Is Credit Repair Really Legal?
If you are struggling with bad credit, then you have probably heard that credit repair is a popular strategy to fix your score.
Before you take any steps to fix your credit, make sure you gather all the facts before entrusting a credit repair company with your finances and future.
Is Credit Repair Legal?
Yes, employing the services of a credit repair company is legal regardless of your financial situation.
An important piece of legislation, called the Fair Credit Reporting Act, defines the laws regarding credit history for consumers to protect them.
What Does The Fair Credit Reporting Act (FCRA) Mean For My Rights As A Consumer?
This act allows you to receive a free copy of your credit report once a year at AnnualCreditReport.com. Depending on your circumstances, you are eligible to receive more than one copy of your credit report every year:
- You are on welfare.
- You are a victim of identity theft.
- You have been turned away for credit, loans, and insurance.
- You have been denied a job based on your credit history.
- You are unemployed and searching for a job.
The FCRA limits who can access your credit report by ensuring any inquiries have a purpose, which protects your credit score from being damaged by them. Any unauthorized inquiry can be removed from your credit report.
It also limits negative items such as inquiries, bankruptcies, and foreclosure to only stay on your credit report for 7 to 10 years. Any inaccurate items that you spot on your report can be disputed well before the 7 years are up.
The FCRA also ensures that if a dispute is filed, the credit bureaus (Experian, TransUnion, and Equifax) must respond within 30 days to ensure a more accurate credit report for you.
Where Can I Get A Free Credit Report?
In addition to going to AnnualCreditReport.com, there are other situations in which you can obtain a free copy of your credit report or purchase it for a small fee.
Keep in mind that the scores you receive may not be your exact FICO® scores but scores calculated with a similar scoring model.
How Can I Tell The Difference Between A Scam Artist And A Legitimate Credit Repair Company?
While many credit repair companies you come across are legitimate, there are many scam artists in the market that promise results that are too good to be true.
If a company asks for you to pay upfront for services, then stay away. Some companies may ask for a “first work fee” that is used to acquire your credit reports.
The CROA (Credit Repair Organizations Act) has outlined a law to protect consumers by stating "no credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed."
Additionally, a reputable company informs you that you have the right to fix your credit on your own if you wish. The CROA requires that a written statement called “Consumer Credit File Rights Under State and Federal Law," a statement that is provided to all consumers before any contract is signed.
Be on the lookout for scammers that try to segregate your credit file and create a new credit identity, essentially restarting your credit history. If they ask you to get an EIN (Employer Identification Number) or assign you a new Social Security number, this is a red flag that they are creating a new credit profile for you.
Ask your credit repair company what methods they use to improve your credit and avoid any company that sends a dispute letter for everything on your credit history since this is an ineffective practice.
A lawful credit repair company never disputes and removes accurate information from your credit reports, nor do they promise to remove any information from your reports for an immediate improvement. Any guarantees from a credit repair company on the removal of an item is not truthful because they can only promise to do their best in disputes and deletions. A credit repair company that does not follow these laws is usually shut down very quickly.
Do I Really Need Credit Repair?
If you are tired of dealing with bad credit, then it's time for credit repair. While you can do this yourself, it's more efficient to hire an experienced company to search for disputes and do the legwork for you.
How Does Credit Repair Work?
Credit repair companies work with the three major bureaus to pull your credit reports and dispute inaccurate information. Erroneous items include late payments, collections, charge-offs, bankruptcy, foreclosure, judgments, public records, repossessions, and liens.
You have a right to an accurate credit report, but only incorrect information can be removed, so collect any paperwork you have to back up your claims.
The Bottom Line
Credit repair is not just legal, but it can be an incredibly beneficial step to receive additional benefits and opportunities in the future (aside from an improved credit score). If you don't know where to start, take a look at our top-rated credit repair companies here or look at more options.
Can I Repair My Credit Myself?
If you have the time and knowledge to understand the intricacies of credit repair, then you can do it yourself. You can mail dispute letters to all three bureaus or you can make disputes online.
If you are stretched for time and don’t have the resources, hiring a trusted credit repair company to complete the disputes on your behalf may be a better option. Credit repair companies have licensed attorneys and paralegals who understand your rights and can guide you through the entire process.
How Long Does Credit Repair Take?
Credit bureaus have 30 to 45 days to respond to disputes, so you can expect to see small initial improvements in this time frame. However, each case is unique and the length of time varies per person.
What Are Some Important Laws Associated With Credit Repair?
The Credit Repair Organizations Act requires that a for-profit credit repair company must:
- Inform you of your CROA rights
- Accurately inform you of what they can and cannot do
- Not charge consumers prior to completing services
- Provide a written contract and allow the contract to be canceled within 3 business days of signing
Additionally, each state requires different laws to protect consumers. Some allow you more than three days to cancel a contract or have the credit repair company complete their services in a certain time frame.
What If A Credit Repair Company Does Not Follow CROA Guidelines?
In this case, you can sue a company within five years of their unlawful services.
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