Are Credit Repair Companies Legal?

Credit scores play a huge role in life. Your credit score is important because it can help you get a car, buy a home, and much more. However, many Americans struggle to properly manage their credit score. In fact, 11.1% of Americans have a score of below 550! It is important to manage your credit so that you can get the best score that you can. The better the score, then the more opportunity is available for your financial situation. Sometimes, people find it too hard to improve their credit on their own. That is why they turn to professionals like credit repair companies to help them. However, there is much to know about these companies and how they can help you before deciding to get one.

Understanding Credit Repair

Before you can understand what a credit repair company does, you must first understand credit repair. Credit repair is when a person will do something to improve their credit score. Usually people focus on credit repair when their credit is low. Once their credit gets high enough to be average or above, then they just maintain and build their credit to see improvements over time. In order to build/repair your credit, you need to get a deeper look at what’s going on. That is why you may benefit from checking out your credit report.

What is a Credit Report and How Can it Help?

Your credit report is basically what your report card is to your GPA. You can get a better understanding of why your credit score is the score that it is. This report is the summary of your personal credit history. There are three national credit bureaus (Equifax, Transunion, and Experian). These credit bureaus will be the ones to collect and update this information. They have the obligation to make sure the information in your credit report is accurate. They also have the obligation to provide you with a free credit report copy once a year (every 12 months), and give you the opportunity to correct any mistakes. You can get your free credit report by visiting the Annual Credit Report website. Don’t worry, even though this website looks kind of sketchy, it is legit and the Federal Trade Commission (FTC) recommends it.

It’s important to review your credit report because this can show you what areas you need to work on when trying to repair your credit. You can see if there are any signs of identity theft as well as errors or mistakes. Fixing these issues can protect your information and repair your credit.

What is a Credit Bureau?

A lot of consumers can get confused by the word bureau. However, a credit bureau is just a credit reporting agency that collects the credit information of consumers. It has an individual’s credit history readily available. These bureaus then sell this information to creditors for a fee so that companies who buy the information can determine a person’s creditworthiness.

What are Credit Repair Companies?

Credit repair companies, also referred to as credit services organizations, are a third party that assist with repairing a client’s credit. Each company is different but you can generally expect them to advertise the fact that they help consumers remove inaccurate or unverifiable information from their credit reports. Even if the information is accurate, they may still try to get negative marks removed if they are unverifiable or before they naturally fall off of a credit report.

How Do Credit Repair Companies Work?

You can view a credit repair company as the middleman between you and the company. They will work on getting these other companies to delete credit marks or at least update them so they result in less of an impact to the credit rating.

Are Credit Repair Companies Legal?

When reviewing credit repair opportunities, you may have seen that credit repair is illegal. However, that’s not true. Credit repair is legal in all 50 states. The only special case lies in Georgia. In Georgia, a majority of credit repair companies are banned. However, there are exceptions to that law. Georgia’s hope was to reduce the amount of scams and make sure to protect consumers in need.

Understanding Credit Laws

Let’s take a closer look at some of the important credit laws around credit repair. There are two important ones which are the:

  • Fair Credit Reporting Act (FCRA)
  • Credit Repair Organizations Act (CROA)

What is the Fair Credit Reporting Act (FCRA)?

This federal law was passed back in 1970 with the hopes of helping consumers. This act wanted to provide consumers support with understanding what they can do about the information they found on their report. The FCRA explains that there are other organizations that collect and use the credit information of people besides the three major credit bureaus.

This is important because that means the information on your credit report will impact many aspects of life. Things that can be impacted into their ability to get a loan, their ability to get a car, etc. Organizations determine your creditworthiness on this information.

The FCRA can help consumers in many different ways like:

  • Consumers have the right to know if their credit score will impact their approval.
  • Consumers have the right to request and access their credit report.
  • Restricting credit reporting access from other individuals unless they have permissible purpose.
  • The right to dispute inaccurate information on a credit report.

These points are just the very basic understanding of what the FCRA can do. If you want to review more detailed information of the FCRA you can review online.

What is the Federal Credit Repair Organizations Act (CROA)?

