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Are Credit Repair Companies Legal?

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.

1 Comment

  • 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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