credit repair scamsIs the information on your credit reports accurate? A study conducted in 2013 by the Federal Trade Commission found that one in four consumers discovered errors when checking their credit reports that potentially affected their credit scores. This study also found that four out of five consumers who disputed these errors saw some sort of adjustment to their credit reports as a result, which highlights the importance of discovering and correcting any errors or misinformation that may be on your credit reports.

One way to fix these errors is with the help of a credit repair service. These types of services will dispute and contest errors with the credit bureaus on your behalf to help get the information corrected or removed. Unfortunately, not all credit repair services are legitimate or legal, and some companies promise to help you fix your bad credit only to scam you out of your money. To help you learn what to look out for, we’ve detailed how federal law can help protect you, as well as some common red flags exhibited by phony credit repair services.

What does the law say about credit repair?

Due to the potential for predatory practices within the credit repair industry, consumers are protected by the Credit Repair Organization Act, which makes it illegal for a credit repair company to lie about what it can do for you, and to charge you before it has performed its services. This law is enforced by the Federal Trade Commission and prohibits credit repair companies from demanding advance payment, requires contracts be in writing and gives consumers certain contract cancellation rights. Individual states may also have laws that dictate what credit repair services can and can’t do, so you should check and see what the regulations are for your state, if they exist.

What are some credit repair scams red flags to look out for?

On top of having a general grasp of the federal and state credit repair laws, there are also a number of red flags you should look for when verifying the legitimacy of a credit repair company. Here are some of these warning signs.

The company asks you to pay up front

If a credit repair service insists that you pay it upfront, it is likely not a legitimate service, as federal law prevents credit repair services from taking payments from you until it has completed the work its promised to you. If you are charged an initiation or first time work fee, be sure to double-check that it is not deducted from your account immediately — most legitimate credit repair services process these fees about 5 to 10 days after signup. In terms of long-term fees, some credit repair services charge you a flat monthly fee, while others only charge you based on how many items you need removed from your credit reports, but these charges should only happen after the work has been completed. Legal credit repair services should never ask you to pay anything before they start working on your behalf. Some services may require that you pay to obtain copies of your three-bureau credit reports; be sure to watch for any service that says it will pull this information for you rather than having you request the reports yourself and pass them along.

Failure to provide a written contract

When it comes to credit repair, the service you select should explain your legal rights to you as well as what its service will do for you in a written contract. If the company fails to provide this to you, that should raise some serious red flags. Because credit repair services deal with such sensitive information, you should always make sure you get everything in writing before proceeding. Failure to provide a written contract not only breaks the law, but it also puts you at risk of having bogus extra charges leveled against you by the company.

You are promised a new credit identity

Although it is possible to improve your credit over time, your credit identity cannot be completely erased. If a company claims that it can help you “hide” or otherwise erase bad credit history, it’s not to be trusted. Most companies that make this claim are either selling you stolen social security numbers or someone else’s Employer Identification Number, which is another form of identification used by businesses for taxes. So your “new credit identity” that the company has promised is really just someone else’s identity — which would make you guilty of identity theft.

It’s imperative to realize that credit repair services can only help you remove legitimate errors from your credit reports; if there are things such as foreclosures or bankruptcies on your reports, and these are accurate, they cannot be removed. Stay away from services that claim to remove all derogatory marks on your credit history, as only errors or misinformation (such as a misspelled surname) can be removed. Read this blog post to learn more about what goes on your credit reports and how long certain items stay on it.

What should I do if I think I’m dealing with a scam?

If you believe you have encountered a fake credit repair service or a credit repair scam, you can file a complaint with the Federal Trade Commission, report that company to the Better Business Bureau or report it to your state’s Attorney General, since many states have specific laws that help to regulate credit repair services. If you’re looking for help removing errors from your credit reports and want to be sure you aren’t going to be taken advantage of, all of the services we review adhere to the FTC’s rules and regulations. You can read more about these legal credit repair services and see which is best for you by reading our credit repair reviews.