How do I choose an ethical credit repair service?

If you've already considered do-it-yourself credit repair and concluded that a credit repair service is the way for you to go, be sure to take some time to do a little research before choosing one.

Unfortunately, an alarming number of companies advertising credit repair services are scams. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. After you hand over the fee, they simply disappear with the money without doing a thing to help you with your credit report.

Do Your Homework

Before engaging a credit repair service, research the company. The Better Business Bureau, your state attorney general's office, and other state consumer agencies are usually a good place to start; this should give you any idea if consumer complaints have been lodged or if any legal actions are pending against the company.

Ask Questions

Find out what the credit repair service is promising. No one can legally remove accurate and verifiable negative information from your credit report, and anyone who promises they can is working a scam. So exactly how are they removing the bad credit items from your credit report? Asking a few questions can help you weed out the bad companies from the potentially good.

If the credit repair service is giving you answers within the bounds of the Fair Credit Reporting Act (discussed in "How do I improve my credit; how long does it take?"), it's a decent bet to be on the up and up. It's when they begin to promise things that just are not possible, and are probably illegal that you should be wary.

Credit Repair Organizations Act

Congress passed the Credit Repair Organizations Act (CROA) to ensure that consumers are given information they need to make an informed decision regarding the purchase of credit repair services, and to protect the public from unfair or deceptive advertising and business practices by credit repair agencies.

The CROA requires that credit repair agencies do the following:

  1. Provide potential clients with a written explanation of the rights afforded by the CROA before a contract is signed, including the consumer's right to contact the credit bureaus themselves.
  2. Provide a written contract which sets forth the services to be performed, any guarantees, and all payment arrangements.
  3. Provide a copy of the contract to the consumer.
  4. Provide a three day "cooling off" period before the contract takes effect and services begin to be rendered.

If the credit agency is not complying with the CROA, you should not be doing business with them. Remember, under the CROA you have a three day "cooling off" period to cancel the contract without paying any fees, and you credit agencies are prohibited from asking you to waive your rights under the CROA (even if they are waived, the waiver is void).

Danger Signals

Beware of the following sure signs of a scam:

  1. Any request for payment before services are rendered. The CROA clearly prohibits credit repair services from charging for their services before they have completed their services.
  2. Promises that all negative information will be removed from your file. Credit repair companies cannot remove accurate records of bankruptcies, judgments liens or bad loans from your file. Most negative information stays on your credit report for seven years, and bankruptcy for ten years.
  3. Any offer to create a new credit identify for you. If the credit repair service advises you to create a new taxpayer identification number for the purpose of applying for credit, run! This is also referred to as file segretation, and is a federal and state felony. Also, if you follow illegal advice and commit fraud, you can be prosecuted yourself.

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