How to protect yourself from debt relief and credit scams

Between credit cards, student loans, auto loans, home mortgages and other loans, the average American carries an estimated $96,371 in debt. As the cost of living has increased and loans have been made more accessible, debt has become overwhelming for many. Sadly, this often leads to late payments, which negatively impacts credit scores and creates a bigger financial problem.  

To make matters worse, people with financial stress may be particularly vulnerable to scams related to debt relief and credit repair. Scammers try to exploit people in difficult financial situations with false promises to resolve debt and credit issues.

It’s worth noting that there are legitimate debt relief companies and credit repair companies that can help you manage your debt and improve your credit score. So there is hope for anyone struggling with financial issues. However, it’s important to be aware of debt relief and credit scams so that you don’t fall into a scammer’s trap. 

What do legitimate debt relief and credit repair companies do?

One way to protect yourself from scams is to understand how legitimate debt relief and credit companies work. 

Debt relief companies

Legitimate debt relief companies offer multiple debt relief solutions for consumers, including:

• Debt settlement: This involves negotiating with creditors to accept less than the full loan amount if you agree to pay a large portion of the balance promptly. The goal is to have the debt discharged for less than you owe.
• Debt consolidation: Debt consolidation replaces multiple existing debts with one large debt, ideally with a lower interest rate. Combining many debts into one account allows you to make just one monthly payment instead of paying multiple creditors with multiple due dates.
• Debt management: Debt management involves creating a structured, strategic plan to pay off debt. The goal is to pay your debt down more efficiently and save money on interest expenses. 

Credit repair programs

Legitimate credit repair companies can help you improve your credit score by correcting inaccurate, outdated and misleading information on your credit reports. These companies can file disputes on your behalf with the three credit bureaus to correct the record, which can lead to a quick credit score boost.

However, you don’t need to go through a credit repair company to correct your credit report. You can repair your credit on your own by filing disputes directly with the credit bureaus. Handing your own credit repair is a budget-friendly option. However, if you don’t have the time or patience for DIY credit repair, legitimate credit repair companies are a good alternative. 

What are the signs of a debt relief scam or credit repair scam?

Scammers offer debt relief or credit repair services they cannot provide. They often ask for a large upfront payment and disappear once they have your money. Other scammers might request additional payments periodically, claiming they are working on your case when they aren’t.

If you see any of the following red flags, investigate carefully before authorizing any payments.

The scammer contacts you first

Receiving an unsolicited email, text, phone call or social media message regarding your credit score or debt could be a sign of a scam.

The Federal Trade Commission (FTC) enforces the Telemarketing Sales Rule, which outlines rules and regulations for contacting prospective clients over the phone. Telemarketers must limit calls to certain hours and cannot contact people on the Do Not Call Registry. You can contact the FTC if a telemarketer violates these regulations.

Because scammers are increasingly sophisticated and convincing, it’s best to do your own research and initiate contact if you’re interested in these services.

The company requires a large upfront payment

Debt relief and credit scams usually ask for a large payment before any work is done.

A legitimate debt relief company will only invoice after completing a service. They commonly charge a commission based on the debt relief amount, but payment structures vary.

A legitimate credit repair company typically charges a monthly fee. It may charge a “first-work fee” to cover the time spent reviewing your credit report and determining a course of action. However, this first-work fee should not be exorbitant — it’s usually similar to the amount of the monthly service charge.

The company promises specific results

There are no guarantees that debt can be settled or credit scores will improve. Any company that claims a certain amount of debt will be forgiven or that your credit score will increase to a certain range is likely a scam.

However, some credit repair companies will offer a legitimate money-back guarantee if they cannot make any improvement to your credit score during the first few months.

They offer you a credit privacy number or recommend applying for an EIN

Some scammers may recommend avoiding bankruptcy by getting a credit privacy number. They often promise that this new number will help you “reset” your credit profile so you can quickly improve your credit score or get approved for a loan. In reality, credit privacy numbers are often stolen Social Security numbers. The use of a credit privacy number is illegal.

Similarly, some scammers recommend you apply for an employer identification number (EIN). While these are legitimate numbers businesses use to report financial information to the government, EINs are not a replacement for a Social Security number. Using an EIN under false pretenses is a federal crime.

The company doesn’t explain your rights and their abilities

According to the Credit Repair Organization Act (CROA), credit repair companies must explain your legal rights.

You should receive a written contract that explains what services they will perform, how long it will take to get results and the amount you’ll pay. The contract must also specify that you have three days to cancel with no charges. Companies also have to outline any guarantees they make.

They recommend disputing accurate information on your credit report

Credit repair companies can help you dispute incorrect information on your credit reports, like errors in personal information, misreported late payments or closed accounts inaccurately reported as open. They might also offer goodwill letters, asking the creditor to remove a negative mark on your record out of consideration. 

However, a legitimate credit repair company will not be able to remove accurate information from your credit reports.

How can you avoid debt relief and credit repair scams?

You can take steps to protect yourself from financial scams.

