Looking for a Credit Repair Company? Here are 4 Red Flags to Avoid Getting Scammed.
Your credit score is incredibly vital. In fact, it might be the most important three-digit number in your life! The better your credit score, the more easily you’ll be able to get loans with good terms. Unfortunately, the reverse is also true: The lower your score, the more often you'll be stuck with predatory payday loans with APRs of 400% or higher!
Fixing your credit score on your own can be a challenge, so you might consider enlisting the help of a credit repair company. If the price is right, a credit repair company can be worth it. A better credit score will save you money in the long run in the form of lower interest rates, so it is possible that the service can end up paying for itself.
But you have to be very, very careful when it comes to choosing a credit repair company.
First, figure out where your finances stand.
Before you start shopping for credit repair companies, you’re going to need a good picture of where your own finances are at. After all, if you don’t know what your own financial picture looks like, how can you protect yourself from getting scammed?
“First things first,” advised Justin Lavelle, Chief Communications Officer for BeenVerified.com, “determine your income and expenditures. If your income is not consistent, use the average monthly income to calculate.
"Expenditures are all the things you are responsible for paying for with your income: food, rent, utilities, insurance, and also your debt—credit card bills, car payments, medical bills, and anything else you are expected to repay.
"Next itemize your debt. When you work with a credit repair company, they will want to know how much of your debt is consumer debt and how much isn’t. Many times, companies will help you only if you have over $X thousand dollars in consumer debt. That means someone with a $500 credit card bill and $3,000 in medical bills will have different options than someone with the opposite debts.
"Know what you have to recover from before you begin. It may be daunting, but it is the best first step toward improving your credit score.”
Now that you’ve got a picture of your finances, it’s time to roll out the red flags! Here are the things you do and do not want to see from potential credit repair companies.
1. Check BBB ratings and online reviews.
Much like finding a restaurant, you’re going to want to use online reviews when determining which credit repair company to reach out to. Odds are if they’ve been scamming people, at least some of those people have been speaking up online.
“Once you know what you are up against, look at your repair assistance options,” Lavelle told us. “Make use of the Better Business Bureau’s search feature for your community and nationally. Check for the highest ratings, and then look at their complaints and conflict resolution documentation.
"The company you choose should have the best ratings, several years of successful and unblemished business history, and excellent conflict resolution practices. It’s fair to say people are angry or frustrated when they complain, but they aren’t necessarily wrong. How the company responds is a key piece in understanding what working with them will be like.”
2. Don’t give up your rights.
Speaking of looking for a restaurant, imagine that there was a restaurant that made you sign a waiver before you eat saying you wouldn’t sue them if you got food poisoning. You’d probably choose another restaurant, right? Well, some credit repair companies will try and pull a similar trick, and it’s a big red flag to watch out for.
3. Watch out for form letters, pre-pay, and promises to remove truthful (but damaging) information.
But that’s far from the only red flag Petersen advised looking out for. He told us you should be wary “if the credit repair company asks you to pay them before you've received the results of the dispute showing that the credit bureau removed or corrected the account tradeline.”
He also suggested that if something sounds too good to be true, it probably is. He told us it’s a red flag “if the credit repair company tells a consumer that they can remove information which is truthful concerning events which occurred within the past seven years. Consumers can dispute information even if it’s truthful but the information often reappears soon after they've disputed it. Some credit repair companies lodge a second dispute near the end of the 30 day dispute period so that the credit bureau will suppress the account tradeline while the *second* dispute is pending and then falsely tell the consumer ‘see, I removed it’ in order to be paid.”
Finally, Peterson warned against companies that try to use form letters rather than addressing your specific situation, telling us you should steer clear “If the credit repair company uses ‘template’ letters which contain little (if any) information to explain why the account information is false or misleading. For example, one huge so-called law firm routinely disputes ‘account included in bankruptcy’ by saying ‘I never filed bankruptcy, please remove this account.’ Of course that robs the consumer of the best weapon they have (their bankruptcy discharge and the bankruptcy court's sanctions powers) but it's easier (and far more profitable) to tell consumers what they want to hear and ‘scale’ using non-lawyers and a template letter.”
As mentioned above, doing some online research can help you determine if the company you’re considering uses practices like these.
4. Take proper precautions.
Even if you’re reasonably certain you’ve found a legitimate company to help you fix your credit, you should still take steps to protect yourself.
“Always ask for the name of anyone you speak to and write it down along with the date, time, phone and extension each time you communicate with the agency you choose,” suggested Lavelle. “Be sure to clarify verbally and in writing any and all terms offered to you. If you begin a process and things don’t line up, don’t click send on the payment screen. Stop and report your concerns to the company and authorities if necessary.
“Sign up for free credit monitoring through another service. This serves as a check and balance to be sure the commitments are being upheld by all parties involved in your credit repair process.”
You don't need a credit repair company to fix your score.
Before considering a credit repair company, it’s worth figuring out if you could fix your credit score on your own without having to pay anyone.
The first step to fixing your credit is paying off your outstanding debts to the best of your ability, while still covering your day to day needs. One strategy you can use to overcome those debts is called the debt snowball.
To utilize that strategy, you put aside some money each month in addition to the minimum payments you have to make on your various debts. You add that money to the minimum payment you make on your smallest debt. Then when that debt is paid off, you take all the money you were putting into that debt and start putting it into the next smallest debt. With every debt you pay off, the amount you're putting towards each subsequent debt gets larger.
It’s like rolling up all your debts into a big snowball which you can then use to create a snowman which represents your new, better credit score. And because this snowman is metaphorical, it won’t melt when spring comes!
Payment history is the #1 factor in your credit score.
In order to fix your credit score, you’ll also want to start paying your bills in full and on time. Your payment history makes up 35% of your score, more than any other factor—although the total amount you owe is right behind it at 30%.
Payment history is so important that not carrying any debts at all could even cause your score to lower. That's why it's important to spend money regularly on your credit card so that you can pay it off in full every month.
If you can't get approved for a regular credit card, then getting a secured credit card, which requires you to put up some cash as collateral, can be a good way to start building your credit. As long as you’re paying your bill in full, and on time of course. Seriously. We cannot stress that enough.
In addition to credit cards, most debt payments—like student loans, auto loans, mortgage loans, etc.—report payment information to the bureaus. However, many bad credit loans—like payday loans, "cash advance" loans, and title loans—do not.
Having low credit will always put you in a position to be taken advantage of. But stay vigilant and you’ll be able to improve your credit score, whether or not you need the help of a credit repair company.
Justin Lavelle is a Scams Prevention Expert and the Chief Communications Officer of BeenVerified.com (@BeenVerified). BeenVerified is a leading source of online background checks and contact information. It helps people discover, understand and use public data in their everyday lives and can provide peace of mind by offering a fast, easy and affordable way to do background checks on potential dates. BeenVerified allows individuals to find more information about people, phone numbers, email addresses and property records.
Donald Petersen is an Orlando, Florida trial lawyer who represents consumers against companies who violate their rights under the Telephone Consumer Protection Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act and other consumer protection laws.