How to protect yourself from debt relief and credit scams

The average American has an estimated debt balance of $96,371. Between credit card debt, auto loans and mortgages, Americans are often comfortable with some level of debt. However, the past few decades have also brought steep increases in student loan debt and medical debt, making the amounts owed untenable for many Americans.

While scammers can target anyone, people who are stressed about finances and looking for relief may be targeted more directly. While reputable debt relief and credit repair companies exist, scammers aim to take advantage of your position with claims of debt and credit solutions they don’t intend to provide.

What do legitimate debt relief and credit repair companies do?

One way to protect yourself from scams is to know what legitimate programs are and what they do.

Debt relief

Several legitimate debt relief programs can help consumers:

• 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 in the near future. 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. The goal is to simplify your finances. 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.

Debt relief companies often use one or more of these methods to help you get your debt under control.

Credit repair programs

Legitimate credit repair companies can help you fix your credit score. Credit repair companies focus on correcting inaccurate, outdated and misleading information on credit reports.

Credit repair companies contact the three credit bureaus to file disputes on your behalf. Correcting negative records on your credit report can lead to quick credit score boosts.

It is worth noting that you can repair your credit on your own. You can file disputes directly with the credit bureaus rather than through a credit repair company.

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 scams might request additional payments periodically, claiming they are working on your case when they aren’t.

If you see the following red flags, investigate more before making any payments.

The scammer contacts you first

If you receive an unsolicited email, text, phone call or social media message regarding your credit score or debt, it could be 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.

Some credit repair companies will offer a legitimate money-back guarantee if they cannot progress with your credit score during the first few months.

They offer you a credit privacy number

Some scammers may recommend you get a credit privacy number as a way to avoid bankruptcy. The scammers may promise that this new number will help you reset your credit profile so you can get loans or quickly improve your credit.

However, credit privacy numbers are illegal and may even be stolen Social Security numbers.

Similarly, avoid any company that suggests you apply for an Employer Identification Number (EIN). While these are legitimate numbers that businesses use to report financial information to the government, EINs are not a replacement for a Social Security number. Using one falsely 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, the cost you are responsible for and that you have three days to cancel with no charges. Companies also have to outline any guarantees they make.

You are encouraged to dispute accurate information

Credit repair companies can help you challenge incorrect information on your credit reports, such as closed accounts inaccurately reported as open or vice versa, information that is not about you or other errors.

A legitimate credit repair company will not dispute accurate information and won’t recommend you try. They might sometimes recommend writing a goodwill letter, but that’s different from saying accurate items are untrue.

How can you avoid debt relief and credit 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 change you once work has been completed to help with your debt. Credit repair companies may have a start fee or first work fee. 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. Some of the bigger companies include:

• 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 money-back guarantee 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 resolve over $10 billion in unsecured debt for over 600,000 customers. This nationwide servicer, based in New York, offers multiple perks, including individualized assistance and scholarship opportunities.

Similarly, many credit repair companies exist to help dispute errors on your credit reports. These include:

• 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. You’ll find lots of rave reviews from happy clients online, and the money-back guarantee offers additional 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.

The bottom line

Struggling with debt or credit issues is a common experience. Luckily, you have options for improving your financial situation. For example, you can create your debt repayment plan using a debt payoff calculator. You can also contact the credit bureaus to dispute an error on your credit report.

If improving your financial situation alone feels overwhelming, you can hire professional assistance from legitimate debt relief and credit repair services.

In your journey to improve your finances, watch out for debt relief and credit repair scams. Don’t accept unsolicited offers or send large upfront payments to companies that promise to deliver results. It’s also wise to check reputable review sites and consumer protection sites to confirm the legitimacy of any company you’re considering.

Debt relief and credit scam FAQs

• Are debt relief and credit repair scams?

  No, debt relief and credit repair are not inherent scams. They are legitimate services to help consumers manage debt and increase credit scores. However, scammers can prey on those needing financial help.

• 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 money 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, and don’t make a large upfront payment. You should also research companies on review sites like Bankrate, TrustPilot and Consumer Affairs before signing up.