This is another federal law that can help consumers. The CROA is a great example of consumer protection legislation. This act regulates the behavior of credit repair companies. This is super important when making sure that the credit repair assistance you receive is legit. The CROA was created as a response to consumers who had been ripped off by “credit repair companies” who ended up being fraudulent. For example, a credit repair company could claim that they are able to make all negative marks disappear from an individual’s credit report regardless of the validity. However, that’s not true. But if the consumer believes this, they could pay a hefty fee for something that cannot happen. The CROA aims to ensure that these companies use transparency when advertising what they can and cannot do for consumers.

Alternatives to Credit Repair Services

If you are not interested in getting the help from a credit repair company there are some alternatives that you can do instead.

Handle the Situation Yourself

Credit repair agencies do not have any special power when it comes to dealing with the credit bureaus. Instead, they use different tactics that a person may not usually use. Even though the credit repair company can contact the bureaus via the internet, phone, or mail, they usually choose mail. They choose mail because they employ a tactic called “jamming”. “Jamming” refers to the repetitive sends of generally trivial letters to credit bureaus and related companies. The thought process behind this is that if they send enough dispute letters then somewhere along the line a company or bureau will not respond within the 30-day response period that is specified in the FCRA. Without that response, the dispute in question would get dropped from the report.

Instead of getting help this way, you can do the same on your own. You are able to access your credit report at any time. This means that you can review which items that you would want to dispute. Now while you may not choose “jamming” as your method of resolve, you can definitely get in touch with the credit bureaus to review from there.

Get Help from a Credit Counseling Agency

While a credit counseling agency can do nothing to improve your score directly, they can still help you indirectly. A credit counseling agency aims to give consumers tools like the knowledge to better budget, provide money management workshops, etc. This can help consumers improve their credit through various different means. It’s like the saying goes, “give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.” This knowledge will be what helps you maintain your credit health in the future!

Commonly Asked Questions 

Credit repair is a daunting task, especially if you are at the point where you feel as though you need the help from a professional like a credit repair agency. Many others have felt the same way and have asked questions along the way that you may have too.

Is Credit Repair Illegal?

No. Credit repair is legal in all 50 states due to the FCRA  that says consumers have the right to dispute any information on their report. However, credit repair companies are illegal in Georgia as a misdemeanor, with some certain exceptions.

What is a Credit Repair Scam?

Unfortunately, scams are nothing new, especially when the demographic is in need. That is why credit repair scams aim to take advantage of those seeking professional help. Scams vary depending on the situation but there are some telltale signs that you are being scammed:

  • The company promises to remove all negative marks on your credit
  • You are getting pressured to make payments
  • The company discourages you from talking to the credit bureaus yourself

There are plenty of more signs but these are just some common ones that many people experience. Make sure you do not provide personal details unless you can verify that they are legitimate.

Are Credit Repair Companies the Same as Credit Counseling Companies?

Even though these companies both focus on your credit, they are pretty different when it comes to how they can help you. Credit counseling companies aim to help you better understand and manage your credit situation. Their goal is to teach skills like budgeting to help consumers get out of debt.

On the other hand, credit repair agencies focus solely on improving your credit report. They do not care how you handle your credit. Instead, their goal is to remove any negative marks that they can on your report.

Overall

While credit repair companies can be a great help, they may not be worth the fees. Oftentimes, people can see the same success when they try to tackle credit repair themselves. Credit repair companies run the risk of being fraudulent which can cause more harm to the consumer than good. Make sure to check the credibility of any company you are interested in giving information to.  When handling your credit, take your time. Even if you feel like you are in a big hole, it may be more manageable than you realize.

Article References

https://www.lexingtonlaw.com/blog/finance/credit-score-statistics.html

https://www.annualcreditreport.com/index.action

https://www.consumer.ftc.gov/articles/free-credit-reports

https://www.experian.com/blogs/ask-experian/how-do-credit-repair-companies-work/

https://www.prnewswire.com/news-releases/the-georgia-experiment-has-failed-301206547.html

https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf

https://www.clearpoint.org/blog/how-does-credit-repair-work-which-tactics-should-you-avoid/

https://creditrepairlawyersam.com/credit-repair-companies-may-violation-georgia-fair-business-practices-act/

https://www.fool.com/credit-cards/2020/12/15/the-nasty-truth-about-credit-repair-scams/

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