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How to avoid fraudulent credit-repair firms

May 18, 2010 12:00:00 AM PDT
You've seen those ads for companies claiming to help you get out of debt. But do they do more harm than good? Some companies have been caught in the act scamming customers. Marissa Ruiz is talking about a debt-settlement firm and she's not happy about it. You see, Marissa is a single mom in Pasadena who needed her credit cards to make ends meet. But soon she found herself deep in debt owing $12,000.

So Marissa turned to the Internet to find some help and was struck by one place that promised to get her out of debt and repair her credit. She paid them $120 every paycheck and they gave her this advice, which was a big mistake.

"They told me not to pay my bills, not to pay talk to the creditors, not to have anything to do with them at this point, that they were going to take care of everything," said Marissa. "They were going to send letters out to the creditors and tell them that I was working with them. But they were not paying them at all."

"We never recommend to stop making payments, especially if you're current with your payments," said Eduardo Martinez, spokesman for ClearPoint Credit Counseling. "You don't want your payment to be ruined."

ClearPoint Credit Counseling Solutions is a nonprofit agency that legitimately helps consumers with their credit problems.

Martinez says there are several red flags that will warn you away from bad debt-settlement companies.

"They are promising fantastic things," said Martinez. "They are assuring that they have zero-percent mistakes. They have no complaints whatsoever. They affirm to have links with the government," said Martinez.

Which is completely not true with any debt-settlement company. Recently the U.S. Government Accountability Office went undercover, posing as a fictitious consumer and called several debt-settlement companies.

Several companies were recorded telling lies:

"So, it's important for you to know we have thousands of clients. We're also an accredited business with the Better Business Bureau with an 'A' rating," said a representative from one debt settlement company. "And we have zero unresolved customer complaints, and that's because we do exactly what we say."

Misleading statements ...

"We've never been inquired on by the attorney general, ever. You find me a debt-settlement company that can say that, and I'll move over there and work for them," said a representative from another debt settlement company.

And bad advice.

"When you are in our program you will not pay any of your creditors anymore," said another company.

The credit-repair industry is unregulated, although Congress is looking into it. In the meantime, avoid any company:

  • If they want money up front
  • If they tell you to stop making your credit payments
  • If they claim to be licensed and accredited

Paying off credit takes time. Marissa finally went with ClearPoint and after a year and a half she owes just $700.

"I did learn a hard lesson, yes," said Marissa.


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