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How to Avoid Credit Repair Scams and Credit Score Ripoffs

02/09/2015 02:31 pm ET | Updated Apr 09, 2015

Like millions of Americans, you may have started out the new year with some great resolutions for self-improvement. You could be looking into some ways to better your physical or financial health, to lose a few pounds from the holidays or perhaps an inch or so here and there. It is always great to aim for goals of self-improvement, unfortunately, there are all too many predatory companies and scam artists who want to turn your commitment to better yourself into a quick profit for themselves. And just as you should steer clear of anyone trying to sell you a diet that has you eating only foods of a particular color, such as the "Green Polkadot Food Diet", you should also know how to avoid today's many clever credit repair scams.

The Better Business Bureau (BBB) notes that credit repair scams promise a quick-fix for the sort of credit woes that prevent people from either obtaining a mortgage or a car loan or instead compel them to pay a high interest rate for those loans. In exchange, these local and national companies vowing to provide a clean bill of credit health charge upfront fees as high as $250 - and sometimes follow those up with additional monthly charges as well.

Short of being an outright scam, companies that charge for credit repair are almost always just plain bad deals for consumers. This is true of even many law firms (for the record, I've also never been a big fan of Lexington Law that markets aggressively online).

How to Avoid Credit Repair Scams

As the BBB makes clear, these credit repair scams do nothing more than make already financially vulnerable people's situations even worse. "No one can make bad credit scores simply disappear," says a BBB statement. "After consumers pay these companies hundreds or even thousands of dollars in upfront fees, frequently these companies do nothing to improve your credit report and many simply vanish with your money."

In fact, the Federal Trade Commission (FTC) lists the many signs of a credit repair scam that consumers should watch out for. At the top of the list is a request by so-called credit repair companies that you pay them before they will do any work on your behalf. This is illegal. Other signs of a credit repair scam include if your told not to directly contact the credit reporting companies - Experian, TransUnion and Equifax - that maintain credit reports and calculate credit scores. The FTC also advises avoiding any company that urges you to dispute information included in your credit report that you know is correct or tells you to provide false information on a credit application.

Things to Watch Out For

  • Company asks you to pay up front before any work is done - a big red flag
  • Being told not to directly contact the credit reporting companies: Experian, TransUnion and Equifax - it's your information, your should contact them directly when there are problems with YOUR credit
  • Urges you to dispute correct information in your credit report
  • Tells you to provide false information on a credit application - hmmm...

Free Things You Can Do to Improve Your Credit

  • Take advantage of the legal right to access and check your credit report for free once per year - go to AnnualCreditReport.com or call 1-877-322-8228 - you can get a copy of your report from each of the three reporting companies.
  • Dispute any errors you find on your credit report (for FREE using the process outlined by the credit reporting companies). Many reports do have errors.
  • Get a copy of your free credit score from sites like WisePiggy.com. These sites typically include tips on ways to boost your score for free.

    Also, several card issuers, such as Discover, also offer free FICO scores to their card members. And Bank of America, Chase and Citibank plan on offering free FICO scores later this year.

  • Create a personal debt repayment plan and stick to it.

Before Signing the Dotted Line

The service may sound good (if it sounds too good to be true, then it probably is) and they may promise a quick fix that will help you improve your credit score, but before you use a company's credit repair services, do some research with the BBB, FTC, and your state's attorney general to find out if there are any existing complaints. Following one piece of advice can spare quite a bit of headache down the road: avoid the companies that consumers have already complained about.

Alternatives to Paying for Credit Repair

Truth is, improving credit doesn't happen in a hurry. Get familiar with the factors that influence your credit score. The self-help approach is my favorite approach and usually the most effective and, not surprisingly, the cheapest approach. Getting a secured credit card can also be an effective way to build a positive credit record (avoid secured cards with annual fees above $50 and rates above 15%).

If you come across errors that are harming your credit, take the time to dispute them. You only need to write the credit bureau (you can usually dispute online too) and provide them with the correct information. Although a credit repair company may try to encourage you to dispute correct information, when the information is correct, you don't have the legal right to dispute it and neither does a credit repair company.

What to Do If You've Been Scammed

If you've been scammed, don't let so the credit repair scammers get away with it! You have rights and you are encouraged to take action if you feel your rights have been violated. Start by reporting the organization to your state attorney general.

Protecting Your Credit Score: The Bottom Line

Watching and working to improve your credit score can save you hundreds or even tens of thousands of dollars in interest charges over time (a good score is often defined as around 720 or higher). The difference in additional costs for for consumers with poor credit scores can really add up over time. Shane Tripcony, co-founder of BestPrepaidDebitCards.com, gives an example of some extremes one may find in the credit marketplace. "Poor credit can be very costly resulting in card rates as high as 36% and annual card fees up to $170 on cards like the First Premier Bank Card! This is in stark contrast to a card like the Simmons First Visa card (designed for folks with excellent credit and one of our site sponsors) that has an ongoing rate of only 7.25% and no annual fee."

One can see that the differences can be substantial, and it pays to repair your score, especially over time. "If your credit is less than golden, there are steps you can take to repair it on your own, at no cost," says the FTC. "Only time and a personal debt repayment plan will improve your credit." Although there is no silver bullet quick fix, it is definitely worth the time and trouble. It's not uncommon to legally see increases of 50-100 points in your credit score within a 12-18 month time frame..if your proactive. Good luck! :-)

Written by Curtis Arnold. Curtis, a nationally recognized consumer advocate, is the founder of BestPrepaidDebitCards.com, which provides ratings of prepaid cards and secured credit cards. He also founded CardRatings.com almost 20 years ago.

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