Credit Repair
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How to Recognize a Credit Repair Scam

Updated on:
Content was accurate at the time of publication.

If you have poor credit, you may consider using a credit repair company to help you boost your credit. During your search, you’ll want to beware of credit repair scams that make exaggerated promises and can cost you a lot of money. There are legitimate credit repair companies out there, and here’s what you need to know to avoid credit repair scams.

5 warning signs of credit repair scams

Credit repair scams are avoidable if you know the red flags to watch for. According to the Consumer Financial Protection Bureau (CFPB), the following are signs of credit repair scams. Avoid any company that:

  1. Requires you to pay fees up front

Credit repair companies may want you to pay ahead of time for their credit repair services before doing any work. According to the federal Credit Repair Organizations Act, these companies cannot demand that you pay for services they haven’t yet completed. Some credit repair companies may try to get you to subscribe to a monthly payment plan to get around this law, but this is also illegal.

  2. Doesn’t tell you your legal rights

Some credit repair companies may avoid informing you that you can dispute incorrect information on your credit report yourself for free. You also have the right to end your contract with a credit repair company within three business days of signing for any reason and at no cost.

  3. Asks you not to contact the credit reporting agencies

If a credit repair company asks you not to directly contact any of the credit bureaus — Equifax, Experian and TransUnion — this is a big red flag.

  4. Claims it can dispute accurate negative information

A predatory credit repair agency may promise you that it can successfully dispute all negative information on your credit report, even if it’s true. This cannot be done.

  5. Tells you to dispute accurate information on your credit report

Aside from promising that it can get negative information removed from your credit report, a credit repair company may advise you to dispute information on your credit report that is accurate but negative. While it’s wise to dispute incorrect information on your credit report, factual information cannot be disputed.

3 common types of credit repair scams

Some of the most common credit repair scams are file segregation schemes, credit privacy numbers and tradeline renting. If you participate in one of these illegal scams, you could face criminal charges, end up in prison or face steep fines.

File segregation scheme

Credit repair scammers may encourage you to apply for an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The company will then advise you to apply for credit with the new number. EINs are legitimate identification numbers used for businesses.

Credit privacy number

Beyond making exaggerated promises, some credit repair companies may claim they can create a new identity for you in order to hide your history, which is illegal, according to the Federal Trade Commission (FTC).

Such services may give you a nine-digit number that resembles a Social Security number called a CPN — a credit profile number or a credit privacy number.

Tradeline renting

While it’s perfectly fine to add a loved one as an authorized user on a credit account to help boost their credit score, some credit repair scammers will advise you to pay to become an authorized user on a stranger’s account. Untrustworthy credit repair companies will promise that this practice will improve your score, but in reality, you don’t know how this will impact your credit.

What to do if you’ve been scammed

If you believe you have fallen for a scam, there are two ways to report credit repair fraud:

Contact your state attorney general

According to the CFPB, credit repair companies are subject to federal laws such as the Credit Repair Organizations Act and the Telemarketing Sales Rule, which bars credit repair firms from using deceptive practices and from accepting upfront fees. If you encounter a company engaging in dodgy practices, report it to your local consumer affairs office or your state attorney general.

Report the scam to the Federal Trade Commission

You can also report the fraud to the FTC or call 1-877-FTC-HELP. Although the FTC can’t resolve individual credit disputes, it can take action against a company if it shows a pattern of violating the law.

Are credit repair companies legit?

Consumers are able to repair their credit by themselves for free (read on to learn how). However, if you don’t think you are disciplined enough to do the repair work yourself, you may consider working with a reputable credit counseling firm, many of which are nonprofits.

A credit counselor can educate you on how to get your finances in order. They may help you work out a repayment plan with your creditors or help you keep track of your bills. Keep in mind that there may be fees associated with such services.

To locate a reliable credit counseling firm, check with the Financial Counseling Association of America or the National Foundation for Credit Counseling. You can also find a list of approved credit counselors through the U.S. Department of Justice.

