3 Ways to Recognize a Credit Repair Scam

If you've ever struggled with your credit and finances, you likely know the stress of applying for a loan or credit card and sweating it out while you wait to hear if you're approved (or even better -- getting that Magic 8 Ball response of "we'll notify you by mail" and then getting denied). I have been there myself, and it's the worst.

You might think that using a "credit repair" company is your best bet to get back on track. Unfortunately, many of these companies just want to take advantage of you -- and take cash out of your checking account. Here's what to watch out for, as well as ways to improve your credit yourself, for free.

1. The service overpromises

A scammy company might tell you that it can make all your problems go away and scrub your credit report clean. However, no one can remove accurate negative information that is still in-date on your credit report. If you missed a credit card payment a year ago, the company can't do a thing about it, and neither can you. You'll have to wait it out.

2. The service requests payment upfront -- and won't let you cancel

If a company is demanding payment from you to repair your credit, be suspicious. Under the Credit Repair Organizations Act, these companies are barred from this behavior. This law also requires that any services be offered in writing and consumers also get contract cancellation rights in certain circumstances.

3. The service refuses to tell you your rights

Here's the dirty little secret of "credit repair" companies: They can't do anything for you that you can't do yourself. If a company refuses to tell you your rights over your own credit, that's a huge red flag. Under the Fair Credit Reporting Act (FCRA), you have the right to dispute errors in your credit report and sign off on who gets to view it.

Good news -- you can improve your credit yourself

There's no reason to pay a company for something you can do yourself. If you can spend a little time laying the groundwork (and then exercise patience), you can absolutely improve your own credit.

Recommit to on-time payments

First and foremost, you should know that the biggest factor influencing your FICO® Score (the credit score used by 90% of lenders) is payment history. So if you've got some late or missed payments to creditors in your past, that likely explains a lower credit score. Resolve to make your payments on time going forward. As you build a solid positive payment history, your credit should improve.

Pay down debt

Another helpful move you can make is paying off debt, if possible. The most effective means I've found of doing this is to increase your income. The prospect of giving up some of your precious free time in pursuit of a side hustle is likely unappealing, but ending up with a higher credit score and more financial breathing room is the best feeling in the world. Raising my income and getting out of debt in 2022 boosted my credit score by 100 points in less than a year.

Dispute errors and old black marks

The main service that a paid "credit repair" company would provide you is disputing black marks on your credit report, and you can do that yourself. Start by heading over to AnnualCreditReport.com, where you can get free copies of your report from the three major consumer credit bureaus (Experian, Equifax, and TransUnion).

Read through your reports and look for errors (like an account you never had) or late/missed payments that are more than seven years old. If it's been more than seven years, that information should no longer appear on your report -- but if you see it anyway, contact the credit bureau.

Negotiate with creditors

If you owe money to a lender and can't pay off the charges, reach out to the company to see about negotiating to pay a smaller amount. Many companies would rather take some amount of money and close your account than send you to collections, so it's worth asking. Whatever deal you strike, be sure to get it in writing.

Speak to a nonprofit credit counselor

If you're struggling, there is free help out there -- no scammy "credit repair" companies required. The National Foundation for Credit Counseling is a great place to start. You'll be able to get help rebuilding your credit, as well as learning how to budget and managing your money more effectively.

Bad credit doesn't have to be forever, and you don't have to pay some scammer to see your score rise. Consider these moves instead -- and good luck.