Credit Repair and the Tools of Ignorance

Every day, consumers pay untold sums to companies that promise a quick credit fix. Most of the time, that money is wasted.

I understand why these offers might seem enticing. Good credit can get you much better rates for a car or home loan. A bad credit history can leave you stuck with loans carrying high interest rates and other onerous terms. In some cases, bad credit can even cost you a job.

But make no mistake about it: While there are some legitimate credit-repair companies, many of the claims you hear advertised are usually false and a con to get your cash.

On my XM Satellite Radio show, a couple called in recently to ask whether they had done the right thing in signing up with a company that said it could remove negative information from their credit files.

Now mind you, the information was correct. It included, among other things, a bankruptcy filing by the couple about five years ago.

In a move to clean those blemishes from their credit record, the couple hired the company, agreeing to pay a $200 upfront fee. And -- this nearly made me fall out of my chair -- they agreed to allow $100 to be withdrawn from their bank account each month for ongoing efforts to fix their credit.

I asked the couple for details of the services they were getting. I found out that the so-called credit-repair company wasn't doing anything for them that they couldn't do for themselves.

I urged them to immediately cancel the contract, telling them they were being scammed. But their response was frustrating. Despite my warnings, I could hear in their voices that they didn't believe me. They wanted -- maybe even needed -- to believe the company's claims.

"But they guaranteed they could get the bankruptcy removed," the wife argued.

"They promised they could improve our scores," the husband said.

"You know what, you might as well take a $100 bill every month and light a match to it," I said.

How could I tell that this deal was no good for the couple? There were several signs of trouble.