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You’re ready to buy a home and just met with your lender. You already know there may be some issues you have to deal with before making offers, including documenting income, showing cash reserves, etc. You also know you behaved less than perfectly with credit cards and car payments a few years back and now your loan officer is giving you some advice on what to do: repair your credit. Where do you turn?

Recently the Consumer Finance Protection Bureau reported that two of the largest credit companies in the nation illegally charged customers for credit repair services and used deceptive advertising to trick and cheat consumers and subsequently filed a lawsuit against them. CreditRepair.com and Lexington Law, two of the country’s largest credit repair companies, allegedly violated the Telemarketing Sales Rule by requesting and receiving payment of prohibited upfront fees for credit repair services.

So how can you judge a credit repair company? What red flags should you be looking for before diving in and cleaning up your credit? There are counselors who can help you with your credit report, and others who take your money but don’t help you, according to the CFPB. “Warning signs for credit repair scams include companies that ask you to pay before providing services. The company may claim that it can guarantee a specific increase in your credit score or get rid of negative credit information in your credit report, even though the information is accurate and current.”

Signs you’re not dealing with a reputable company include being asked to pay before services have been provided or the promise of a specific credit score increase. “If the company uses telemarketing such that the federal Telemarketing Sales Rule applies, the credit repair company may not request or receive fees until it gives you a credit report generated more than six months after the promised results that shows the results,” says the agency. Some companies will structure monthly payment plans to try to avoid this requirement. But don’t be fooled — you should know that ALL forms of upfront payment before services are completed are illegal.

If the company is reputable they will tell you your rights, including what you can do for free. Disputing errors in your credit reports is a free legal right available to you under the Fair Credit Reporting Act; you don’t need to pay a credit repair organization to do it for you. Also, if you have just signed up for a credit repair service, you have the right to cancel your contract with any credit repair organization for any reason within three business days at no charge to you.

If the company makes you fearful of contacting credit reporting companies (Equifax, Experian, TransUnion) directly, you’ve already found a bad apple. Calling those companies direct is your right, and doing so will not jeopardize your mission. Once you look up a list of credit counselors online or through local offices, check them out with your State Attorney General’s office, and local consumer protection agency.

There is a plethora of free information about credit repair services and what they provide. “A reputable credit counseling agency should be willing to send you free information about itself and the services it provides without requiring you to provide any details about your situation. If a service doesn’t do that, consider it a red flag and go elsewhere for help,” adds the CFPB.

Source: HousingWire, CFPB, TBWS

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