Credit Repair Organizations Act: Here’s What You Need to Know

You’ve just gotten home from work and sat down to dinner, and the phone rings.

The caller says he can help you repair your bad credit and offers the promise of getting it back up to par. Do not fall for it.

Before turning to a potential scammer posing as a credit repair organization for help, here are some key facts you need to know.

What is the Credit Repair Organizations Act (CROA)?

Thankfully, there’s protection for those who find themselves being hounded by a potential credit repair company that promises the moon and stars.

The Credit Repair Organizations Act (CROA) is a federal law passed in 1996 created to regulate the credit repair industry. Its main goal is protecting consumers against scammers or other shady outfits claiming to fix credit. Like the Fair Debt Collection Practices Act, it protects against unfair debt collection business practices and can be helpful to those in need of protection

It’s Enforced by the Federal Trade Commission (FTC)

CROA, which is Title IV of the Consumer Credit Protection Act, prohibits untrue or misleading representations and requires various affirmative disclosures in the offering or sale of credit repair services and is enforced by the Federal Trade Commission.

If you have signed a written contract with a company, the CROA gives you three business days to change your mind and submit a notice of cancellation. Learn more about the legal rights provided by the U.S.C. CROA subchapter ii here.

The Following are Prohibited Practices Under the CROA

  • Charging an upfront fee right off the bat
  • Asking you to lie or mislead credit reporting companies about your various accounts
  • Telling you not to contact the three credit reporting agencies on your own.
  • Suggesting you use pretenses or create a new credit identity to hide credit problems or change your credit history
  • Suggesting you give lenders inaccurate information on credit or loan applications
  • Not providing a written contract or meeting the contract requirements
  • Telling you to sign a waiver giving up any of your CROA rights

Promising to remove negative information on your credit report, even if accurate, is a violation of consumer credit file rights under state and federal law, which states that accurate credit information will not be removed from your credit record until it expires.

In general, negative but accurate information cannot be removed from your credit report under any circumstance. You can dispute accurate information if it appears on your report multiple times. Also, most negative information stays on your credit report for seven years.

Beware of anyone claiming they can remove information from your credit report that’s current, accurate, and negative. Since that is a violation of federal law, it’s more than likely a credit repair scam. Do not give them any money or personal information.

If Your Rights Have Been Violated

If you’ve already been possibly scammed and believe a credit repair organization has violated your rights, file a complaint with your state attorney general and the Consumer Financial Protection Bureau (CFPB) immediately.

It may also be smart to consult with a law firm as you can file a non-compliance lawsuit seeking actual damages, punitive damages, costs, and attorney’s fees.

What is a Credit Repair Company?

A legitimate credit repair company is a third-party service that contacts a credit reporting bureau for you for a fee. It will remove inaccurate or negative information and help you improve your credit rating over time.

However, you can do this on your own, as you have the legal right to dispute any incorrect information on your credit report. According to Experian: “Credit repair costs can reach hundreds or even thousands of dollars — and there is no guarantee the company will be successful getting credit entries deleted from your credit reports. It is a violation of CROA for a credit repair agency to guarantee that they can get negative items removed from your credit reports.”

If you seek out a legit credit repair company make sure it provides:

  • A disclosure statement is known as “Consumer Credit File Rights Under State and Federal Law” so you know your legal rights.
  • A fully written credit repair contract.
  • A notice the contract can be canceled within three business days so can take time to make an informed choice.

How to Protect Yourself from Scammers

Again, know your legal rights if you have been scammed or duped right away. Rest assured federal laws protect you including the Federal Trade Commission recommendations, CFPB and CROA. Here are ways to protect yourself:

  • Never give out a Social Security number or personal information, especially over the phone. The scammer could sell it and you will be an identity theft victim.
  • If you’re suspicious ask for an employer identification number and information related to the company.

Do Credit Repair Companies Work?

It depends on your individual situation and if the company is legitimate and/or has a good track record. But you can fix your credit yourself without the headache of a credit repair company — and usually for free.

