Bad credit scores can hurt your chances for obtaining a mortgage, car loan, credit card and even a job. If you're in a time crunch and you're tempted to hire a credit repair company to help eliminate negative items on your credit report, you should know the federal government created laws to protect you. Many companies claim to be able to fix your credit in very short time periods. While there are reputable credit repair companies in business, many are not. The Credit Repair Organizations Act (CROA) was designed to regulate credit repair businesses and protect consumers from being ripped off.
False Statements
The CROA prohibits credit repair organizations from making false statements to consumers and from counseling consumers to lie to obtain credit. This also prohibits organizations from instructing consumers to alter their personal information that would restrict creditors from viewing their accurate credit file. In regards to the services performed by the credit repair organization, the CROA restricts organizations from falsely representing themselves, including their services and guaranteeing unreasonable results.
Payment in Advance
Many credit repair companies will charge a fee, sometimes hundreds of dollars, upfront as a part of the contract. The CROA restricts companies from collecting any money before the service being performed. Any company that asks for payment when you sign up should be reported to the Federal Trade Commission. Also be aware of companies that try to get around this law by avoiding the classification of a credit repair organization. Companies can refer to themselves as financial counselors or other titles that would bypass this law. Any company that claims to be able to repair your credit is a credit repair organization and should follow the CROA.
Disclosures
As a part of the contract, credit repair organizations are required by law to provide you with a disclosure that lists your rights as a consumer. These rights include such things as your ability to dispute information on your report, your right to cancel, your right to sue the organization if they do not follow the CROA and your right to obtain a free copy of your credit report.
Contract and Right to Cancel
Under the CROA, no credit repair organization can perform any service without a signed contract from the consumer. Contracts must list all details of the service to be performed, including the fee, estimated amount of time for the work to be performed, guarantee of results, business name and address, and disclosure of the right to cancel. Consumers must be allowed to cancel for any reason within three business days after the contract is signed, without penalty. Cancellations must be done in writing.
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