Once you narrow down the field to a few potential credit counseling organizations, the CFPB advises that you check with your state attorney general and state consumer protection agency to determine if any complaints have been filed against the companies on your short list.

Before committing to anything, you should ask the counseling organizations for information about their services and fees. A reputable credit counseling organization can offer education on how to manage your money and debt and can assist you in creating a budget. Legitimate credit counselors will be transparent about their fees and won’t use any of the strategies mentioned above.

How to improve your credit yourself

Rebuilding credit is not easy and won’t happen overnight. However, if you are determined and disciplined, you can see your credit improve over time. Below are some simple steps you can take to improve your credit:

Monitor your credit report

Pull your free credit report and carefully review your lines of credit, debt amounts, payment history and any derogatory marks. It’s possible that incorrect, negative information exists in your file by error, dragging down your score.

You should check your credit report routinely and dispute inaccuracies with the credit bureaus. Visit to receive free copies of your credit report from all three bureaus. Through the end of 2023, you can access your reports once a week at no cost.

Removing errors from your credit report can improve your score, as can reporting good behavior. Make sure your responsible lending behaviors, such as paying bills on time, are reported to the credit bureaus.

Pay bills on time and in full

Your payment history makes up 35% of your credit score. A history of consistent on-time payments is the most significant factor in your credit score calculation. Don’t wait to pay your bills.

If you have a hard time tracking your payments, set up automatic payments through your bank or use a budgeting app. Late payments can remain on your credit profile for up to seven years.

Keep balances low

Don’t max out your credit cards, and try to keep your balances under 30% of your overall available credit limit. Lenders see those with high balances on credit cards and other revolving credit accounts as risky borrowers. They may offer high interest rates and low credit limits, or they may be unwilling to extend credit altogether.

Get a secured credit card

With a secured card, you’ll use your own money as collateral by paying a deposit to your card issuer, often starting at $300. The amount of your deposit will be your credit limit. The card will then operate like a regular credit card.

You can use a secured card as a tool to prove your responsibility and reliability as a borrower by making small purchases each month and then paying them off on time and in full.

Apply for new loans or credit strategically

It’s a mistake to apply for a new credit card or loan each time you need to borrow more. You may end up getting caught in the debt cycle all over again. You should only open new accounts as you slowly rebuild your credit, and the new loans or credit cards should serve the exclusive purpose of building credit. Keep your balances low, and make your payments in full and on time each month.

Spend less than you make

Create a budget, and stick to it. An effective budget will help you make on-time monthly payments and control your spending.

Build an emergency fund

Many people get trapped in the debt hole because they keep supplementing new expenses with more debt. If you build an emergency fund, which typically covers three to six months of necessary living expenses, you won’t have to turn to your credit card when an emergency arises, such as a job loss or a medical crisis.

Saving enough money to cover six months of expenses takes time. However, if you start stashing a little money each month, you will eventually have a cushion to fall back on the next time an emergency occurs, and you can potentially avoid having to borrow even more.

Frequently asked questions

Credit repair scams can be avoided if you know how to identify the red flags. If a credit repair company requires that you pay ahead of time, doesn’t explain your rights or tells you to dispute accurate information on your credit report, you may have encountered a scam.


If you’ve signed a contract with a credit repair company you think may be a scam, you can drop your contract within three business days of signing without facing any financial repercussions.

While legitimate credit repair companies can increase your credit score, credit repair scams can have a negative impact on your credit score. For instance, if a credit repair company charges you to become an authorized user on a stranger’s credit account in a tradeline renting scam, your credit score could decline if that stranger doesn’t behave responsibly.

Legitimate credit repair companies will work with you to dispute information on your credit report in an effort to improve your credit score. Some credit repair companies will help you dispute inaccurate or unverifiable information on your credit report, such as accounts sent to collections. A company that is trying to scam you may try to dispute information on your credit report that is negative but accurate.