• Consider doing it yourself. You can manage your own debt and fix your own credit. In addition to protecting you from potential scams, the DIY option will save you money and teach you a lot about personal finance as you work through your debt or credit issues.
• Research companies. If you seek professional assistance to improve your credit or manage your debt, invest a little time in researching reputable debt relief companies and credit counselors. You can check with watchdog organizations and explore review sites to determine if a company is legit and has satisfied customers.
• Question upfront fees. A good debt relief company will only charge you once work has been completed. Understand any fees before signing up for service.
• Know your rights. Debt relief and credit repair companies cannot harass you with phone calls to get your business. If telemarketers are calling at odd hours or continue to contact you after you have expressly told them not to call you again, you can report them to the FTC.

Which debt relief and credit repair companies are legitimate?

There are many legitimate debt relief companies to consider, including these.

• Accredited Debt Relief: Accredited Debt Relief has helped over 500,000 people manage over $1 billion in debt since 2011. The educational tools, financial resources and Better Business Bureau (BBB) Accreditation set it apart from similar debt relief companies.
• Freedom Debt Relief: Since 2002, Freedom Debt Relief has helped resolve over $18 billion in debt. With more than 1,600 employees and over 300 dedicated customer service representatives, Freedom prides itself on providing an exceptional customer experience.
• JG Wentworth: Founded in 1991, JG Wentworth is among the most well-established debt relief companies with one of the most recognizable names in the market. JG Wentworth currently holds an A+ rating from the Better Business Bureau.
• National Debt Relief: Since 2009, National Debt Relief has helped over 550,000 customers resolve their debt. This nationwide servicer, based in New York, offers multiple perks, including individualized assistance and scholarship opportunities.

Similarly, there are many legitimate credit repair companies to consider including these.

• CreditRepair.com: CreditRepair.com is among the most affordable credit repair companies. With multiple packages priced below $100 per month, customers can choose a plan that meets their needs and budget. Assistance is also available in Spanish, making this a good option for native Spanish speakers.
• Credit Saint: Credit Saint has established a reputation for exceptional customer service and strong results. Rave reviews from happy clients and the money-back guarantee offer some assurance for new customers.
• Lexington Law: With Lexington Law, there is just one straightforward credit repair package, eliminating the need to choose between multiple service plans. It’s easy to sign up, and there are lots of free resources to help you fix and maintain your credit score over time.
• Sky Blue Credit: Established in 1989, Sky Blue is one of the longest-standing credit repair companies. The reasonably priced Full Service package provides exceptional value by packing in the services. And with a unique pricing structure for couples, you and your partner can improve your credit together.
• The Credit Pros: If you prefer a wide range of services, The Credit Pros may be a good option. Depending on the package, you can get unique services, like dark web monitoring, letters of reference and even a $5,000 loan to help you build a good track record of on-time payments.

Debt relief and credit repair scam FAQs

• Are debt relief and credit repair services scams?

  No, debt relief and credit repair services are not inherent scams. They are legitimate resources to help consumers manage debt and increase credit scores. However, scammers can prey on those needing help managing debt and credit, so it’s important to be cautious when choosing a debt relief or credit repair company.

• How do debt relief and credit repair scams work?

  Debt relief and credit repair scams involve a scammer who claims to be able to eliminate your debt or increase your credit score by a specific amount. They typically request a large upfront payment for service. Then, once you send the payment, they either disappear with your money or continue to request more to continue their “work” on your account.

• How do I protect myself from debt relief and credit scams?

  To avoid being scammed, don’t respond to unsolicited offers or make large upfront payments. And never sign with any company before confirming its legitimacy.

• How can I verify that a debt relief or credit repair company is legitimate?

  You can confirm the credibility of a debt relief or credit repair company by reviewing the company’s profile with the Better Business Bureau (BBB) and checking review sites like Bankrate, TrustPilot and Consumer Affairs.

• Are any upfront fees considered normal when dealing with debt relief companies?

  Debt relief companies typically do not charge upfront fees. However, credit repair companies may charge an upfront “first-work” fee similar to the monthly rate.

• What should I do if I suspect a company is a scam?

  If you suspect you’re dealing with a scammer, stop all communications but keep records of your interactions. You should then file a complaint with the Federal Trade Commission (FTC) and report the issue to your state’s attorney general office. These agencies can investigate further and prosecute if necessary.

Bottom line

Many Americans are dealing with debt or credit struggles, but there are several ways to overcome these issues and improve your financial health. You could, for example, create a debt repayment strategy using a debt payoff calculator or dispute an error on your credit report by contacting the credit bureaus.

If addressing your financial hurdles on your own feels overwhelming, you can hire professional assistance from legitimate debt relief and credit repair companies.

As you navigate your financial recovery, be aware of debt relief and credit repair scams that could derail your progress. Avoid engaging with unsolicited offers or making substantial upfront payments to companies that guarantee results. Instead, seek out credible companies by consulting reputable review platforms and consumer protection websites.