Danger Signals

Run, don't walk away from a firm that does any of the following:

Asks you to pay for credit repair before services are provided. This is a direct violation of the Credit Repair Organizations Act, which states that credit repair companies can't charge you fees until after they have completed the promised services.

Advises you to dispute all negative information in your credit report. The company will flood credit bureaus with a plethora of letters disputing both inaccurate and accurate information. The theory is that many times creditors fail to respond within 30 days and that item is deleted. The truth is that most credit is verifiable, very rarely are credit scores improved and the consumer has wasted time and money.

Promises you the moon. Credit repair companies cannot remove accurate records of bankruptcies, judgments, liens, or bad loans from your file. Most negative information stays on your credit report for seven years; judgments and lawsuits are reported for seven years or until the statute of limitations runs out; bankruptcy for 10 years.

Offers to help you get a new credit identity. The company tells you to apply for an Employer Identification Number, which has the same number of digits as a Social Security number. Then they instruct you to apply for credit using this and a different address. This practice, known as file segregation, is a federal and state felony.

But your biggest safety net against credit repair scams is your expectations. Rhode explains that illegitimate credit repair services exist because consumers believe they are entitled to a different score. They want to change it, regardless of whether the negative information is an accurate reflection of their credit history. This is supply and demand.

"There are no quick fixes in credit repair," insists Moakley. "Common sense tells you that a third party doesn't know your credit history better than you. Through contacting credit bureaus, making your own corrections, consolidating your debts, and budgeting, you can improve your own score. You don't need to pay someone to fix it for you. Apply that money toward your debt."