No one can deny you the right to try to improve your credit score and keep your credit report clear of errors. In most states, it’s perfectly legal to hire someone (i.e., a professional credit repair specialist) to help you with this.
However, you need to play by the rules. Before paying someone to fix your credit, make sure you understand the difference between legal and illegal credit repair and how to spot credit repair scams.
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How does credit repair work?
Credit repair is the process of fixing or rebuilding damaged credit by modifying the information shown on your credit report, either on your own (with DIY credit repair) or through a professional credit repair company or credit repair organization (CRO).
Although credit repair companies can’t do anything you can’t do to remove negative marks from your credit report on your own, you may choose to pay to have someone else fix your credit if you don’t have the time, energy, or expertise needed to do so.
Professional credit repair can be legal or illegal, depending on your state or jurisdiction and how the company goes about fixing your credit. Additionally, whether credit repair actually works depends on what issues you need to fix.
What can credit repair companies do?
When you hire a credit repair expert, they have access to the same credit tools and resources that are available to you. Specifically, they may do any of the following things to help you repair your credit:
- Obtain copies of your credit reports from the three main credit bureaus (Experian, Equifax, and TransUnion)
- Help you check your credit score
- Dispute errors on your credit report
- Negotiate with your creditors
- Negotiate with your debt collectors
- Write letters of recommendation to lenders
The main services that credit repair companies provide involve attempting to remove derogatory marks from your credit report by either challenging the credit bureaus or negotiating with data furnishing companies (like creditors and debt collectors).
Are there any laws against professional credit repair?
As mentioned, professional credit repair is legal in every state except one: Georgia. It’s illegal to operate a credit repair business in Georgia, and it’s classed as a misdemeanor crime. 1
In all other states, credit repair is legal. However, the industry is highly regulated, and there are laws that limit what credit repairs are allowed to do and say (mainly to protect consumers like you).
Examples of illegal credit repair practices
Even though credit repair is usually legal, you should be on the lookout for credit repair scams or companies that adopt illegal credit repair tactics. Below are examples of unlawful credit repair.
Charging for services upfront
It’s against federal law for credit repair companies to charge you upfront for services they haven’t yet performed. 2 This means they can’t charge you for removing a late payment from your credit report (or any other negative mark) unless they’ve actually successfully removed it.
In a similar vein, credit repair companies aren’t allowed to make guarantees that they can’t legally follow through with. This includes promising to remove accurate negative information from your credit reports, which is never a sure thing (and, in fact, is quite unlikely, regardless of what credit repair companies may claim).
Credit washing is an illegal credit repair tactic that involves falsely claiming that your identity has been stolen and using the alleged identity theft as grounds to have accurate negative marks removed from your credit report.
If a credit repair company tries to persuade you to file a false identity theft report to get defaults, delinquencies, or other derogatory items scrubbed from your credit history, then immediately report them to the Federal Trade Commission and find a different company to work with.
Creating a new identity
It’s fairly common for scam credit repair companies to try to sell unsuspecting consumers identification numbers that they can use in place of their Social Security number to apply for new credit accounts, such as loans and credit cards.
This practice is, of course, illegal. Unfortunately, the burden also falls on you as the consumer to know when you’re breaking the law. There have been cases of these illegal credit repair scams landing innocent consumers in big legal trouble.
Steer clear of any credit repair companies that claim you can instantly get approved for a new loan or credit card using any of the following numbers:
- Employer identification number (EIN)
- Credit privacy number (CPN)
- Credit profile number
- Someone else’s Social Security number
Adding false information to your credit reports
Any company that offers to give your credit score a quick boost by deceiving lenders or getting false account information added to your credit reports is breaking the law.
There are a couple of different illegal credit repair schemes that fall under this category:
- Reporting fake account information: Scam credit repair companies may offer to report positive credit activity to the credit bureaus under the false pretense of being a lender or creditor.
- For-profit piggybacking: While piggybacking credit can be perfectly legal (e.g., if someone you know adds you as an authorized user to their credit card), paying a credit repair company to help you piggyback off a stranger with an excellent credit score could be interpreted as bank fraud, at least according to Experian. 3
What are the laws governing credit repair?
If you’re planning on hiring a credit repair company to fix your credit for you, you should make sure to familiarize yourself with the laws and regulations surrounding credit repair. This will protect you from credit repair scams and any legal repercussions you could face from accidentally breaking the law.
The Credit Repair Organizations Act (CROA)
The Credit Repair Organizations Act (Title IV of the Consumer Credit Protection Act) is a federal law that was introduced in 1996 to protect consumers from unethical credit repair practices.
Specifically, under the CROA, it’s illegal for credit repair companies to do any of the following: 2
- Charge you for services they haven’t yet provided
- Fail to provide you with a written copy of your contract
- Fail to express that you have the right to file credit disputes on your own for free
- Advise you to lie to the credit bureaus or lenders
- Deny you the right to cancel credit repair services within 3 days of signing your contract
The Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act is a federal law that aims to ensure the accuracy of credit reporting and protect your right to access and dispute errors on your credit reports.
Here’s a summary of your rights under the FCRA: 4
- Notification of when your credit report is used to deny you credit, jobs, or products
- Free access to the information on your credit reports
- Access to your credit scores (for a fee)
- Free dispute process for fighting inaccuracies in your credit file
- Removal of errors from your credit report within 30 days that a credit dispute was filed
- Removal of outdated information (typically after 7–10 years, depending on the item)
- Protection of your credit information from disclosure to unauthorized parties
You take advantage of many of these protections when you pursue credit repair, whether on a DIY basis or with a company doing it on your behalf.
State laws on credit repair
As you know, Georgia has laws prohibiting professional credit repair. Other states may also have their own laws limiting credit repair companies in various ways, although they don’t ban the practice outright.
It’s important to realize that these laws apply strictly to people selling credit repair services. If you live in Georgia (or any other state), you have the legal right to file credit disputes and ask for negative marks to be removed from your credit report.
State credit repair laws have been introduced over the years in addition to federal laws to provide consumers with added protection. If you want to know more about the rights you have in your state or you want legal advice on credit repair, consider consulting an attorney or searching your state’s government website.