You may have seen ads for credit repair companies. If you have bad credit, it’s very appealing to hire a company to help you repair your credit score by fixing errors found in your credit report. But, there’s a myth that credit repair companies aren’t legal or don’t follow legal practices.
The idea that it is illegal to hire a credit repair company to help you dispute items found on your credit reports is not true. It is perfectly legal to operate a credit repair company and for consumers to use their services. But, unfortunately, there are a lot of scams and dubious companies out there that you need to be aware of before you hire them.
There’s nothing wrong with hiring a credit repair organization to help you. While you are completely within your rights to dispute questionable credit report entries with the credit bureaus on your own, you can also hire a professional to help you, if you want.
Credit Repair Organizations Act
You need to protect yourself and understand the federal guidelines and laws that govern credit repair companies. Credit repair companies have to follow a list of rules and regulations in order operate legally in the United States. Congress enacted the Credit Repair Organizations Act (CROA) in 1996 as part of the Consumer Credit Protection Act. The Credit Repair Organization Act aims to protect consumers from fraudulent credit repair companies. 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. Here are five of the most important rules a credit repair organization must follow thanks to CROA:
- Credit Repair Companies Can’t Charge You in Advance.
Generally speaking, credit repair companies, also known as credit repair organizations (CROs), are not allowed to charge you for services until after they have actually completed those services. That’s also one of the primary protections for the Uniform Commercial Code (UCC), which governs most purchase transactions in America. In most cases, you shouldn’t be charged for something until the credit repair company has completed the work or completed parts of a contract.
Most reputable credit repair 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 credit repair company tries to require a large upfront fee from you before starting any work on your behalf, then that should typically be a red flag to you that the credit repair company might be violating your rights under CROA.
- A Credit Repair Organization Cannot Create New Credit Files.
You should never do business with any credit repair company that lies on your behalf or encourages you to lie about your credit history. No credit repair company has the ability or should offer to help you create a new identity, to create a new social security number, or to help you obtain an employer identification number (EIN) to use in place of your social security number as ways to repair your credit history.