Credit repair scams: warning signs and your rights

Did you see an ad promising to raise your credit scorecredit scoreA credit score is a number that predicts how likely you are to pay back a loan on time. It is computed from the information in your credit report: whether you pay on time, how much you owe relative to your limits, how long you have used credit and how many new accounts you opened. FICO is one brand of score; VantageScore is another, and each lender decides which one it uses. A higher score usually brings a lower interest rate and more loan options; each program publishes the minimum it accepts. You can check your report for free and dispute errors.See the full definitionClose in days or “erase” debts from your report? This guide is for you, and for anyone who already signed up or paid. It explains what credit repair companies can and cannot do, what the law requires before they charge you, how to cancel, what you can do yourself for free and where to find help at no cost.

What they can charge you before the service is complete

$0⁶

To cancel the contract without penalty

3 business days⁹

Disputing an error yourself with the credit reporting company

Free³

To sue a company that breaks the law

5 years¹²

What “credit repair” companies do

According to the CFPB, these companies promise to fix your credit or raise your scores, typically by doing things you can do yourself for free. They advertise heavily on social media. The usual approach is to look for negative items on your credit reportcredit reportA credit report is a statement that has information about your credit activity and current credit situation: your loans and cards, the balances, whether you have paid on time, accounts in collection and who has checked your credit. Credit reporting companies, also called credit bureaus, compile it from what banks and creditors report; your credit score is computed from it. When you apply for a mortgage, the lender pulls your report from the three bureaus. You have the right to see it for free and to dispute anything that is wrong.See the full definitionClose and send disputes to the credit reporting companiescredit reporting agencyA credit reporting agency, also called a credit bureau or credit reporting company, is a company that gathers information about people and sells credit reports to other businesses. The three nationwide ones are Equifax, Experian and TransUnion. The businesses that buy those reports use them to decide whether to give you credit, a job, a rental home or insurance. There are also specialty agencies, for example for rental history or check writing. The federal Fair Credit Reporting Act (FCRA) gives you the right to request a copy of your report and to dispute information that is wrong.See the full definitionClose (Equifax, Experian and TransUnion).¹

Here is the catch. If a reporting company decides a dispute is “frivolous,” for example because it gets many identical or formulaic ones, it does not have to investigate. And if the company disputes items that are accurate, they may disappear while being verified, but they come back: your scores can rise and then fall back. Many companies charge a monthly fee that they justify by disputing the same items over and over.¹

Under the law, a credit repair organization is anyone who charges you to improve your credit historycredit historyYour credit history is the record of your credit accounts and of whether you paid them on time, as shown in your credit report. Credit reporting companies collect and update this information and provide it to other businesses, which use it to make decisions about you. A good history helps you get housing, bank accounts, cards and loans, and lowers the interest you pay. If you have no history, or very little (a thin file), there may not be enough information to produce a score. Paying with a debit card, cash or a prepaid card usually does not build it.See the full definitionClose or to advise you about it. The definition excludes nonprofits exempt under section 501(c)(3), a creditor helping you restructure what you owe it, and banks and credit unions.⁵

What no one can do: remove what is accurate

The law is clear: neither you nor any “credit repair” company has the right to have accurate, current and verifiable information removed from your report.⁷ According to the CFPB, no one can do it.³ Accurate negative information, such as a collection accountcollection accountA collection account is a past-due debt that the original creditor (the company that gave you the loan or credit) handed to a debt collector or sold to another company. A debt collector is a person or company that regularly collects debts owed to others, such as a collection agency, a lawyer or a debt buyer. The account can show up on your credit report; once you pay it, it should generally show a zero balance as a paid collection. Most negative information can be reported for up to seven years. If you think you do not owe the debt or the amount is wrong, you can dispute it with the collector and with the credit reporting company.See the full definitionClose, a charge-off, a judgment or a late payment, stays on your report for seven years from the last activity or first delinquency.¹

What does get fixed is errors. Reporting companies remove inaccurate, incomplete or unverifiable items, whether you or a company sends the dispute.¹ So it only makes sense to dispute what is wrong. Our guide on how to dispute credit report errors walks you through filing that disputecredit report disputeA credit report dispute is the complaint you make when your credit report has wrong or incomplete information. You have the right to dispute it, and the investigation is free. It is usually done in two places: with the credit reporting company and with the company that supplied the information, called a furnisher, such as your bank, your landlord or your credit card company. You explain in writing what is wrong and why, with copies of your documents. The credit reporting company must investigate, generally within thirty days, and delete or correct anything found to be inaccurate, incomplete or unverifiable.See the full definitionClose yourself.

