While credit counselors are an important part to financial improvement, there are thousands of bogus credit repair companies and scams. I will walk you through the warning signs of these scams, and help you choose reputable credit counselors.
Avoid a Scam and Choose a Reputable Credit Counselor
The number one thing you need to look for is up-front fees. Most monthly credit repair companies make promises about what they are able to do, and charge you a monthly fee between $50-$150. Be weary of these types of businesses. While not all credit repair companies are a scam, many are.
Once you start researching credit repair online, you may find yourself bombarded with targeted and retarget web advertising. This has proven an effective strategy for credit repair firms.
Be extremely careful if:
- Demand for up-front payment: Credit repair companies that advertise are beholden to the Credit Repair Organizations Act that was enacted and signed into law in 1996. Fundamentally, they are unable to request payment upfront and if services are promised, they are required by law to provide a credit report that shows these services having been completed within 6 months of the promise.
- A company states guaranteed removal: This is a red flag for any credit repair company. The same 1996 law indicates explicitly that no 3rd party can guarantee removal, as this falls outside their scope of function. The FCRA clearly spells out what and how items can report on your credit report.
- Advises you to dispute accurate information. Once again, as discussed in multiple articles and pages on this (and many) websites, disputing accurate information is a very poor way to repair credit.
- Purposefully redirects when asked about regulations. The CRO act requires credit repair companies to allow you to back out of your commitment within 3 days. They need to disclose this to you. Additionally, be weary if a company states they can do things you cannot. This is not true. Every element of credit repair is guide by the FCRA, FDCPA and CROA.
- Advises you not to work with the credit bureaus. The credit bureaus are not the IRS and credit repair agencies are not tax preparers. There is no ‘working on your behalf’ in the same manner. You are fully entitled to work with the credit bureaus and your debtors.
These companies have to adhere to many federal laws, including the Credit Repair Organizations Act and which prohibit credit repair companies from using deceptive practices or charging up-front fees. You are entitled to sue these companies if they violate your rights.
How do I find reputable credit counselors?
The US government provides a list of licensed credit counselors. This list of approved credit counselors will help you locate someone local to you. Spend time researching your options with the BBB, and your local state attorneys office.
Lastly, most reputable credit counselors should be willing to send you information on how to handle debt, and your rights under the law, without any promise of payment or understanding of your personal situation.
This article was last updated on May 11, 2022