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Are Credit Repair Companies Legal?

Written by Hank Coleman

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:

  1. 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.

  1. 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.

You should avoid companies that try these practices. These types of tactics are illegal.

  1. Credit Repair Organization Can’t Make Misleading Statements.

If a credit repair company promises you that they can remove the negative items on your credit reports or improve your credit score by 200 points in 30 days, that should be another red flag for you. You should turn around and run.

No credit repair company can guarantee the removal of any item from your credit reports. The credit repair company did not place the items on your credit reports. Only the lenders who put those derogatory items in your file can remove them. Credit repair companies have no power or authority to remove a credit report item on their own.

A credit repair company 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. Do not fall for credit repair organizations making promises and misleading statements that they can’t possibly deliver.

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

You do not have to waive your rights. The CROA protects your rights. In fact, the CROA stipulates that you can’t waive your rights the Act provides.

If a credit repair company asks you to sign a waiver of the rights afforded to you under the CROA, then you can be confident that they are breaking the law. Any waiver you sign would be unenforceable in court.

Be sure to read all documents and contracts that a credit repair company sends you. Signing a contract with a credit repair company isn’t the time to just simply check the box that you accept the terms and conditions like we do countless times online.

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

The CROA gives a specific set of rules that credit repair companies 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.

CROA also requires credit repair companies to feature a specific disclosure entitled, “Consumer Credit File Rights Under State and Federal Law.” Among other things, the disclosure reminds consumers that credit repair companies can’t remove accurate data from your credit report. It also talks about your right to receive a copy of your credit report and a host of other things that seem like more reminders to you and the credit repair company than anything else.

Reporting Credit Repair Companies

You can take credit repair organizations to court if they have violated CROA. Or, you can alert the Consumer Financial Protection Bureau or your state’s attorney general about issues you may have with a credit repair company.

There is a five-year statute of limitations form the date a violation of CROA occurred or the time you learned of the issue to take action. So, don’t think that you have to do anything right now. You have time if there’s an issue.

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 companies 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 want to hire a credit repair company. There’s nothing wrong with giving them a try. If you do decide to work with a company, just make sure that you choose wisely and read all the paperwork they send you.

About the author

Hank Coleman

Hank Coleman is the publisher or the popular personal finance blog, Money Q&A. He’s also a freelance journalist specializing in retirement planning, investing, and personal finance. You can also find him on Twitter @MoneyQandA.


  • Thanks for helping me understand what credit repair companies do and how they work. I find it interesting to learn that they can diagnose a credit report and figure out if there are inaccuracies on it, so they could get removed. My friend told me that having bad credit has affected his lifestyle and he’s looking for a way out of it. I’ll share this with him so he could consider hiring a company for credit repair.

  • I hired a credit repair company. They have now charged me $699 for the first month, yet nothing has been removed or repaired. Is this legal, if so what am I paying for…?

  • I managed a national credit and collections firm for more than 25 years. If you have a lot of derogatory items on your file, it makes sense to initiate a clean-up, just to remove the easy ones. The tougher ones may take a few letters and up to six months to see any real improvement. Ask your CRO if they have a legal team that will assist or go to bat on your behalf, if a federal lawsuit needs to be filed.

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