How to Avoid Credit Repair Scams

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The importance of a good credit rating is undeniable for most people today. That can lead to shortcuts in trying to build a better credit rating that could fail to produce the desired result or even be illegal. It’s important to know what to do and not to do and to consistently do the things that will, over time, produce a desirable credit rating.

Two Things to Know about Credit Scores

While FICO scores may be the best known, not all credit scores are produced by the Fair Isaac Corp. Also, there is more than one version of FICO score calculation currently being used by banks, credit card companies and other financial services firms. In addition, there are other credit scoring products like Experian’s. That, however, is not something to worry about. From what I’ve seen, there is minimal difference between the various scores. That means they all use roughly the same data in their scoring, so whatever a consumer does to improve her credit score will be reflected positively in any score. Fair Isaac is a business services company and does not interact directly with consumers.

The second thing to know is that the algorithms for calculating scores do change from time to time so consumers may notice small differences in scores without having done anything special. Earlier this year Fair Isaac changed its process so that accounts that had been transferred to a collection agency but were later repaid will no longer have a negative impact on the credit score. In addition, the impact of medical debt has been decreased. Both of those are good news for consumers and those affected will gradually see an improvement in their credit score with no effort on their part.

Remember, though, that credit utilization—the ratio between the amount of credit used and the credit limit—is an important factor in computing credit scores. Try to avoid carrying high balances and pay off debt as quickly as possible. New, lower, balances show up on the next credit report and have a positive impact on the credit score. There are 4 other factors, and many individual pieces of data, that influence a credit score.

The Two Most Dangerous Scams

These scams are dangerous because they may cross the line between spending money for a questionable service to being illegal. They involve the recommendation to use an EIN (tax ID number) or a CPN (Credit Privacy Number) to essentially create a new identity and leave the old credit score behind.

Neither an EIN or a CPN is illegal in and of itself. The Employer Identification number is assigned by the IRS to businesses for use in filing their tax returns. It should not be used for consumer purposes. The CPN is a solution recommended by scammers to replace Social Security Numbers and is defined as a scam by the FTC. Companies who recommend the use of EINs or CPNs will try to sell a number to the person. These are often stolen SSNs and open the purchaser to a charge of theft. Use of any number other than an official SSN on a credit application is a federal crime.

Other Ways to Recognize Credit Repair Scams

The credit repair scammers use many techniques common to other scams. Avoid any credit repair offer that:

  • Requires advance payment for services and/or only accepts cash.
  • Claims to be able to create a new credit score or disassociate the applicant from an old credit score. This is not possible because credit bureaus use so many different pieces of data. Consider any promise of a specific improvement in the credit score as a warning.
  • Doesn’t inform the applicant of his own ability to repair the credit score or says not to contact the credit reporting agencies directly.
  • Contacts people who have just filed for bankruptcy.
  • Doesn’t offer a contract. Federal law requires a signed contract for credit repair services.

How To Improve a Credit Score

There are legitimate credit repair firms. Lists can be found on the web and should be checked with the state attorney general’s office before making contact. What is supremely important, however, is that a legitimate credit repair service can do nothing that an individual consumer cannot do. It is a process of finding errors in all existing credit reports and having them corrected. Beyond that is simply following good credit practices as outlined in the credit score factors article above and in many other good pieces of advice on the web or from a credit counselor. If you then wish to pay a reputable firm for work you could do yourself, you have made an informed choice. Consider, though, that the money might be better spent paying down debt.

Above all, remember that building a good credit score is a process over time. There are no short cuts. You are your own best custodian of your credit score.


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