Credit repair may not have the best reputation as financial services go, but it’s a federally protect right. There are two main credit repair laws that guarantee consumers the right to correct errors in their credit reports. There are also laws in every state that regulate the credit repair industry and service providers.
It’s important to note that credit repair is legal in all 50 states. There’s a federal law that guarantees consumers the right to dispute information in their credit report to have it corrected. There’s also a federal law that outlines how credit repair companies can provide services to consumers. These two laws basically set the foundation for how credit repair works in the U.S.
Important Update: Bureaus Offer Free Weekly Reports Through April 2022
In light of the unprecedented financial crisis caused by the COVID-19 pandemic, the credit bureaus have expanded free credit report access. You can now download your credit report from each bureau once per week through annualcreditreport.com.
We recommend taking advantage of these free weekly reports to check your credit often during this crisis, so you can avoid mistakes.
Table of Contents
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA) is the law that essentially created the credit repair process back in 1970. Small private companies started providing consumer credit histories in summary reports to banks starting in the 1960s. The reports helped banks make lending decisions for local customers. But consumers found that these reports weren’t always entirely accurate. Since this affected people’s ability to qualify for loans, the federal government stepped in to regulate credit reporting.
Rights guaranteed under the FCRA
The FCRA did more than just create the credit repair process, though. It also provided the following protections for consumers:
- It limits who can view your credit report. So, not just any private citizen can request a copy of another consumer’s report. Your report can only be reviewed for:
- Loan and credit applications
- Insurance purposes
- Court cases
- Bank closures
- In most cases, you must authorize a company to review your report. So, even when you apply for a loan you must give them permission to pull your report.
- It also limits what can be said in your credit report. This part of the law limits what information gets listed in your report and for how long it gets listed.
- It guarantees the right to accuracy. This basically means that credit reporting agencies (credit bureaus) must take every action possible to ensure the information is accurate.
- This part of the law creates the credit repair process, which states that a consumer has the right to submit a dispute to question the accuracy of a reported item; the bureau has 30 days to verify the item or it must be removed.
- It also guarantees consumers the right to know what their report says. This is the part of the law that gives people a free annual credit report from each bureau.
- Finally, it creates the fraud alert process, which gives consumers a way to prevent fraud if their identity has been compromised.
Rights to credit repair granted by the FCRA
When it comes to credit repair, the Fair Credit Reporting Act outlines the process credit bureaus must follow.
- Credit reporting agencies (CRAs) must accept disputes from consumers free of charge.
- They must respond within 30 days, but if there is any follow up then they have an additional 15 days to respond.
- The bureau must contact the lender or original provider of the information to verify it within 5 business days.
- The agency has a right to terminate a dispute if it’s deemed frivolous or irrelevant. If they do, they must inform you of the termination within 5 business days.
- If a disputed item cannot be verified, it must be removed.
- The CRA must then provide you with a free copy of your credit report so you can confirm the item is gone.
- If the item can be verified, the dispute gets rejected.
- If this happens, the consumer has a right to include a 100-word statement in their credit report. This explains your dispute to lenders reviewing your report. However, the negative information would still affect your credit score.
SmartCredit can help you dispute potential mistakes with creditors in just a few clicks.
Credit Repair Organizations Act (CROA)
While the FRCA creates the credit repair process, the Credit Repair Organizations Act regulates the credit repair industry. It’s the law that grants you the right to authorize a qualified third party to make disputes on your behalf. Basically, this means that you can hire someone to do the work for you, reducing the time and aggravation of repairing your credit.
Congress passed CROA in 1996 after consumer watchdog organizations like the FTC found high rates of consumer abuse within the credit repair industry. The law recognizes that consumers need to maintain a high score and have a right to seek assistance to correct their credit. It also recognizes the companies often make false or misleading claims or use abusive or predatory practices to create hardship for consumers who are already struggling.
Regulations set by CROA
The main purpose if CROA is to define what companies or organizations have a legal right to provide credit repair services. Then it outlines how those services must be provided.
- The law defines a credit repair company as an entity that sells services related to maintain accuracy in a consumer’s credit report.
- This does not include financial institutions, lenders, credit card issuers or nonprofit organizations, such as consumer credit counseling agencies.
- There are five basic business practices that CROA strictly prohibits:
- Credit repair companies can’t make false statements about credit scores or how much their service can improve your score
- They can’t alter your identity or advise you to do so to hide negative information incurred in your report.
