Credit repair companies offer tools and services to help people improve their credit scores. These products can be beneficial if you’re new to credit or need help. However, some credit repair companies not only use questionable tactics but can sometimes be illegal.
We have researched various online forums, including a WalletHub survey, to create a list of 12 shady practices in credit repair companies that can go unchecked.
Reporting Higher Credit Limits
Some companies report higher credit limits to credit bureaus to make it look like you have more credit than you can access. Having access to more credit generally means that you’re more reliable with credit and have had a positive history of repaying loans. This boosts your credit score and helps you qualify for better loans in the future.
Doing so can give people who are usually irresponsible with credit a higher credit score and have an overall adverse effect on their credit management skills in the long term.
Selective Reporting of Payments
23% of credit repair companies only report positive payment history to the credit bureaus and omit any late or missed payments. While it is not illegal, it is considered unethical and misleading. Reporting only positive payment history implies that a person is better at paying loans than they actually are, giving them a higher credit rating than they deserve. It also gives users a false sense of security regarding their credit health.
Products Marketed as Credit Builders
Some services offer products as credit-building tools even though they do not involve lending money or providing a credit line. Instead, they report subscription payments or bill payments as credit activity. If you’re subscribed to a streaming service, you will pay the monthly subscription fee through a company that would register that payment as a credit activity, thus recording it as a positive payment and improving your credit score. Given that you’re not taking a loan and repaying it in a traditional sense, lenders might be skeptical of credit scores inflated using these practices.
High Fees with Minimal Benefit
Many credit-building products come with high fees, such as membership, application, or ongoing service fees. These fees can accumulate over time, sometimes without providing significant credit improvement, making them a poor investment for consumers. 50% of credit-building products come at a cost. While services like offering a secured credit card increase your credit score over time, these fees often outweigh the benefits provided.
Encouraging Account Closure
Certain companies advise users to close their credit accounts before a missed payment occurs to prevent damaging information from being reported to the credit bureaus. Doing so ensures that the loan will show on credit reports as paid off even if you have missed payments. This practice is just a short-term fix and shouldn’t be encouraged as doing this often could make the customer more irresponsible in managing their credit.
Offering ‘Authorized User’ Status
Some companies can add you as an ‘authorized user’ on a stranger’s credit account for a fee. Usually, being an authorized user for a well-maintained credit account boosts your credit score temporarily but can come with many risks. Firstly, you also suffer consequences if the stranger does not manage their credit account well. Additionally, lenders generally dislike this practice and may even lower your credit limit if your credit score drops after you lose your status as an authorized user. It could even be considered fraud in some instances.
Offering Fake Credit Lines
Some companies offer a “credit line” that users can’t spend. Instead, they use this line to transfer funds into a savings account, which the user pays off. While these payments are reported to the credit bureaus as on time, the user never has access to the credit line in the traditional sense, which can be misleading. 27% of credit-building products offer credit that users can’t spend, and building your credit using this method doesn’t teach effective credit management.
False Promises of Credit Improvement
Some companies make exaggerated claims about how quickly or significantly they can improve a user’s credit score. These promises are often unrealistic and can mislead consumers into thinking that credit improvement is easy and fast. Companies also illegally claim that they can remove adverse reports from your credit history to improve your score. While people can dispute negative reports, credit repair companies can’t remove accurate negative information.
Selling Your Data
Some credit repair companies may sell your data to third-party companies without your explicit knowledge. This can be done by making you accept the company’s terms and conditions, which most people don’t read. Even if you do consent to it, it can lead to problems. Since signing up for credit-building products involves submitting your personal information, having it sold can lead to predatory marketing and even identity theft.
Promising a New Identity
In extreme cases, some shady companies might promise to give you a new identity so you can start fresh with your credit history. This involves creating a fake identity, which is illegal and often leads to severe legal consequences, including fines and imprisonment. Companies who offer such services often create new credit reports utilizing stolen Social Security Numbers or Employer Identification Numbers received under false pretenses.
Charge Advance Fees
Some credit repair companies ask for payment upfront before they provide any services, which is illegal under the Credit Repair Organizations Act, which states that credit repair companies cannot charge fees until they have completed the services promised. Paying in advance can leave you vulnerable to scams, where the company can disappear without delivering any service after you have paid them.
Lying to the Credit Bureau
Some companies lie to the credit bureau to appeal negative reports on your credit activity. One company filed fake identity theft reports of its consumers to the Federal Trade Commission’s Identity Theft Website. This company then blamed the negative reports on the credit activity related to identity theft, claiming that the customer hadn’t been responsible for them. Doing so is illegal, and if the customers engage in lies, they could face severe consequences.
