There are a lot of credit repair and credit counseling companies in the U.S. and for good reason. With household debt soaring to record highs and about 800,000 Americans filing for bankruptcy each year, people are constantly reaching out for the Financial Mr. Fix-It, someone that can transform their shrinking dollars into sense.
There’s no shortage of companies that claim to have those answers. Unfortunately, as is the case for most cottage industries, there are some unwelcome byproducts: Credit repair scams, credit counseling scams and people worse off financially than they already were.
There are several obvious red flags to watch for before going with a credit repair company:
Remember: If a consumer follows illegal advice and commits fraud, they could be subject to prosecution.
Consumers should realize that do-it-yourself credit repair can be effective — and free. Anyone could save more than $1,000 a year by knowing how to read a credit report, create a budget and execute their own action plan.
But you won’t hear that in the sales pitch offered by the nation’s voluminous array of credit repair companies. They sometimes give misleading or inaccurate information about their services. It can sound awfully seductive when a credit-shaky consumer is promised (for a fee) to have their record cleaned up so they can secure a car loan, home mortgage, insurance or a job.
However, once the up-front fees are collected, sometimes nothing is done to improve the credit. The company could even vanish — while the bad credit still lingers.
It might sound like many precautions are in order, but it’s true. Consumers with poor credit are targeted, often bombarded with phone calls, e-mails and letters from companies that promise to improve their financial fortunes. It’s an attractive pitch, but there are scammers.
There are too many occasions when a consumer’s credit never changes, even while paying fees to a company that does not back its claims.
You should know about the Credit Repair Organization Act, enforced by the Federal Trade Commission, which makes it illegal for credit repair companies to misrepresent their services and to charge you before any services are completed.
It’s also useful to remember that credit repair companies can’t get accurate information removed from your credit report, even if it’s negative. If the information on your credit report is inaccurate, consumers can get it removed themselves.
Similar precaution should be used with credit counseling agencies.
As a general rule, nonprofit credit counseling organizations are your best choice when seeking credit repair advice.
There are also nonprofit credit counseling and debt management programs available. Trained counselors can examine your situation and develop a strategy tailored specifically for your financial needs. It requires time, a solid plan and consistent effort to improve your credit worthiness.
Consumers should also confirm their payments with creditors. Some credit counseling companies require a lump-sum check that gets divided between the creditors. It’s always wise to make certain the proper payments are being made in the agreed-upon amount.
In any circumstance, common-sense rules and instincts are the best barometer. Don’t believe promises that sound too good to be true such as anyone claiming to “get you out of debt easily.’ Avoid up-front fees. The initial consultation should always be free. Reputable firms should provide counseling and education — along with debt consolidation and payment services — so consumers can achieve financial stability to remain debt-free. The consumer should leave with better knowledge of how to manage finances, along with setting up a personal, household spending budget.
As usual, it amounts to dollars and (common) sense. An informed consumer is an empowered individual. In this modern atmosphere of scams in the credit repair and credit counseling fields, solid knowledge is a good thing.