Is Credit Repair Illegal?

What Is Credit Repair?

Credit repair is a process for rebuilding your credit and improving your credit score after they’ve been damaged by poor credit habits, financial setbacks, identity theft, or credit reporting errors. While bogus credit repair offers are a favorite ploy of scam artists, the process itself is legal. There are legitimate credit repair companies that can help you, and steps you can take to repair your credit on your own. This article explains how.

How Credit Repair Works

The first step in repairing your credit is figuring out what has damaged it and how bad the damage is. The way to do that is by requesting copies of your credit reports from the three major national credit bureaus, Equifax, Experian, and TransUnion. You are entitled to one free credit report from each of the bureaus every 12 months. You’re also entitled to a free credit report if a company takes “adverse action” against you, such as rejecting you for credit, insurance, or a job, as long as you make your request within 60 days. You can request your free credit reports through the official website for that purpose, AnnualCreditReport.com.

Once you have obtained your credit reports (and they may differ from bureau to bureau), go over them for any information that is working to your disadvantage. That negative information could include such things as late payments, delinquent accounts, accounts that have been sent to collection, bankruptcies, and foreclosures.

What you should do next depends on whether or not the negative information is correct.

When the Negative Information Is Correct

If the negative information on your credit reports is correct, there is nothing much you—or anyone else—can do about it except to wait for it to get old enough to fall off.

According to the Federal Trade Commission (FTC), most negative information can stay on your credit report for seven years, except for bankruptcy, which can remain for 10 years. The FTC adds that there is no time limit for “information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance.”

If you find negative, but correct, information of that kind on your credit reports, the best thing you can do is practice good credit habits going forward. That means, for example, paying your bills on time and maintaining a relatively low credit utilization ratio. You’ll also want to keep an eye on your future credit reports to make sure your good habits are properly reflected. One way to do that is to stagger your free credit report requests, so that you receive a fresh one from one of the three bureaus every few months.

When You Find Errors on Your Credit Report

If you see negative information on your credit report that you believe to be incorrect, you can challenge it. The FTC suggests writing the credit bureau, specifying what information you dispute and attaching photocopies of any relevant documents.

The credit bureau is legally required to investigate within 30 days, unless it considers your claim to be frivolous. The bureau must also forward your letter and documents to the creditor (such as a credit card issuer) that provided the information you’re disputing. That company is also required by law to investigate the matter and report back to the credit bureau.

If the investigation determines that you’re right, the original creditor must notify all of the credit bureaus it had reported the erroneous information to so they can correct your credit reports.

Either way, when the investigation is completed, the credit bureau must give you the results in writing and provide a free copy of your credit report if the dispute resulted in a correction.

If the dispute isn’t resolved in your favor, it’s your right to have a statement giving your side of the dispute added to your future credit reports. You can also contact individual creditors directly to press your case.

For more details, all three major credit bureaus outline their dispute resolution processes on their websites and include online forms you can use to set the process in motion.

How to Spot a Credit Repair Scam

If you decide that the do-it-yourself process outlined above is not for you, you might consider hiring a professional credit repair company. Investopedia has published this list of The 6 Best Credit Repair Companies of 2020.

But beware of scam artists, who will take your money, do little or nothing to help you, and possibly leave your credit in even worse shape than before. The federal Consumer Financial Protection Bureau (CFPB) has a list warning signs to watch out for. They include:

• Pressure to pay money upfront. That isn’t just a warning sign—it’s illegal under the federal Telemarketing Sales Rule and the federal Credit Repair Organizations Act, the CFPB says.
• Claims that they can get negative information off your credit report, even if it’s correct. As we’ve discussed, this is impossible.

The CFPB also notes that, “you have the right to cancel your contract with any credit repair organization for any reason within three business days at no charge to you.”

The Bottom Line

Your credit is important, so it’s worth the time to review your credit reports periodically to make sure the information they contain is correct. If you discover inaccurate information that casts you in a bad light, you have a legal right to challenge it, and the credit bureaus must investigate. While you can hire a professional firm to help you repair your credit, it won’t be able to do anything for you that you can’t do for yourself.