The Fair Credit Reporting Act (FCRA) gives U.S. consumers the right to challenge inaccuracies on credit reports. It further allows consumers to challenge or “dispute” that information at no cost. Nevertheless, a category of companies known as credit-repair organizations have evolved based on the business proposition of disputing credit-report information on consumers’ behalf, for a fee.
VantageScore Solutions generally discourages consumers from engaging such credit-repair services, for the simple reason that you can dispute your own credit reports for free, without anyone else’s help. Nevertheless, the sheer number of credit-repair companies, also known as credit-service organizations, makes it clear that many consumers do hire them. Those who choose to do so should keep the following in mind:
Credit-repair is a legal business, but it’s subject to strict federal and state laws that forbid a variety of unethical practices. Chief among these is a federal statute called the Credit Repair Organizations Act (CROA).
The CROA exists to protect consumers from unethical credit repair companies that seek to take advantage of consumers who have poor credit. The challenge for consumers is to sort between those that follow the law and those that do not. Becoming familiar with the CROA and its provisions can help consumers tell the difference.
The CROA includes the following provisions:
- Credit repair companies are not allowed to guarantee results. “We’ll remove 100% of the derogatory information from your credit reports” is the kind of language that is a violation of the CROA. If a credit-repair company’s marketing literature or salespeople make such claims, you should be aware they are neither legal nor true. On a related note, neither repair companies nor consumers acting on their own are able to remove negative information from a credit report, provided that the information is accurate. (A discharged bankruptcy, for example, stays on a credit report for a minimum of seven years, so there’s no legal way to remove it from a file before then.)
- Credit repair companies are not allowed to counsel customers to take any steps to alter their identification to “prevent the display” of their accurate credit report. For example, it is illegal to apply for credit using a tax ID number or so-called credit privacy number (both of which happen to be nine digits long, like Social Security numbers) in lieu of a legitimate Social Security number. Any company that suggests otherwise is operating illegally.
- Credit repair companies are also prohibited from advising consumers to be dishonest in their communications with the credit reporting companies. If, for example, a credit repair agent advises a client to blame overspending or missed payments on a nonexistent identity thief, the counselor is violating CROA. And if the client follows that advice, he or she may be guilty of fraud.
- Finally, credit repair companies are not allowed to bill you in advance for their services. They can only bill you after they have fully rendered their services. So, if a credit repair organization seeks payment up front, before it does any work, then it is not on the level.
Many consumers who turn to credit repair companies would be better served by seeking credit counseling services, available free through nonprofit organizations in many communities. For counseling focused on housing issues, including avoidance of mortgage default or foreclosure and mortgage-modification assistance, the Homeownership Preservation Foundation (HPF)
and its 24-hour hotline, 1-800-995-HOPE, are excellent resources. The U.S. Department of Housing and Urban Development (HUD) also publishes a directory of sponsored counselors at its website