People struggling with loan payments and falling credit scores may be tempted to seek a quick fix. But they should be wary of so-called credit repair companies that promise to scrub credit files and improve credit scores for a fee, consumer watchdogs say.
The Consumer Financial Protection Bureau filed suit this month against Lexington Law and CreditRepair.com, two of the largest credit repair brands, and a related network of interconnected businesses.
The suit alleges that the companies illegally charged customers upfront for credit repair services in violation of the federal Telemarketing Sales Rule. Under that rule, companies can charge fees for credit repair services sold through telemarketers only after documenting that their promised results have been delivered.
The complaint also alleges that several of the companies, referred to collectively as Progrexion, used deceptive marketing to lure clients, in violation of the Consumer Financial Protection Act.
The complaint, filed on May 2 in Federal District Court in Utah, said people paid the credit repair companies hundreds of dollars in fees, seeking to improve their credit scores and get better access to loans on improved terms.
But the businesses used misleading methods, including false advertising, as “bait” to attract credit repair clients, the complaint said. Progrexion, for example, paid an affiliate that advertised nonexistent home loans with down payments as low as zero percent, even to borrowers with “bad” credit. Interested consumers were then required to enroll in credit repair services, through Lexington Law. “In reality,” the complaint said, “the affiliate did not provide any loans at all.”
The Consumer Financial Protection Bureau didn’t respond to a request for comment on its suit.
Eric M. Kamerath, a spokesman for Lexington Law and Progrexion, which includes CreditRepair.com, emailed a statement in response to a request for comment on the lawsuit: “Lexington and Progrexion have helped millions of consumers ensure their credit reports are fair, accurate and substantiated. We take the trust and confidence consumers place in us very seriously, we disagree with the allegations in the complaint, and we will vigorously defend ourselves and the valued services we provide.”
According to an analysis of the consumer bureau’s complaint database published this week by the U.S. PIRG Education Fund, complaints about credit reporting, credit repair services and other “personal consumer reports” made up 43 percent of total complaints in 2018, up from about a quarter of complaints in 2016.
Andrew Pizor, a lawyer with the National Consumer Law Center, said he welcomed the bureau’s lawsuit and warned that paying for credit repair was a waste of money.
“Avoid it completely,” Mr. Pizor said. Anything a credit repair company can do, he said — including disputing inaccurate information found on your credit report — people can do themselves, at no cost.
If negative information listed on your credit report is correct — for example, you have stopped making payments on a loan or credit card balance — there’s little you can do to remove it quickly, the consumer bureau says on its website. Negative information typically remains on your credit report for at least seven years.
“Beware of anyone who claims that they can remove information from your credit report that’s accurate, current and negative,” the bureau says. “No one can do that.”
Consumers can try negotiating with lenders on their own, Mr. Pizor said, perhaps by offering to make a full or partial payment on a bad debt in exchange for an agreement by the lender to stop reporting the delinquent account to the credit bureau. It may not work. But it won’t cost you anything. If you reach an agreement, he said, “get it in writing” before making the payment.
An alternative is to seek help from a reliable, nonprofit credit counseling organization, the bureau says. Credit counselors provide advice on how to manage your money, and can help you develop an affordable plan to pay down your debt. Some counselors offer advice at no or low cost.
Here are some questions and answers about improving your credit:
How can I find a reputable credit counselor?
Michelle Grajales, a lawyer with the Federal Trade Commission, recommends finding a counselor who can meet you in person. A good place to start looking is on the Department of Justice’s website. (The site lists agencies approved to counsel consumers who are considering filing for bankruptcy, but you don’t have to be contemplating bankruptcy to use them.)
Other potential sources are the National Foundation for Credit Counseling and the Financial Counseling Association of America.
After you identify counselors near you, Ms. Grajales said, check with your state attorney general’s office to see if any complaints have been filed against them and get a quote — in writing — about any fees charged, before signing up for services.
How can I check my credit report for errors?
You can request a free copy of your credit report from each of the three major credit bureaus (TransUnion, Equifax and Experian) every 12 months. Credit advisers often suggest staggering the requests, and getting a report from a different bureau every four months.
If you find an error on your report — it’s not uncommon — you should dispute the item in writing by contacting both the credit bureau and the lender. The Consumer Financial Protection Bureau offers tips for doing so on its website.
How can I improve my credit score?
The best way to improve your credit score is to pay your bills on time and keep credit card balances low relative to the amount you are authorized to borrow, said Joanne Gaskin, vice president for scores and analytics at Fair Isaac Corporation, creator of the widely used FICO credit score. “Work to get current, and try to stay current,” she said.
This year, FICO representatives are visiting communities across the country and holding free sessions about building and managing credit, in partnership with local credit counseling agencies. Information about coming dates is available on FICO’s website.
FICO also recently began testing a new type of credit score called UltraFICO, which factors in the balances in a borrower’s bank account and his or her cash management practices as a supplement to a traditional credit score, which mostly factors in your record of paying loans and credit card debt.