Financial Planning
Money Management
Credit and Debt
Consumer Issues
Life Events

Use our online interactive calculators to help manage your finances.

Email a Friend

What's Dangerous about Credit Repair?

By InCharge Institute of America, Inc.

InCharge Institute of America, Inc.

Have you ever seen or heard advertisements on TV, radio, or the Internet that promise to hide your negative credit information and to establish a new credit identity? It's a business loosely known as credit repair, and it's not always what it's cracked up to be.

Credit repair companies often make illegal or false claims to lure consumers. They target people with poor credit histories, particularly those with recent bankruptcies who may have difficulty getting new credit or loans. These organizations falsely claim they can legitimately erase bad credit; remove bankruptcies, judgments, and liens; and create a new credit identity. Moreover, they charge fees for legal steps you can easily do yourself.

The Truth

No credit repair company can improve your credit report or erase negative, accurate information. The only way to rebuild your credit record is to make a conscious effort to pay off debts. Keep in mind also that there is nothing a credit repair agency can do for you legally that you can't do for yourself. By law, you can dispute - at no charge - any credit report information that is incorrect or incomplete.

Fraudulent credit repair companies offer a fee-based service that instructs consumers to apply to the IRS for an Employee Identification Number (EIN). EIN numbers are used by legitimate businesses to report financial information to the IRS and the Social Security Administration. The credit repair service then directs you to establish a new mailing address, phone number, and a few credit references. Finally, the company instructs you to use your newly acquired EIN number in place of your Social Security number when applying for new credit. Fees for this service range from a few hundred to a few thousand dollars.

The Problem With Credit Repair

Credit repair companies usually fail to divulge that it is a federal crime to:

  • Obtain an EIN from the IRS under false pretenses
  • Misrepresent your Social Security number
  • Make false statements on a loan or credit applications

Additionally, using the mail or telephone to apply for credit and providing false information can constitute mail or wire fraud.

The Credit Repair Organizations Act prohibits organizations from providing false claims regarding credit repair and restricts such companies from charging any fees until services are carried out. The law also requires that credit repair companies inform consumers of their legal rights in a written contract. This contract should include notification of all services performed, the time it will take to execute these services, total cost, any guarantees, and an explanation that consumers have three days to cancel the service at no charge.

If you are having trouble paying off your debts, try contacting a reputable, non-profit credit counseling organization that can help you arrange a repayment plan. A repayment plan enables you to rebuild your credit by making consistent monthly payments, which will reflect positively on your credit report.