The warning signs of a scam

According to the CFPB, be wary if the company:³

• Pressures you to pay before doing the work. The simple rule: do not pay upfront.
• Guarantees your score will go up by a specific amount.
• Promises to remove negative information from your report even if it is accurate and current.
• Asks you to dispute your whole report, even if it is correct.
• Does not explain your rights or what you can do for free.
• Tells you not to contact the credit reporting companies.

The CFPB adds that some companies set up monthly payment plans to get around the ban on upfront fees, and that every form of payment before the service is completed is illegal.³ If the company sold to you by phone, the rule is even stricter: it cannot charge you until the time frame it promised has passed and it gives you a credit report showing the results, issued more than six months after they were achieved.¹³ That is why some call their charge a “subscription fee.”¹

What the law requires before they charge you

The Credit Repair Organizations Act (CROA) sets clear rules, in this order:

If you hire a credit repair company

1. 1. You get your rights in writing

   Before you sign

   A statement titled “Consumer Credit File Rights Under State and Federal Law,” which says you can dispute on your own and that no one can remove accurate information.⁷

2. 2. You sign a written, dated contract

   Before any service

   It must state the total of all payments, the services with their guarantees, how long they will take, and the company's name and address.⁸

3. 3. You get copies and the cancellation notice

   When you sign

   A copy of the contract and of your rights, and the “Notice of Cancellation” form in duplicate.⁹

4. 4. You can cancel without penalty

   Until midnight of the third business day

   Until those 3 business days are over, the company cannot start providing services.⁸

5. 5. They do the work

   After the 3 days

   They cannot charge you anything until the service is complete.⁶

6. 6. If they sold to you by phone

   More than 6 months after the results

   They can charge only after the promised time frame has passed and they give you a credit report showing the results.¹³

On top of that, any waiver of your rights under this law that you sign is void, trying to get you to waive them is a violation, and a contract that does not comply with the law is void and cannot be enforced.¹⁰

What you can do yourself, for free

Disputing errors on your report is a free right, and you do not need to pay anyone to do it.³ You can notify the credit bureau in writing that you dispute an item, and it must reinvestigate without charging you.⁷ To start, see your three reports for free every week at AnnualCreditReport.com or by calling (877) 322-8228. Be wary of other sites claiming to offer “free” reports: some bill you later for services you have to cancel.¹⁴

Example with real numbers

What it costs to fix your credit on your own

Compared with what a company may charge, this is what it costs to do it yourself.

Seeing your three reports at AnnualCreditReport.com

Free, every week

Disputing an error with the credit reporting company

Free

Paying a credit repair company upfront

Banned by law

Canceling a contract within 3 business days

No penalty

What you need to pay to fix an error

Nothing

Free weekly reports.¹⁴ Disputes at no cost.⁷ Upfront charges banned.⁶ Cancellation without penalty.⁹ Only inaccurate items get fixed; accurate ones stay.¹

Run it with your numbersCredit plan

If you have no credit history or are rebuilding it, the CFPB reminds you there are no shortcuts to a strong history or high scores.¹ Our credit from zero guide explains how to start, and how to read your credit report helps you spot errors.

