How to avoid credit repair scams, and DIY credit improvement tips

By Michele Lerner
Mortgage Credit Problems Columnist

With thousands of Americans facing debt problems, advertising has proliferated promising immediate credit repair. Unfortunately, many of those credit repair promises -- especially if they guarantee a fast fix -- are scams.

Red flags for credit repair scams

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The U.S. Federal Trade Commission offers tips on how to spot credit repair scams. These are red flags that you may want to steer clear.

  1. The service requests an upfront payment.
  2. You are not told that you can do this yourself for free.
  3. You are told not to contact credit reporting agencies directly.
  4. You are told that negative information will be deleted from your credit report, even if accurate.
  5. You are told to dispute all information in your credit report, regardless of accuracy.
  6. You are told you can create a new credit identity with an Employer Identification Number instead of your Social Security number.

Do-it-yourself credit repair tips

Avoiding credit repair scams doesn't mean avoiding credit repair, of course. In fact, if you are applying for a mortgage soon and have less than perfect credit, you probably need to take a close look now. If credit problems may prevent you for getting a home loan, you want to take steps as soon as possible to improve your credit score.

Request your free credit report at AnnualCreditReport.com. Check your credit report for accuracy. The credit reporting agencies (Experian, TransUnion and Equifax) tell you on their websites how to dispute a mistake on your report. Look at the negative information on your report to see what to fix first. If you are behind on payments to any creditor, start by bringing those accounts up-to-date.

Pay all your bills on time. If you need help with this, sign up for email alerts from each creditor so you know when bills are due, or sign up for automatic payments through online banking.

Stop using credit cards for new purchases. If lack of discipline about credit card use is driving your debt problems, wait until you get your finances under control to break out the plastic again.

Set up a financial plan for paying down your debt. Start by listing each debt, the interest rate and the minimum amount due. While there are several methods available, you may find the popular "debt snowball" plan works for you: Pay off the smallest debt first while paying the minimum on all other debts, then apply the payments you were making on that first debt to the next largest until you are debt-free.

Consider working with a non-profit credit counselor. Try the National Federation for Credit Counseling.

If you qualify for a new home loan or can refinance, make sure your new housing payments fit within your budget so you can continue to make progress on eliminating your debt problems.

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