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There can be a big difference between credit counseling and credit repair companies. Unfortunately, there are also companies that seek to profit from the confusion surrounding credit counseling and credit repair, and these credit repair scams are all too common. According to the Federal Trade Commission, there is no way a company can legally "erase" a bad credit record or remove accurate information from your credit report, regardless of what they promise you.
While some credit counseling organizations may advertise an increase in your credit score as the result of participation, beware of companies that:
Please keep in mind that some of the strategies promoted by credit repair scams may be illegal. If you make false statements on loan applications or use a fake Social Security number, you will be breaking the law.
"Debt negotiation" companies are often another type of scam. These companies claim to be able to reduce your credit card debt by one-half or more, while improving your credit at the same time.
Beware of debt negotiation companies that:
Before using the services of any credit repair or debt negotiation service, check with your state attorney general, local consumer protection agency, and the Better Business Bureau to find out if consumers have filed complaints about the agency you are considering. A reputable agency will send you free information about itself and the services it provides without requiring you to provide any details about your situation. If the agency will not do this, find another agency.
Remember that "nonprofit" status doesn't guarantee free, affordable, or even legitimate services. In fact, some credit counseling organizations — even some that claim non-profit status — may charge high fees or hide their fees by pressuring consumers to make "voluntary" contributions that only cause more debt.
The U.S. Department of Justice maintains a database of approved credit counseling organizations at http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm. This list is a good place to start if you determine a credit counseling agency is right for you.