Individuals who are deep in debt or have less-than-perfect to poor credit scores often seek out professional advice from nonprofit credit repair agencies. These organizations provide debt repayment plans, budgeting help, credit raising advice and creditor mediation services to financially embattled persons, often at low cost. While several legitimate credit counselors exist, the Federal Trade Commission says many so-called credit repair agencies engage in deceptive practices and outright scams.
When Credit Repair is Required
Individuals may find themselves in certain situations in which receiving nonprofit credit repair counseling is a legal requirement. Federal law mandates an individual filing for Chapter 7 or Chapter 13 bankruptcy protection complete a credit counseling course from a nonprofit credit counselor. Persons must present certificates of completion from nonprofit credit counseling courses when filing their cases in local bankruptcy courts.
Characteristics of Scams
Credit repair counseling scams seek to take advantage of financially stressful situations to extract money from uninformed individuals. The Federal Trade Commission outlines many characteristics of credit repair scams. One such characteristic is outlandish claims such as "legally create a new credit profile," "erase bankruptcies, foreclosures and charged-off accounts from your credit report" or "100 percent guaranteed fix to bad credit," all of which are impossible. Additionally, the agency states credit repair agencies that ask for upfront payment, do not inform individuals of their rights or advise persons to dispute all information on their credit reports are likely scams. Scams need not be for-profit businesses - even credit repair agencies registered as nonprofit organizations may be scams.
Consequences of Using Scam Credit Repair Organizations
Consumers can face significant fallout from using scam nonprofit credit counseling agencies. In addition to losing money -- sometimes as much as thousands of dollars -- individuals could also face prosecution and prison time from following the advice of unscrupulous credit repair outfits. For instance, some illegitimate credit counselors may advise individuals to apply for federal Employer Identification Numbers and use them as their Social Security Numbers, which is a federal crime.
How to Find Legitimate Credit Counseling Agencies
Individuals who need credit repair and advice services can easily spot legitimate nonprofit credit counselors. All legitimate nonprofit credit repair or counseling agencies are registered with the United States Trustee Program, an arm of the U.S. Department of Justice. An individual can obtain a list of these agencies by visiting the Trustee Program's website or sending an email to www.ust.cc.help@usdoj.gov. Also, according to an article from CBS News, legitimate credit repair agencies are usually members of the National Foundation for Credit Counseling and/or the Association of Independent Consumer Credit Counseling Agencies. Additionally, an individual can visit the Better Business Bureau website and type in the name of the credit repair agency he is considering using to see if any consumer complaints exist.
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