Three paths with your credit and your debts

Usually for-profit

Credit repair company

• Charges for things you can do yourself for free.¹
• Often promises a quick score increase and charges a monthly fee.¹
• Cannot charge you before the service is complete.⁶

Usually nonprofit

Credit counseling

• Advises you on your money and debts, with free materials and workshops.¹
• Can set up a debt management plan; does not erase debts.¹
• Never advises you to stop paying your debts.¹

No cost

You, on your own

• You see your reports for free every week.¹⁴
• You dispute errors directly with the credit bureau, at no cost.⁷
• Bureaus remove inaccurate items no matter who disputes them.¹

An error you can fix yourself for free; what is accurate, no one can remove.⁷

If you have debts: counseling, settlement and consolidation

A credit counseling organization is usually a nonprofit. It advises you on your money and debts, and it can set up a debt management plan: you make one payment to the organization and it pays your creditors. It may charge fees, works to lower your monthly payment and never advises you to stop paying.¹

To find one, the CFPB points to the Financial Counseling Association of America, the National Foundation for Credit Counseling and the U.S. Department of Justice list of approved credit counselors. Check with your state attorney general that it is reputable. A reputable organization sends you free information without asking for details about your situation. Get the fee quote in writing, do not sign anything without reading it and, if you choose a plan, confirm with your creditors that they accepted it before sending payments.⁴ A HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose also advises on credit issues, often at little or no cost.¹⁵

Debt settlement companies are something else. The CFPB warns that dealing with them can be risky: they often charge expensive fees, encourage you to stop paying your cards (which adds fees and can lead to lawsuits) and many cannot settle everything, so you can end up deeper in debt.² They could be breaking the law if they charge you before settling at least one of your debts, before you agree to the settlement and before you make a payment under it. If part of a debt is forgiven, you could owe taxes on that amount.¹

A debt consolidation loan combines your debts into one payment. But the low rate may be a teaser that rises later, and a lower payment may simply mean paying for longer: overall you might pay more.¹

If this is you

You have no credit history and are offered “fast” credit

There are no shortcuts to a strong history.¹ Start with our credit from zero guide.

You want to raise your score before applying for a mortgage

Disputing accurate items can make them disappear for a while and come back, and your score can rise and fall back.¹

You have many debts and cannot keep up

A non-profit credit counseling service can help with a budget and a debt management plan.²

You need to improve your credit urgently

Even if you are in a hurry, do not pay upfront: pressure to pay first is a scam warning sign.³ Before you sign, you must get a written, dated contract.⁸

If you already signed or paid

If you signed recently, you can cancel without penalty before midnight of the third business day after signing. Use the “Notice of Cancellation” form that came with the contract, signed and dated, or any other written notice, and keep a copy.⁹

If you already paid upfront or the company did not deliver, the law protects you. A contract that does not comply with the CROA is void.¹⁰ You can sue the company for the greater of your damages or what you paid it, plus any punitive damages the court allows and, if you win, costs and reasonable attorneys’ fees.¹¹ You have 5 years from the violation to sue.¹² You can also submit a complaint to the CFPB.³ If you want guidance at no cost, our free legal aid guide explains the options; it is an option, not an obligation.

Costly mistakes

• Mistake: Paying upfront to “clean up” your credit.

  Instead: The law bans charging before the service is complete, including through monthly plans.³

• Mistake: Letting a company dispute your whole report, even if it is correct.

  Instead: Dispute only what is wrong; accurate items come back and the dispute may be treated as frivolous.¹

• Mistake: Signing without reading or getting your rights in writing.

  Instead: Ask for the rights statement and the dated contract before you sign, and keep your copies.⁹

• Mistake: Letting the 3 business days pass without deciding.

  Instead: If you have doubts, cancel in writing before midnight of the third business day.⁹

• Mistake: Stopping payments on your cards because a debt company told you to.

  Instead: Fees and interest pile up and you can be sued; look for a non-profit credit counseling service.²

• Mistake: Using “free” report websites that ask for your card.

  Instead: The reports that are free by law are at AnnualCreditReport.com or (877) 322-8228.¹⁴

What to do this week

1. Get your three free reports at AnnualCreditReport.com and mark anything that is wrong.¹⁴
2. Dispute each error yourself with the credit bureau, in writing; it is free.⁷ Organize the steps with the credit plan.
3. If you signed with a company in the last 3 business days and want out, send the cancellation notice today.⁹
4. If you already paid upfront, gather the contract and receipts, and submit a complaint to the CFPB.³
5. If your debts are overwhelming, look for a non-profit credit counseling service and check its reputation with your state attorney general.⁴ The family budget tool helps you see how much you can pay each month.