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Tips for Avoiding Credit Repair Scams
As someone who’s working to pay off significant credit card balances, as well as student loan debt, there’s rarely a week that goes by when I don’t receive some sort of debt relief marketing.
I often find myself flummoxed by the increasingly creative ways that these companies find to get their message in front of me. In addition to emails and filling my real mailbox with offers, I’ve even received robocalls and text messages.
While I’m sure I’m not alone in receiving this steady stream of advertising, I have become increasingly concerned with how one might actually attempt to sort through all of these offers to find truly legitimate assistance and not fall prey to scams designed to sink already vulnerable people further into debt.
Even more troubling is that perhaps none of them is legitimate. The Better Business Bureau Scam Tracker received more than 740 reports of debt relief and credit repair scams in 2018, costing consumers hundreds of thousands of dollars.
With these questions and concerns in mind, I reached out to several debt repair and personal finance experts and asked them to share the best ways to separate the con artists from legitimate debt relief companies.
Spotting Debt Relief Scams
Debt relief scams come in all forms. Perhaps the most common involve companies promising cash-strapped consumers who have significant credit card debt that they will negotiate with creditors on the consumers’ behalf and reduce repayment obligations.
According to the Federal Trade Commission, these predatory operations often charge consumers a large upfront fee, but then fail to help them settle or lower their debts – if they provide any service at all.
Some companies even promise to create “a new credit identity” for you, says the FTC, suggesting they can “hide” your bad credit history or bankruptcy for a fee.
Bogus auto loan modification offers are another take on the scam theme. This approach involves false promises to reduce a consumers’ monthly car loan or lease payments in order to help avoid repossession.
Step 1: Find out exactly what service is being offered.
When you’re contacted by companies offering debt relief, be sure to find out exactly what type of service they’re seeking to provide, says Leslie Tayne, a consumer debt resolution attorney with more than 20 years of experience.
Are they offering a consolidation loan? Are they going to have you declare bankruptcy (which you may not want to do), or perhaps offering credit counseling?
“If you aren’t sure exactly how the process works after the first phone call, then likely there’s a reason it’s convoluted,” Tayne explained.
It’s also a good idea to ask who will be doing the debt-relief work: Is it outsourced, or done in-house?
“Most of the companies that contact you are really lead generation companies who take your info and sell it to several other companies, which is why you may be inundated with mail and calls,” said Tayne. “You should consider asking if this is a lead generation, or are you the company that will be working with me?”
Reputation and time in the industry are important.
Conduct thorough online research about a prospective debt relief company before signing on for any assistance. If you can’t find information about the company or there’s only scarce history available, there’s probably a reason for that.
“They likely just change names and move when they’re about to be pinched; you’re interviewing someone to do an important job for you, so make sure you ask questions and do some research,” Tayne continued.
While sifting through the information online, avoid putting too much stock in glowing testimonials about a company, which can easily be bought or made up, particularly if you see hundreds or thousands of these sorts of reviews.
“In our experience, most clients… don’t want to write reviews because they’re embarrassed and want to remain anonymous,” said Tayne.
Some of the ways to vet credit repair companies include reading reviews about the company on the Better Business Bureau‘s website and searching the Consumer Financial Protection Bureau’s complaint database, suggests Dana Marineau, vice president and financial advocate at Credit Karma.
“Be diligent in your research of companies to find one you trust and one that will help you reach your financial goals. It’s okay to be picky,” said Marineau.
Google Reviews and Trustpilot are still other places to find out if a company is on the up and up, says James Lambridis of DebtMD.com.
“If they have a bunch of disgruntled customers, you can rest assured you will find many negative reviews online,” said Lambridis. “If you see way too many negative reviews compared to positive ones, you should look elsewhere for credit repair or debt relief services.”
Big promises are red flags.
Scam artists in the debt relief and credit repair world prey on consumers who are stressed out and overwhelmed by their financial situation.
Such individuals are often “easily swayed by callers who assure them that they will resolve the debt for pennies on the dollar,” says Tayne. “That’s completely unrealistic in today’s debt world. The moment there are promises for time frames or settlement amounts, it’s a red flag that the company is trying just to sell you and won’t deliver. It’s impossible to predict what a creditor will do, and anyone who says they can doesn’t know this industry.”
What this means for you as the consumer is that you must do your homework, says Tayne. Don’t jump at any offer you get, particularly from a company making unrealistic claims about resolving your debt. Take the time to read the fine print.
Additional red flags include companies that:
- are pushy and unprofessional;
- claim they can stop all debt collections calls and lawsuits;
- refuse to send you any information about their services unless you provide personal/financial information;
- have no official name or address on their website, just a 1-800 number.
Mike Pearson, of Credit Takeoff, adds two more red flags to this list. A legitimate company, he says, must provide you with a written contract before they begin services, and give you at least three days to cancel.
In addition, while they can dispute items on your credit report and prove them to be erroneous, they shouldn’t promise to remove correct items.
There should be no upfront cost.
A reputable debt relief company will not make you pay for services before they do anything to help you and will be willing to send you free information about their program and services.
“A very common red flag is the company gets paid before your creditors do, or they charge monthly service fees,” explained Tayne. “No way is that legit, and no way is that necessary other than to make them money. Once they’re paid there’s no real incentive for them to work on your accounts.”
If a company asks you to pay them over the phone right away and won’t answer questions about the fees clearly, avoid working with them. The same goes for companies seeking a large sum of money upfront or monthly service fees.
In fact, Federal Trade Commission rules prohibit a debt relief company from collecting any fees until it has negotiated a settlement on a debt – and the customer has accepted the settlement, says Sean Fox, co-president of Freedom Debt Relief.
“Also watch for companies that claim they can settle all debts for a single interest rate reduction. The debt settlement process is more complex, involving negotiating with each creditor. Each settlement will likely be different, and will depend on the creditor, the amount of the debt and other factors,” said Fox.
There are legitimate debt relief offers.
The best arrangements with a debt relief agency or company are those in which expectations are managed and the company contacting you is the one you’ll deal with throughout the entire debt relief program.
“You can’t go into one of these scenarios with unrealistic expectations, and that’s another way to know if you’re dealing with the right people,” said Tayne. “Are they managing your expectations from the beginning, or are they just telling you, ‘Don’t worry, we do this and that and will save you lots of money,’ and tons of one-liners.”
In addition, all of the company’s practices should adhere to the Federal Trade Commission’s Credit Repair Organizations Act and you should be provided with a copy of those regulations, said Justin Lavelle, chief communications director for Been Verified, the online background check platform.
- Related: Best Debt Management Companies
No two debt cases are the same.
The company you’re working with should treat you as an individual, know your short- and long-term goals, and be able to lay out a clear road to recovery, said Tayne.
“If it doesn’t feel right, then it isn’t, and just move on. There are legitimate companies out there to help you,” said Tayne. “Go with your instincts.”
And one last point to keep in mind – there’s nothing a credit repair service can legally do that you can’t do on your own, said Lavelle.
For instance, it’s your legal right to request a credit report, yearly, free of charge. And once you obtain the reports, you can review them for negative items.
“Then, you can contact the credit bureaus and dispute any items you feel are inaccurate,” said Lavelle. “From there, you can contact the specific company who has your account, possibly a collection agency and negotiate a settlement agreement directly with them.”
Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations, including the Atlanta Journal-Constitution and the San Diego Union-Tribune.