How to Recognize a Credit Repair Scam

Key takeaways

• Some credit repair companies scam consumers by guaranteeing credit improvements without delivering results.
• Credit repair company scams often involve shady or outright illegal practices like credit washing or disputing accurate information on your credit report.
• Watch out for companies that ask for money right away, advise you to break the rules, make specific or unrealistic promises and pressure you to work with them.

What is a credit repair scam?

Credit repair scams target people with bad credit. Companies running these scams promise to improve your credit in exchange for an upfront payment. Some of them take your money and run, while others advise you to do things that toe the line between legal and illegal.

Some credit repair services are legitimate, but many seemingly reputable companies run credit repair scams on unsuspecting people. Here’s how to tell the difference between a legitimate credit repair company and one that just wants your money.

Warning signs of credit repair scams

Asking for money right away

It’s illegal for a credit repair company to ask for money before attempting to help you fix your credit. The Credit Repair Organizations Act requires credit repair companies to fully complete their services before asking for or accepting payment.

If a company asks for an upfront payment or requires you to sign up for a monthly payment plan before you’re done working with them, walk away. This is illegal, and scammers will often disappear once you’ve made a payment.

Advising you to break the rules

Some credit repair scammers do provide services, but they advise their clients to engage in activity that is borderline illegal.

Be on the lookout for credit report repair services that recommend or practice credit washing. Credit washing is filing a false report of identity theft in order to get negative information removed from your credit report. This can lead to a temporary boost in your credit score, but it is fraud.

Also, be wary of companies that advise you to use a credit privacy number (CPN) instead of your Social Security number to hide your real credit history and get access to a loan or credit card. This is illegal. Using a CPN could be engaging in identity theft, since the number may be a stolen SSN.

Making specific or unrealistic promises

If it sounds too good to be true, it probably is. If a company promises a precise (or huge) credit score improvement or guarantees to remove accurate information from your credit report, you’re probably dealing with a scammer.

Legitimate credit repair companies recognize that improving your credit score takes time and patience, and it’s very unlikely that they will make guarantees or promises beyond helping you negotiate your debts and creating an action plan to improve your credit.

Recommending that you avoid contacting the bureaus

Real credit repair companies can and will negotiate your debts on your behalf and request your credit reports from the three major credit bureaus, but be wary of any companies that tell you not to do any of this work yourself.

Legitimate credit repair services are a great resource for people who are overwhelmed and unsure about how to tackle their debt and improve their credit, but these companies can’t do anything more than what you can do on your own.

A sense of pressure or urgency

If the credit repair company uses high-pressure sales tactics, like telling you they’re the only company that can help you resolve your credit issues or that you have to act now, run. You can improve your credit on your own by disputing inaccuracies in your credit report and negotiating your own debts.

Finding legitimate credit repair companies

If you need help improving your credit and want to work with a credit repair company, here are a few steps you can take to make sure you’re working with a legitimate, reputable organization.

1. Use Google and Reddit. Your favorite search engine or online forum can help you weed out scammers. Just type “Is ____ a scam?” into the search bar. If there are a lot of results, you have likely found yourself a scammer and should move on.
2. Check for violations. Use the Consumer Financial Protection Bureau’s complaint database and the search engine on the Federal Trade Commission’s website to see if a credit repair company has a history of violating laws that protect consumers.
3. Consider working with a credit counselor. Credit counseling agencies are different from credit repair companies. They’re typically nonprofit companies that help you manage your debt as well as your credit score. In contrast, credit repair companies are usually for-profit and only focus on improving your credit. You can find a reputable credit counselor through the Financial Counseling Association of America or the National Foundation for Credit Counseling.