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Credit Repair Organizations Act: What You Need to Know

The Credit Repair Organizations Act (CROA) is a federal law that regulates the credit repair industry. The credit repair industry includes businesses and services that enhance a person's credit rating. Credit repair organizations help remove negative information from a person's credit report. The CROA makes it illegal for a business to falsely claim its ability to "fix" a person's credit report or credit score. These companies must provide accurate information and disclosures in the credit repair process. Violation of CROA can lead to significant legal consequences.

How Credit Scores Work

A credit score is a number that gives lenders an idea of a person's creditworthiness. Lenders consider a person's credit score very important. A low score means a person is a high-risk borrower. A high score means they are less likely to miss a payment or default on a loan. Credit scores range from 300 to 850. A score above 720 is excellent. A score between 620 and 720 is fair to good. The higher your credit score, the more likely you'll be able to borrow money at a lower interest rate.

It's important to know your consumer rights under the CROA when dealing with credit scores and credit repair services. Your credit history, put together by credit bureaus and sent to organizations like FICO, influences your credit score. Credit reporting agencies might have slightly different information. So, consumers need to know their rights and ensure fair treatment and accuracy in their credit information.

Credit Repair Companies

Unfortunately, some organizations promise they can remove negative credit information from a person's credit report. For example, such organizations have advertised that they can delete references to repeated late payments of loans or even bankruptcies. They may also charge an upfront fee for services you can perform yourself. Some have even attempted to get around a bad credit score by altering a consumer's identity, such as getting a new employer identification number. The CROA protects people from such dishonest credit repair practices.

What Is the Credit Repair Organizations Act?

In 1996, Congress passed the Credit Repair Organizations Act. This was in response to growing complaints about organizations fraudulently promising consumers to perform illegal services. Some of the protections the law offers consumers include:

  • Prohibiting organizations from misrepresenting their services
  • Requiring an organization to provide a written contract with the consumer
  • Allowing the consumer three days to cancel the contract
  • Preventing an organization from charging for services until they have been rendered

The Federal Trade Commission (FTC) enforces the CROA. The FTC is an independent agency of the U.S. government responsible for consumer protection and preventing unfair business practices. This means the FTC can shut down credit repair organizations if it learns of fraudulent or illegal activity.

You can also sue credit repair organizations directly if they defrauded you. A credit repair organization violates the CROA when it fails to offer a written contract or takes payment before helping a consumer. That consumer can then file a lawsuit to seek a return of money. A court may also order the organization to pay attorney fees, punitive damages, and the consumer's losses.

The FTC recommends that anyone considering using a credit repair service should first contact a credit reporting agency directly. People can usually correct errors in credit reports for free. The FTC also advises consumers to consult with reputable credit counseling organizations that can help with debt management.

Other Consumer Credit Protections

While the CROA oversees credit repair services to protect consumers from unfair practices, other federal laws are in place to protect consumers.

One is the Fair Credit Reporting Act (FCRA). The Consumer Financial Protection Bureau (CFPB) monitors the FRCA. It promotes accuracy and fairness in information collected by credit agencies. It grants people access to their credit reports, allows them to dispute errors, and ensures accurate reporting by businesses.

Another is the Consumer Credit Protection Act (CCPA). The CCPA encompasses laws like the Truth in Lending Act and the Fair Debt Collection Practices Act. It protects consumers' rights to dispute errors and guards against scams and identity theft.

You can also seek help from your state's attorney general or state consumer protection agency to address potential violations of consumer rights. Contact a consumer protection attorney today to learn more.

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