Credit Repair Organizations Act - Your Defense Against Scams

Don't be the victim of a credit service scam! Know what credit repair organizations can and cannot do with your credit, and make an informed decision.

Credit repair organizations have been popping up all over the place — in television and radio ads, in the Yellow Pages, and on the Internet. They sound like a great service because they often promise to remove negative information from your credit history. Who wouldn't want that? Be warned: Accurate information, both positive and negative, cannot be removed from your credit report by using credit repair fraud. In fact, most information stays on your credit report for seven years, and bankruptcies can stay on your credit report for up to 10 years.

Credit Repair Fraud

The Credit Repair Organizations Act exists because many consumers have been the victims of a credit repair scam or credit repair fraud. While some credit repair organizations may be honest businesses, you should know your rights before deciding to use their services. If a credit repair organization claims that it can create a new credit identity for you, consider the large amount of credit repair fraud that takes place. One credit repair scheme suggests that you apply for an Employer Identification Number (EIN) and use this new federal tax ID instead of your social security number when applying for credit. Be aware that this is against the law, and you could be prosecuted for fraud if you involve yourself. See the North Dakota attorney general's credit repair scams tipsheet for other examples of credit repair fraud.

Some credit repair organizations may require payment up front before they do any work. This is a violation of the Credit Repair Organizations Act, which forbids advance payment for services: "No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed."

Credit Repair Services

You're probably wondering what credit repair organizations can do for you. Typically, they can:

• Get copies of your credit report

• Send letters to the credit bureaus disputing inaccurate information

• Attach a statement to your credit report which gives additional information on a specific issue

In other words, they provide services you can do on your own for free. While they charge a fee for this service, it can save you the hassles of doing it yourself and prevent credit repair fraud.

Is This a Good Choice for You?

There are reasons to use the services of a reputable credit repair organization, and this may be a good choice for you, assuming you:

• Don't want to bother researching your credit history and would rather someone do it for you

• Don't have time to make phone calls or write letters necessary to correct inaccurate information

• Are willing to pay for the service

Remember that a credit repair organization cannot do anything that you couldn't do yourself — for free.

Read the Contract Carefully

If you decide to use a credit repair organization, you should know that the Credit Repair Organizations Act requires that you be given a contract before the services begin. You must also receive a disclosure of your Consumer Credit File Rights before you sign a contract with the credit repair service. After you've signed the contract, you have the right to cancel it within three business days if you change your mind. The contract should include:

• A description of the service

• The fee for the service

• The amount of time it will take to complete the service

The best thing to do is to consider all of your options and choose wisely. To locate a credit repair organization on the Internet, go to any search engine and type in "Credit Repair." Always beware of credit repair scams. For more information about credit repair fraud, read the Better Business Bureau article Credit Repair Fraud Proliferates. For more information about do-it-yourself credit repair, read the U.S. Federal Trade Commission (FTC) article Building a Better Credit Report. See also the FTC press release aboutProject Credit Despair.

To learn more about credit reports and credit repair, read the CareOne Credit Knowledge Center credit repair articles . 

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