How to Avoid Credit Counseling and Credit Repair Scams

Are you looking for help improving your credit or getting your finances together? If so, perhaps you’ve considered hiring a credit repair company or a for-profit credit counseling agency.

Unfortunately, both of these options can end with you being scammed. For example, if you hire a credit repair company, you’ll be charged for something you can do for free: filing disputes on your credit reports.

The for-profit credit counseling agencies usually push you to sign up for expensive services that you may not even need. As a former NFCC-certified credit counselor, I’ve seen many people get duped by these types of companies, sometimes even costing them several thousands of dollars.

How can you avoid being a victim? Turn to a nonprofit credit counseling agency instead, for free and low-cost professional help.

Signs of a Credit Repair Scam

There are many companies that claim they will help people improve their credit. In my experience, they often promise big, fast results, and lure customers in with deceptive and pushy sales tactics.

How can you recognize a credit repair scam? According to the Consumer Financial Protection Bureau (CFPB), “these services often charge fees without delivering on their promises.” In other words, you’re likely to get scammed. However, here are the major red flags you should always watch out for:

• You have to pay upfront before you receive any services or see results. (This is illegal.)
• The company guarantees a specific outcome. (Results will always vary.)
• You’re not informed of your consumer rights or told you can fix certain credit problems for free.
• You’re advised not to contact the credit bureaus directly.
• The company wants you to create a new identity or apply for an Employer Identification Number (EIN) to create a new credit report. (Both of these actions are fraud).
• You find negative customer reviews with the Better Business Bureau (BBB), Yelp or Google.
• The company has been part of a class-action lawsuit or has faced regulatory action from the CFPB.

Remember: If you commit fraud as a result of following bad advice, you can still be subject to prosecution. But even if the company doesn’t encourage you to commit fraud, or they’re a well-known agency, there are still risks.

For example, in 2024, two of the largest credit repair companies in the country, Lexington Law and CreditRepair.com, had to refund over $4 million to customers for illegally collecting up-front fees.

You Can Repair Your Credit Yourself

You can take steps to repair your credit on your own. Not only is do-it-yourself credit repair free, but it’s much more effective than hiring a credit repair company.

Here are some of the steps I recommend taking to improve your credit on your own:

1. Visit AnnualCreditReport.com to pull free copies of your credit reports.
2. Review your credit reports and look for incorrect information that could be hurting your credit scores, such as missed debt payments or accounts that don’t belong to you.
3. If you find an error, follow the dispute information near the end of your credit report to file a free dispute and get the error fixed.

Not sure how to read your credit reports, or which information to dispute? You can meet with one of InCharge’s certified credit counselors to get help. As an added benefit, your counselor will share personalized tips for increasing your credit scores.

Know Your Rights When Working with Credit Repair Companies

As a consumer, it’s important to know that there are several laws in place to protect you from predatory credit repair practices. Unfortunately, credit repair companies don’t always heed these laws, especially since most of the 46,000 agencies are just one-person operations, often set up by scammers.

Here are a few of your legal rights when it comes to credit repair:

• Right to receive a written contact that explains the services the company will perform.
• Right to cancel your services with fees or penalties.
• Right to receive an estimate of how long it will take to see results.
• Right to review your total cost and any guarantees.

Many people also don’t know that, even if you’ve already begun paying for a credit repair agency, you can still take advantage of these laws to cancel their services and potentially even get your money back.

Signs of a Credit Counseling Scam

Unfortunately, the credit counseling industry has some scammers in it as well. In particular, the for-profit agencies that are taking advantage of consumers. Here’s what you should look out for when it comes to credit counseling services:

• The company claims to be a nonprofit, but is not affiliated with the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).
• They encourage you to sign up for a Debt Management Plan (DMP) without asking questions to understand your financial needs.
• Their fee is a percent of your debt balances, and they charge a set-up fee over $100.
• They have negative ratings or unresolved complaints on their BBB profile.
• They do not provide free financial education for clients. (This is a requirement for nonprofit credit counseling companies.)
• They promise specific outcomes, such as improving your credit scores by 100 points.

Ultimately, consumers should know that there’s no quick and easy way to get out of debt or clean up bad credit. If a company tells you otherwise, run in the other direction!

Finding a Reputable Credit Counseling Company

It is not hard at all to find reputable credit counseling agencies.

One of the best ways to find a trustworthy organization is to check and see if they’re certified by the National Foundation for Credit Counseling (NFCC). The NFCC is the largest and oldest nonprofit financial counseling organization in the U.S.

Other sources worth checking include:

• Your state Attorney General’s office
• The Better Business Bureau
• The Consumer Financial Protection Bureau (CFPB)

When you work with a reputable nonprofit counseling agency, your counselor can provide invaluable services. They’re trained to examine your finances and credit reports and develop action plans specifically tailored to your needs.

Use Common Sense to Avoid Scams

After over a decade of working in credit counseling and financial education, I’ve learned something very troubling about credit repair and for-profit credit counseling: These companies can be really effective at enticing and duping customers.

Even when the scam is plain as day, I’ve seen people who refuse to believe they’re being taken advantage of.

How can you avoid becoming a victim? It takes a mix of knowing which red flags to look out for (see a list above) and slowing down to listen to your gut. Try asking yourself:

• Am I feeling pressured into paying for a service?
• Is the company hounding me with calls and messages?
• Are they asking for payment before sending me anything in writing?

If the answer to any of these questions is “yes,” take a step back and consider your other options. Any time you work with a qualified professional, such as an NFCC-certified credit counselor, you should walk away feeling more informed, and not like you’re being pressured to cut corners.

Sure, a nonprofit credit counselor may propose a solution that takes time to be effective, but it’s still a better option than sending money to a scammer for a quick fix.

Reporting Credit Counseling & Credit Repair Scams

Credit repair fraud and credit counseling schemes are a major problem for consumers. In 2024, the CFPB received 4,385 consumer complaints about credit repair services and credit management issues.

If you believe you’re a victim of deception or fraud, contact the CFPB to report the problem. To avoid being targeted, consider DIY credit repair, or reach out to a nonprofit credit counselor for help.