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Five Signs of a Credit Repair Scam
1. Guaranteed Results
Under the Credit Repair Organizations Act (CROA), credit repair companies cannot guarantee results. Here are a few common examples of false promises unethical credit repair companies might make:
- Guarantee a specific score
- Results in a fixed time period
- Removal of all of negative items, even if they are accurate
The CROA prohibits credit repair companies from asking for any payment before they render services. Many scammers know that most consumers don’t know this and, as a result, promise a speedy turnaround on credit repair for a large upfront payment. Some illegitimate credit repair companies may not allow you to cancel unless you pay a fee. All credit repair companies are required by law to give you at least three days to cancel services with them and there is no penalty for canceling.
3. Claims a New Identity is Needed
A credit repair company can’t promise or offer you a new identity. Anyone offering you a new identity is a fraud. Besides guaranteeing results, scammers may try to promise you a clean slate with a new Employer Identification Number (EIN) or a Credit Privacy Number (CPN).
They tell you to use these numbers on your future credit applications instead of your Social Security Number. CPNs are illegal and using EINs inappropriately can land you in serious hot water. We explain more about common credit repair scams below.
4. Don’t Explain Your Legal Rights
Credit repair companies should explain your legal rights to you from the beginning. These are a few common things an unethical credit repair company might do.
- Tells you not to contact the credit bureaus directly
- Doesn’t give you a copy of the contract to review before signing
- Fails to inform you that you can repair your credit yourself without the help of a credit repair company
- Leaves out important information from the contract, like the date services will be executed or the amount you will pay
5. Asks You to Misrepresent Information
Finally, an unlawful credit repair company might ask you to misrepresent your information. This can range from unlawfully using an EIN or CPN number in place of your social security number to claim you are a victim of identity theft when you’re not. This could land you in serious legal trouble.
You’ll most likely see credit repair companies illegally promising results. However, it’s important to familiarize yourself with other scams so you understand what is and is not legal. We highlighted a few common ones below.
- File Segregation Schemes A file segregation scheme is when a company or individual offers to give you an Employee Identification Number (EIN) to use in place of your Social Security Number when you apply for credit. It’s illegal for companies to do this, and it’s illegal for consumers to obtain one to use in place of their Social Security Number.
- Credit Privacy Numbers Like an EIN, a Credit Privacy Number (CPN) is created by scammers to use in place of your Social Security Number when applying for credit. Simply put, a CPN is a fake Social Security Number. Usually, these are created using somebody else’s identity, and using one can be considered identity theft.
- Tradeline Renting Tradeline renting or selling tradelines is when you pay for authorized user status so that the tradeline shows up on your credit reports to improve your score. This doesn’t repair any negative information on your credit, but adding a positive tradeline to your credit report can boost your score. You can land in serious legal trouble if you use a purchased tradeline and attempt to purchase a home with your new credit. In some cases, this is considered mortgage fraud. While this isn’t necessarily illegal, it can definitely get you into legal trouble. There is nothing wrong with a loved one adding you as an authorized user. However, if you pay to “rent” a tradeline from a stranger, you really don’t know how it will impact your credit and it may be a scam to get your money.