- They can’t make untrue or misleading claims about the services they provide.
- Companies also can’t engage in any practice that would constitute fraud under other federal laws.
- Finally, they can’t charge advance fees and must fully perform all services as you pay for them.
- A credit repair company must also provide detailed disclosure of what their services do and how much it costs. They must give you this disclosure before you sign a contract!
- They can’t penalize you with fees if you decide to cancel
- It prohibits companies from making you sign away your rights to cancel or sue and protects your rights to seek damages if the service is not up to standards.
- It gives you the right to sue a company for up to five years after the service was provided.
State laws that regulate credit repair
In addition to the two federal credit repair laws, almost every state has its own credit repair laws, as well. Most state laws stipulate that a credit repair company must have a state-licensed attorney on staff. In other words, only a credit repair attorney authorized to practice in that state is legally allowed to make disputes on your behalf. This gives you an easy way to make sure that a credit repair company is legitimate. If they don’t have state-licensed attorneys for your state on staff, then buyer beware! The service may be a scam.
Some states require the company to be bonded to work for clients in that particular state. Other states establish more specific systems for when fees can be assessed and prohibited acts that credit repair companies can’t engage in without breaking the law. Disclaimers and disclosures that are legally required can also be set by the state, as well as standards for advertising and making claims during sales calls.
If you want to know your state’s specific consumer protections for credit repair, contact your state Attorney General’s office. They can provide information about your state’s credit repair laws and help you understand the legalese, so you don’t have to read the law yourself to know what rights you have.
How common are credit repair scams?
In 2018, the CFPB received over 1,000 complaints about credit repair companies. Of those, one-third of the complaints were related to frauds and scams. Another 16% complained about misleading advertising claims, 12% got hit with unexpected fees and 10% did not receive the proper disclosures.
Scams do happen, which is why it’s so important to know your rights, both federally and in your state. The benefit of correcting mistakes in your report to fix your credit is immense and professional help can give you an edge. However, you don’t want to add a fraud complaint onto your list of financial to-dos! So, check with your State Attorney General and proceed cautiously if you decide to get professional help.
What to do if you think you’re the victim of a credit repair scam
If a company violates any of the rights outlined above or doesn’t follow the laws in your state, you have a right to sue and a right to file a formal complaint against the company. Here’s what you should do if you think a company didn’t follow the letter of the law and tried to scam you:
- File a complaint with the Federal Trade Commission at https://www.ftccomplaintassistant.gov/
- Then contact your state Attorney General’s office to file a complaint with that office as well.
Note that complaints made to the FTC don’t mean that they will help you sue the company. You usually must pursue a civil lawsuit on your own. The point of filing complaints is to get the company into the federal database of consumer complaints. If they receive enough complaints, then they go after the company with fines and possible business closure. By contrast, your state AG’s office may decide to file a class-action lawsuit against a company if they receive enough complaints. But if you believe you’re the victim of a scam, don’t wait for your AG to act! Instead, talk to an attorney about pursuing a civil lawsuit on your own.
Debt.com can match you with a top-rated, accredited credit repair company so you can get the help you need.
Disputing mistakes on your own
If the thought of getting scammed concerns you, the alternative is to review your reports and dispute mistakes yourself. You should get familiar with how to read your credit report, so you can identify potential errors.
From there, you have two options. You can make disputes directly with the credit bureau that issued the report, or you can dispute any potential mistakes with the credit furnisher (the company that owns your account).
When you dispute with the bureaus, they will send a request to the furnisher to ask that the information be verified. If the information can’t be verified, then it must be removed. If it is verified, then you can write a 100-word consumer statement in your report to explain your side of the story.
The other option is to reach out to the credit furnisher directly. This can be advantageous, because even if the company believes the information is correct, they may offer to make a “good faith” adjustment to remove the negative information in order to make sure you continue to be a happy customer.
Some credit monitoring tools, such as SmartCredit, allow you to make disputes and good faith requests to your creditors easily. They flag information that you may want to dispute or request an adjustment for, then walk you through the process to do so.
This can be a helpful alternative to using a professional credit repair service. The tool will help you make disputes in the best way possible, so you can get results without worrying about getting scammed.
Try SmartCredit free for 14 days to see if it can help you fix your credit.
Article last modified on July 14, 2021. Published by Debt.com, LLC