pulling credit scores to determine if you qualify for a job or a flat.
It comes as no surprise, therefore, that consumers are taking a more active role to repair poor credit scores. Various industries have grown to take advantage of this trend. These include professional credit repair service companies. No, not all credit repair firms are illegitimate. But unfortunately, some of them are credit repair scams. Be skeptical, shop around, ask for recommendations and investigate thoroughly before making any decision.
Protecting Consumers from Credit Repair Scams
In the United States, the most prominent consumer protection legislation targeting credit repair scams may very well be the Credit Repair Organizations Act of 1996. It prohibits credit repair companies from charging upfront fees or lying about their capabilities. It also requires them to provide their customers with certain information and rights. The law guarantees consumers the following:
- A three-day grace period to cancel the agreement
- A detailed and explicit accounting of the fees you will pay
- A timetable so you will know beforehand how much time it will take to see the results
- Specification and explanation of any guarantees they make
- A written contract detailing all of the above in addition to your legal rights. Among the latter is your right to a free credit report once a year from each of the credit reporting agencies.
Obviously, any credit repair company that fails to do any of the above should not be trusted. Upfront fees, in particular, are very common. So are opaque pricing models and failing to let you know you have a right to a free credit report. But there are also other red flags to look for that suggest the company you are dealing with is a scam.
Credit Repair Scams Do Get Busted
In June 2019, the U.S. Federal Trade Commission (FTC) froze the assets of Grand Teton Professionals, a credit repair scheme, and suspended its operations. The action was taken on suspicion that the firm had violated the provisions of the Credit Repair Organizations Act, as well as a number of other statutes, including the Telemarketing Sales Rule, the Consumer Review Fairness Act, the Truth in Lending Act, and the Electronic Funds Transfer Act, by illegally charging upfront fees and falsely claiming it could repair consumer credit. Grand Teton operated under a series of assumed names in Colorado, Wyoming, New Jersey, and Florida. The defendants ultimately reached a settlement with the FTC in January 2020. They were found to have swindled their clients out of at least $6.2 million since 2014.
And in March 2020 the FTC shut down another credit repair scheme, doing business as BoostMyScore.net, for similar violations. Charing its clients illegal upfront fees that ranged between $325 and $4,000, BoostMyScore.net promised it could improve credit scores by as much as 120 points in a mere six weeks. Incredibly, it claimed it could do so by ‘piggybacking’ its clients on the credit reports of other consumers, which, of course, would have been illegal had it even been possible.
Look Out for These Red Flags
One common sign of credit repair scams is unrealistic or impossible promises regarding how to repair credit. These include guaranteeing an improvement in your credit score. Or guaranteeing it will be adjusted to a specific score. It is impossible for them to know ahead of time if they will be successful. And they cannot know in advance how successful they will be. If they say they’re sure, they’re lying.
Another sign of a scam, and a very serious one, is if they claim the ability to create a new credit profile for you. This is not only a scam; it is a crime that can also get you in trouble. If you’re looking for a way how to improve credit, this certainly isn’t it.
In the U.S., for example, they may attempt to sell you a new Social Security number (SSN) or ask you to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). If so, they are making you a party to possible federal crimes. The new SSN may have been stolen from someone else. And while EINs have valid legal uses, credit scores and applications are not among them. If you ever put a number other than your SSN on a form that requires it, you are breaking the law. Moreover, many of the criminals who attempt to peddle this sort of solution to unsuspecting consumers are known to recycle stolen Social Security numbers as EINs. You are allowed to withhold your SSN if you wish (and probably get rejected as a result). But you are not allowed to lie.
Two of the biggest red flags are when the salespeople are pressuring you into taking their ‘services’ or if they warn you to not speak to another credit repair service, especially larger, well-known companies.
And of course some scammers, regardless of what they promise or how much they charge, end up doing little or no work on your behalf. The FTC’s consumer warning explains what legal action you can take if you discover that you fell into a credit repair scam.
If you think you’ve been the victim of a credit repair scam, contact the fund recovery experts at MyChargeBack.