The best ways to repair your credit
Q. I overspent on gifts during the holidays; what advice may BBB provide to get out of debt? I hear debt repair company advertising; are these companies legitimate?
A. If you have a big pile of credit card bills, you may also have a big pile of credit repair or debt relief offers. Those promises of reduced debt, low-interest loans, and magical fixes for your credit score can be tempting, but you need to be very careful to make sure nobody is taking advantage of you.
The first thing you need to know is the difference between credit counseling, debt relief, debt consolidation and credit repair.
Credit counseling is the most complete solution, using various resources to help you solve your money problems. It also requires the most work from you and does not promise quick relief. Tools include budgeting, educational programs, counselors, and a personalized plan. Credit counseling may (but does not always) lead to a Debt Management Plan (DMP) where you pay money into an account and the agency pays your debts from that account.
Debt relief or settlement companies say they can reach out to your creditors and try to get them to lower your balance, interest rates, or fees so you pay less. You can also try to do this yourself to avoid the fees that a company like this will charge you.
Debt consolidation companies offer you loans to pay off your debts in one lump sum. The low interest rates are tempting, but once you go through the application process you may find more fees. You may also be able to consolidate and pay off your debt through a second mortgage or home equity line of credit, but be very careful. As you are putting your home up as collateral, if you cannot make your payments, you could lose it.
Credit repair companies promise to clean up your credit report for a fee, but the chances they can do anything you could not do on your own are slim. You have the right to correct inaccurate information in your file, but nobody can remove accurate negative information. Only time and steady payments will repair your credit.
Before you sign up for any program, be sure to do your homework. Check for a business review on the company at BBB.org. Do an internet search for the company’s name along with “reviews” or “complaints” to see what people are saying about them. You can also check with the state of Tennessee and Georgia Attorney General offices, also, the state Consumer Protection agencies may assist with information.
In the United States, you have rights and are protected by the Credit Repair Organization Act (CROA), enforced by the FTC. Legitimate companies adhering to the Act must provide: ›
A written contract detailing your rights and the services to be performed ›
A three day cancellation period with no charges ›
Details on how long it will take for you to get results
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An accounting of all costs and fees ›
Any guarantees that they are making through their marketing
When you’re worried about debt, you are particularly vulnerable to anybody who promises to help you out of your situation. Here are some BBB tips on related scams:
CREDIT REPAIR AND DEBT RELIEF SCAMS
In this con, scammers promise to repair your credit or eliminate your debt … for a fee. They entice you with guarantees, such as a particular credit score increase or debt forgiveness, and charge upfront for their “services.” If you pay up, scammers either take the money and disappear, or fail to deliver all they promised.
HOW THE SCAM WORKS:
Scammers offering credit repair and debt relief services reach you in a variety of ways: online advertising, social media, or even calling directly. But no matter how they find you, their message is the same: For an upfront fee they can “guarantee” to raise your credit score and/or reduce or eliminate your debt.
Those companies frequently promise — and charge for — impossible services. This includes removing past credit mistakes, such as late payments or a bankruptcy, from your credit report. They may offer to give you a new “credit identity” or negotiate with the lender or credit card company to completely eliminate the debt.
HOW TO SPOT THIS SCAM:
Advance fees are a concern. Not all businesses promising to help you repair bad credit are scams, but if you are asked to pay in advance, that’s a big red flag. In both the U.S. and Canada, credit repair and debt relief companies can only collect their fee after they perform the services promised. Do not believe guarantees. Nobody can guarantee to make debt go away or improve your credit score. In fact, they can’t promise you anything before they have even reviewed your personal financial situation. Beware the big promise. Other red flags are big promises, such as removing negative information from your credit report, or urging you to get a new identity or apply for an Employer Identification Number to use instead of your Social Security number (that’s a crime, by the way). No contract or one that is vague is another warning sign.