Credit Repair Scams - Warning!

Summary:  Don’t get taken by credit repair scams or debt consolidation companies. You will be cheated out of your money and be in worse shape. Most of their promises are illegal.

Credit Repair Scams

There are many companies which are marketing a service which is advertised to remove credit report negative information, including late payments, bankruptcies, and charge-offs. They are charging $1,200 or more (sometimes up to $1,200 per month) for doing nothing.

It is a violation of federal law for a Credit Reporting Agency to remove accurate entries on your credit report. No credit repair company can do that.

The mode of operation that the scammers use is to dispute each negative item with the hope of getting it removed if it cannot be verified by the creditor. It does not work and some of these requests will be ignored because of their nature.

You should not pay any fee to any loan consolidation company or any credit repair company.

Debt Consolidation or Debt Management Plans

Usually, the best of these companies is also a bad idea. If they consolidate your several debts into one consolidation loan, usually that consolidation loan is secured by your home or other collateral. In other words, you get stuck with a high interest rate loan where you now risk losing property which you otherwise have protected from seizure, in part because the property is exempt from the reach of creditors under Colorado law.

So, in other words, you are risking property which you should not put at risk.

Some companies collect large monthly fees or payments from you and advise you to discontinue paying your bills. Then after a number of months, they plan to settle your debts for sharply reduced amounts and help you get debt-free within 2 years or so. It won’t happen.

You are also making your credit problems worse because in most cases the consolidation company will not be making payments on the open credit accounts for several months after you begin making payments to the consolidation plan.

In some cases, they also persuade you to take out retirement assets such as 401(k) or IRA money to pay bills. Or they get you to get a loan against your 401(k) which you must pay back or get stuck with a taxable distribution which is subject to an additional 10% withdrawal penalty.

Instead, you can negotiate separately with each creditor to close your account and arrange to pay a settlement amount.