Consumers Cautioned About Credit Repair Scams

November 21, 1997

State banking officials today warned Connecticut consumers to stay clear of offers from companies who pledge to remove negative data from their credit reports or help them to repair or create new credit files.

According to Banking Commissioner John P. Burke, earlier this week an examiner for the banking department’s Consumer Credit Division paid a visit to a Hartford post office at lunchtime and noticed promotional leaflets for a Boston firm claiming that it can help consumers legally "establish a brand new credit record and qualify instantly for major credit cards."

The company named on the leaflet, American Financial Services, advertised that it would supply consumers with a new identity starter kit and free applications that could be used to obtain VISA and MasterCard credit. But first, the consumer would have to part with $39.

Hartford postal officials were unaware that the leaflets had been placed in the post office lobby but quickly removed them and advised post offices statewide to be on the alert for such activity.

"Anyone who picked up that leaflet should immediately discard it," Burke warned. "Consumers need to watch out for companies that promise to polish tarnished credit histories. When it comes to repairing bad credit, credit repair firms charge you for work you can do on your own at no cost," he explained.

The banking department has referred information obtained on American Financial Services to the Connecticut Attorney General's Office which has been actively cracking down on credit-fixing fraud. Burke said consumers should be able to easily access their credit records, interpret them and correct any mistakes without paying some company to do so. Credit repair firms are not only unnecessary but, in most cases, are downright scams.

Consumer credit officials at the banking department say it pays for consumers to review their credit report annually, making sure that inactive or closed accounts are marked as such, and to check to see that data on people with similar names has not been erroneously filed. You are entitled to a free report if you were recently denied credit; are unemployed and plan to look for a job within 60 days; are on welfare; or if your report is inaccurate because of fraud. Otherwise, you may have to pay up to $8 for a copy of the report.

For people with credit and debt problems who need honest help, the place to turn may be a licensed credit counseling service, whose function is to help consumers manage debts. Credit counseling focuses on repaying or restructuring debts and improving payment habits.

"Unfortunately, consumers can’t erase credit that is really bad, but they can begin building new credit that is good," Burke said. "Stay clear of any company that says it can change your bad credit or advises you to create a new persona," Burke added, explaining that "file separation" is the term used in the credit industry to describe such activities. File separation attempts to get you to drop a middle initial or use different addresses and lie about some of the data involved so that these firms can create a "new you," -- someone with a clean slate who can obtain new credit.

"What American Financial Services and similar companies propose to do is illegal," Burke said. "To create a new identity is fraud, and the Internal Revenue Service will strictly prosecute such crimes."

Consumers who need advice on how to correct inaccuracies on their credit reports or who wish to report companies that may be conducting questionable credit repair business should contact the Connecticut Department of Banking.