How to Improve a Bad Credit Score on Your Own

There are plenty of advantages that come with having good credit. Improving a bad credit score may sound daunting, but millions do it regularly without the help of a credit repair company – scam or legitimate. Here are some ways to do it:

Review Your Credit Files

Order free credit reports from the major credit bureaus — Experian, Equifax, and TransUnion — at annualcreditreport.com or via any of the bureaus. Federal law states the three largest credit reporting agencies must give each consumer a free credit report every 12 months if the consumer asks. There are also many places to get free credit scores. Be sure to learn your number and what it means.

Dispute any Inaccuracies

Look at the report and check for:

  • Indications of late payment even though you paid your bills on time
  • Hard inquiries you never authorized or requested
  • Accounts you never opened
  • Loan balances that seem large or ones you never had
  • Any other activity you don’t recognize or seems strange

Dispute any errors you find by contacting the credit reporting company and the company that provided the information.

Then explain in writing what you think is incorrect, including the credit bureau’s dispute form, copies of documents supporting the dispute, and keep records of everything you send.

Negotiate Payment Arrangements

Contact the company in question and discuss options like making a payment plan. In addition, make sure you’re up to date on payments. The company will be more likely to negotiate if it thinks you’ll actually be able to follow through with the payments.

Improve Credit History

Payment history is key in determining your credit scores as well as having a long history of on-time payments. Don’t miss loan or credit card payments by more than 29 days — payments at 30 days are considered late and can be reported to the credit bureaus thus damaging credit scores.

Making automatic payments for the minimum amount due can help avoid missing a payment. If you’re having trouble paying a bill, contact the credit card issuer and talk about hardship options.

Lower Your Credit Utilization Ratio

Always try to keep this ratio low and never have credit cards with more than 60% individual utilization. If you can keep your entire credit profile under 30% on individual accounts this is always a good practice. In general, the lower your credit utilization, the higher the score will become.

Seek Credit Counseling

Credit counseling agencies are nonprofit organizations that can devise a payment plan to help you deal with your credit card debt. A counselor may be able to negotiate lower payments, interest rates, and ask card issuers to make accounts current.

Consider Debt Consolidation or Debt Settlement

Debt consolidation combines all debts making them easier to pay off because you’re only dealing with one payment and one interest rate instead of multiple monthly bills with varying rates and fees.

Debt settlement involves negotiating with creditors to lower the amount owed. Do try negotiating a settlement agreement with your creditor or hire a debt settlement company.

Be Patient

Being patient is perhaps the hardest as the waiting game isn’t easy and takes time even though you may want to see instant gratification on your credit score.

Want to learn more ways to increase your credit score? Check out this video:

The Bottom Line

Hiring a legitimate credit card company is always something to consider because not everyone has the time or desire to do it themselves. But be sure to do a bit of research and ask some questions before you sign on the dotted line. Any reputable credit repair company will know the law and follow it. Trust your instincts. If someone promises you instant results or something else that sounds unrealistic, choose another company. Our list of the top credit

FAQs

What is the Fair Credit Reporting Act?

Passed in 1970, the Fair Credit Reporting Act is U.S. federal government legislation that was enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. Its goal is to shield consumers from the willful and/or negligent inclusion of incorrect data in their credit reports. The FCRA regulates the collection, dissemination, and use of consumer information, including consumer credit information. Together with the Fair Debt Collection Practices Act, the FCRA forms the foundation of consumer rights law in the United States. enforced by the US Federal Trade Commission, the Consumer Financial Protection Bureau, and private litigants.

What Credit Score is Considered Bad Credit?

Experian reports based on the FICO score range of 300 to 850, a credit score under 669 is fair or bad. Lenders often call this “subprime,” which indicates borrowers who may have a hard time repaying a loan.

What is Creditworthiness?

Creditworthiness is just that being “worthy” or deserving of obtaining credit from a lender. If a lender is confident the borrower will honor the debt obligation in a timely fashion, the borrower is believed to be creditworthy.