Don’t Be Fooled by Credit Repair Companies 🚩
A credit report is a detailed statement prepared by a credit bureau that contains a record of your history managing and repaying debt. A credit report is not only used by lenders to determine whether to provide someone with credit, but employers, landlords, and insurance companies also use it. Call us Captain Obvious, but your credit report impacts many areas of your life.
The importance of an accurate credit report has led to a ginormous—to steal a term from Buddy the Elf—credit repair industry. Just how big is the market? In 2021, there were about 69,000 credit repair businesses. Their total revenue totaled nearly $3.5 billion….with a b!
Legitimate credit repair companies do exist and they can help remove inaccurate information from your credit report. However, they can't do anything for you that you couldn't do on your own time for free. Worse, the industry has developed a reputation for deceptive marketing tactics and shady business conduct in attempt to sell services. If you’re considering using a credit repair organization, never ignore these red flags:
1. Demands payment upfront. The Credit Repair Organizations Act makes it illegal for credit repair companies from requesting or receiving payment until services are rendered. No matter what a company calls it—review fees, application fees, file setup fees, etc.—these charges violate the law. No form of upfront payment is legal. Moreover, if the company uses telemarketing such that the Telemarketing Sales Rule applies, the organization isn’t permitted to request or receive fees until it has provided you with a credit report generated more than six months after the promised results that shows the results.
2. Promises a specific increase in your credit score or guarantees results. Under the Credit Repair Organizations Act, credit repair companies are prohibited from misleading consumers by promising results. For example, an organization can’t guarantee that it will increase your credit score by 100 points in one month. Any such promise is a clear sign that the company is operating a scam.
3. Fails to provide a written disclosure. The Credit Repair Organizations Act requires credit repair companies to provide you with a written disclosure informing you of your rights before you execute a contract for services. These rights include your entitlement to a written contract outlining the details of your arrangement as well as your ability to cancel your contract with the company within 3 business days. You can read the full disclosure here. Failure to provide this disclosure on a document separate from any other contract is illegal.
4. Makes misleading statements to your creditors. Per the Credit Repair Organizations Act, credit repair companies cannot lie about your credit history or alter your identity in any way. In other words, an organization may not dispute accurate information under the pretense that the information is an error. A company also shouldn’t ask you to misrepresent information.
Recognizing these red flags and knowing your rights protects you from illegal credit repair tactics. If you believe that a credit repair company has violated the law, you can file a complaint with your state Attorney General or the Consumer Financial Protection Bureau. You can also bring an action against the company for actual damages, punitive damages, and attorney’s fees for violations of the law. Call us if we can help at 407.477.4401.