Credit Laws Credit Score

Are Credit Repair Companies Legal?

Written by John Ulzheimer

The idea that it is illegal to hire a credit repair company to help you dispute items found on your credit reports is 100% incorrect. It is perfectly legal to operate a credit repair company and for consumers to use the services of a credit repair company.

While you are completely within your rights to dispute questionable credit report entries with the credit reporting agencies on your own, you are also within your rights to hire professional help you, if you so choose.

If you do choose to hire a credit repair company to assist you, it’s important to understand that credit repair companies have to follow a list of rules and regulations in order operate legally in the United States. The Credit Repair Organizations Act (aka “CROA”) is the primary statute that governs credit repair companies.

The Act is very consumer friendly and contains many requirements that credit repair companies must follow.  The following are what I believe to be the five most important rules a credit repair organization must follow:

1. A Credit Repair Organization Is Not Allowed to Charge in Advance.

Generally speaking, credit repair organizations (“CROs”) are not allowed to charge you for services until after those services have actually been completed. Most reputable companies will either work on your file for 30 days and bill you retroactively, or will charge you a fee for each item they can get removed.

If a company immediately requires a large upfront fee before beginning any work on your behalf then it is likely that your rights under CROA are being violated.

2. A Credit Repair Organization Cannot Create New Credit Files or Advise You to Lie about Your Credit.

You should never do business with any CRO that lies on your behalf or encourages you to lie about your credit history. Any CRO that offers to help you create a new identity, to create a new social security number, or to help you obtain an EIN to use in place of your social security number should be completely avoided.

That’s bad news and violates a variety of laws.

3. A Credit Repair Organization Is Prohibited from Making Misleading Statements.

If a CRO promises you that they can remove the negative items on your credit reports or improve your credit scores by 200 points in 30 days, you should probably turn around and RUN.

No CRO can guarantee the removal of any item from your credit reports. The CRO did not place the items on your credit reports to begin with, therefore they have no power or authority to remove a credit report item on their own.

Yes, a CRO can dispute items on your behalf and may be able to help you get the items deleted from your credit reports. However, a true guarantee of removal in advance isn’t possible or legal.

4. A Credit Repair Organization Cannot Ask You to Waive Your Rights.

If a CRO asks you to sign a waiver of the rights afforded to you under the CROA then you can be certain that they are breaking the law. Additionally, any waiver of your rights which you do sign would be null, void, and unenforceable.

5. A Credit Repair Organization Must Provide You with a Proper Contract and Disclosures.

The CROA gives a specific set of rules that CROs are required to follow when it comes to constructing their contract for services. Among other requirements, these contracts must include an initial 3-day right to cancel services and must feature a specific disclosure entitled “Consumer Credit File Rights Under State and Federal Law.”  

Is Credit Repair Right for You?

You will find many people who praise the valuable work that credit repair organizations do to assist credit challenged consumers. At the same time, you will also find plenty of others who believe credit repair organizations to be ineffective and a waste of money. Whatever your belief, the fact remains that it is your right to choose for yourself. If you do choose to work with a credit repair company just make sure that you choose wisely.

About the author

John Ulzheimer

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