Table of Contents
What is Credit Repair Fraud?
Can My Credit Be Cleaned Up?
Questionable Practices
Credit Laws
Self-Help
Free Credit Reports
Negotiating Debts, Payment Plans and Credit Counseling
Debt Settlement Companies
How Credit Counseling Works
How to Evaluate Counselors
Reporting Credit Repair Fraud
Credit repair fraud occurs when companies offer you the service of cleaning up your credit report for a fee (typically $50 or more), but then do little or nothing to repair your credit before vanishing.
“Credit problems? NO problem!”
“We can ease your bad credit! 100% guaranteed.”
“We can remove bankruptcies, judgments, liens and bad loans from your credit file, FOREVER!”
“Create new credit identity – legally!”
Be careful, these types of promises are generally false.
If a credit repair company promises to remove negative information from your credit report, the company is not telling the truth. Generally, you can change only incorrect information or remove negative items appearing on your credit report after a seven-year (or, in some cases, 10-year) reporting period. If you have a poor credit history, the only way you can heal your credit report, other than deleting incorrect or expired information, is by making timely payments on your debts over time. Some credit repair schemes promise that they can “hide” bad credit by helping you establish a new credit identity. For a fee, some schemers may ask you to file for an Employer Identification Number (EIN) to use in place of your Social Security number. Be careful; this practice is called “segregation,” and it is illegal.
In determining whether a credit repair company is legitimate, be particularly wary of companies that do or say the following things, none of which are in your best interest:
The Federal Trade Commission (FTC) and the Florida Office of the Attorney General both enforce federal and state credit laws designed to protect your right to receive, use and maintain credit. These laws, however, do not guarantee that you will receive credit. Instead, these laws protect your rights by requiring businesses to give you a fair and equal opportunity to get credit and to resolve disputes over credit issues.
Federal consumer protection laws include:
The Credit Repair Organizations Act – requires credit repair organizations to give you a copy of your rights as a consumer before you sign a contract. They also must give you a written contract that spells out your rights and obligations, and they cannot require you to pay them until they have delivered the promised services.
The Fair Credit Reporting Act (FCRA) – promotes the accuracy, fairness and privacy of information maintained by consumer reporting companies.
The Equal Credit Opportunity Act (ECOA) – prohibits creditors from discriminating against applicants on the basis of sex, race, color, marital status, religion, national origin, age, receipt of public assistance or prior exercise of any rights under the Consumer Credit Protection Act
The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) – establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements (in other words, credit cards and debit cards).
The Fair Debt Collection Practices Act (FDCPA) – which prohibits debt collectors from using unfair, deceptive or abusive practices to collect debts from consumers.
Some of the federal consumer credit laws allow you to file your own claim against the offending business or organization (for example, against a debt collector under the Fair Debt Collection Practices Act).
Florida’s state consumer protection laws are even more protective of its consumers than Federal law. Some of those law include:
Florida Deceptive and Unfair Trade Practices Act (FDUTPA), which protects consumers from unfair, unconscionable, or deceptive acts in various types of transactions, including false or misleading advertisements and schemes.
Florida Consumer Collection Practices Act (FCCPA), which is the state version of FDCPA which prohibits debt collectors from using unfair, deceptive, or abusive practices to collect debts from consumers. The FCCPA is more broadly defined and construed more favorably to consumers.
You can help yourself repair your credit record. Start by contacting your creditors as soon as you realize you cannot make a payment. Obtain free copies of your credit report from each of the main credit reporting agencies (TransUnion, Experian and Equifax). Review your credit reports for accuracy, and dispute any incorrect or outdated information in your credit reports. While tedious, taking these steps can help you obtain the same results as a credit repair company, and for free.
Everyone is entitled to one free credit report per year, from each of the three major credit reporting agencies (TransUnion, Experian and Equifax). You can request your reports online or by calling 877-322-8228. You are not required to buy or pay anything to receive your free credit reports through this source authorized by the federal government. In addition, you are entitled to a free credit report if you respond within 30 days to a letter from a creditor denying credit. If you are denied insurance or employment, you are entitled to a free report within 60 days of notice. However, you must be able to show that you are unemployed (but will seek employment within 60 days) or on welfare, or that your report is inaccurate because of fraud.
Are you living paycheck-to-paycheck? Are you worried about debt collectors? Maybe you can’t seem to develop a workable budget, let alone save money for retirement.
If this sounds familiar, you may want to consider the services of a credit counselor. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But beware; just because an organization says it is “nonprofit” doesn’t mean that its services are free, affordable, or legitimate.
There are many resources available for free online to help you budget. One of the easiest ways to budget is to freeze or destroy your credit cards and live on a cash basis, putting aside your money for the week in individual envelopes (for example, “Groceries,” “Transportation,” “Entertainment”) and not going beyond what you have set aside.
If you would like help working out a payment plan and a budget, contact your local nonprofit credit counseling service. These nonprofit groups offer credit guidance to consumers, and their services are available at little or no cost to you. Your credit union, housing authority or employer may also offer credit counseling services. If you are asked to pay anything, make sure you get a quote in writing setting forth the total payments and services you will receive. You also can ask to see the nonprofit’s certification information.
Debt settlement companies promise they will settle your debt for pennies on the dollar, for a fee. You’ve seen their ads: “I had debt of $80,000 and they settled it for $1,000; call now for information.” Beware of debt settlement companies. Because of the Federal Trade Commission’s investigation into unscrupulous debt settlement companies, new regulations now require these companies to actually do the work they promise.
Debt settlement companies must make certain disclosures before you sign a contract with them, including how long it will take to get results and how much it will cost you. Debt settlement companies may NOT collect any fee from you upfront. Rather, they must “earn” the fee first, meaning they have to fully perform under the contract before you must pay them.
An initial counseling session typically lasts one hour and includes an offer for follow-up sessions. If a firm doesn’t send you free information about itself, consider it a red flag and go elsewhere for help. Likewise, if you can’t meet with someone in person, it is probably not a good idea.
For a referral to a reputable credit counselor, contact the nonprofit National Foundation for Credit Counseling or call 800-388-2227.
Make sure all promises are in writing, and don’t sign anything without reading it first. In addition, here are some tips to make sure that a counselor is right for you:
Look for these RED FLAGS:
Steer clear of counselors who:
For more information on credit repair fraud, visit the “How to Protect Yourself: Credit Repair Scams” page on the website of Florida’s attorney general or call 866-966-7226.
If you suspect you’ve been scammed by a credit-repair company, report it to:
This pamphlet is produced as a public service for consumers by The Florida Bar.
[Updated June 2023]
