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Consumer Credit Protection – How to Protect Yourself from Credit Repair Scams

credit repair

Bad credit and credit repair are subjects that would probably interest someone who’s been deep in debt, failed to cope with it, and have seen firsthand its devastating impact on one’s credit score. Perhaps, another appropriate subject to explore in this instance is consumer credit protection.

Any professional financial adviser would tell you that the only surefire ways to repair bad credit is to repay what you owe (in full or through a debt repayment plan with a debt settlement company, for example), show ideal borrower behavior (if you obtained a new credit line), and wait for time to perform its healing effects on your battered credit.

For those who want to see results overnight, there are credit repair companies who promise you just about anything to get you to sign up for their services. Stop!

If you’re thinking of doing business with a credit repair company right now, here are a few things you might want to know to avoid becoming the hapless victim of these credit repair scams.

Companies That Promise To Make Your Bad Credit History Magically Disappear

We’ve seen a lot of these flashy ads by some shady credit repair companies promising to totally clean up your credit history or furnish you with a brand new squeaky-clean credit identity. It might be tempting to some people to do a virtual reboot of their credit standing and have a fresh start but the Federal Trade Commission (FTC) in their consumer credit protection website identified these as nothing more than elaborate credit repair scams.

Typically, a transaction with these companies will go down like this. After you pay them, they will send you a 9-digit number that mimics a Social Security number referring to it as a ‘credit protection number’ or a ‘credit privacy number’ (CPN). You’re supposed to use this clean number to apply for a new credit account and start building your credit from there. The problem is that these companies might actually be selling stolen Social Security numbers! It’s illegal to misrepresent your Social Security number using one of these or intentionally submit false information on a credit or loan application and you could get into a lot of trouble if you try to cut corners with these companies.

Another common scheme is for these companies to advise their customers to apply for an Employer Identity Number (EIN) with the Internal Revenue Service (IRS) and use it for credit applications. While the EIN is a legit number, as noted in the FTC consumer credit protection page, it’s illegal to apply for the number under false pretenses and you could face prosecution if you follow the advice of these companies.

Credit Repair Scams: The Signs

On your own, you can implement your own consumer credit protection steps and avoid getting victimized by these scam companies. Here are some ‘red flags’ to look out for when doing business with an organization that offers to repair bad credit quickly:

  • Pay to play. The FTC suggests to be wary of any company that asks for advanced payment before they will start the process for you.
  • No contact with the bureaus. Look closely if a company tells you not to get in touch with the credit reporting agencies (Experian, Trans Union, Equifax) directly.
  • Reconsider doing business if a company asks you to contest credit information in your report even if you’re sure those are accurate.
  • Dig deeper if a company omits or refuses to tell you your legal rights in your business dealings with them.
  • Walk away if a company tells you to lie or misrepresent yourself in any credit or loan application.

Consumer Credit Protection Rights

According to the FTC, the Credit Repair Organization Act prohibits these credit repair companies to lie about the services that they offer and to ask for any advanced payment. They are also required by law to explain your legal rights in a written contract, your right to stop doing business with them, the time frame to get any results, the costs to you, and any applicable guarantees.

Finally, you are within your consumer credit protection rights to sue the company for actual losses if they fail to deliver on the promised results, you can join a class action lawsuit, or you can sue for punitive damages.

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