Are Credit Repair Companies Legal?

Having a good credit score is a goal for many of us, often because of how much it can influence financial decisions that impact our lives. For example, getting a loan with a fantastic interest rate, a competitive insurance premium, and even a job can be impacted by what’s on our credit reports. For those of us with poor credit reports, credit repair may be a viable way to clear those potential problems.

So if you’re considering hiring a credit repair specialist in Houston, it is imperative that you understand the various aspects involved so you make an informed decision. Credit experts such as those at The Phenix Group can help make the process a breeze.

There are several concerns that one may have when seeking credit repair services, such as: What can credit repair removeCan a credit repair company raise my credit score? Most importantly, are credit repair companies legal?

In this article, we will help answer these and other questions surrounding the efficacy and legitimacy of credit repair services. 

What Is Credit Repair? 

Credit repair is when a third party, often called a credit repair or credit services company, attempts to get inaccurate negative information removed from a credit report. The Fair Credit Reporting Act (FRCA) gives consumers the right to an accurate credit report, which allows a person to start a formal dispute with credit bureaus about any inaccurate or incomplete information on their record.

Credit repair companies can review your credit report, identify negative or erroneous information, and determine strategies for improving your credit. They do this by sending letters on your behalf to the credit bureaus that dispute inaccurate information or ask for a goodwill review of your account history; they also follow up to ensure any inaccurate information is removed and continue to monitor your credit report to address any new erroneous information. 

Are Credit Repair Companies Legal? 

Yes–whether you do it yourself or hire a service, credit repair is authorized by federal law and in all fifty states. The FCRA and the Credit Repair Organizations Act (CROA) apply to credit repair companies in the United States. Enacted in 1996, CROA clearly articulates what credit repair companies must do and must not do, to remain compliant with federal law. As per the CROA, credit repair organizations need to notify their customers of the following upfront:

  • Individuals have the right to dispute their own credit report information
  • Consumers can sue the credit repair company if they violate the CROA

In addition to providing all the necessary information, a legitimate credit repair organization must also provide the customer with a contract that includes the following: 

  • Payment terms, including total costs
  • A detailed description of the services they will provide 
  • A deadline to complete the services 
  • The ability to cancel the contract within three business days 

Which Credit Repair Practices Are Illegal? 

According to the CROA, the practices that are prohibited by any credit repair organization are:

  • Making false claims about the services they offer
  • Advising customers to make false statements to credit reporting agencies 
  • Charging the customer before completion of the promised services
  • Promising to remove any negative, but accurate, information from the customer’s credit report 
  • Advising customers to change their identification–an illegal practice known as file segregation–to prevent the credit bureaus from associating them with their real credit information. 
  • Encouraging customers to stop making payments to their creditors 
  • Advising customers to ignore the IRS, collection letters, or other legal documents 
  • Perform any services on behalf of the customer before a contract has been signed and a three-day waiting period has passed, during which a customer can cancel the contract with no fees

Credit repair companies are also not allowed to hide the above notices within the language of their contracts. 

Final Thoughts 

Having a good credit score is extremely important. It only takes a few mistakes to damage it, making it difficult to get approved for credit cards, loans, and other credit-related services. Therefore, you may consider hiring a reputable credit repair company right here in Houston, like The Phenix Group, to do the work for you. While credit repair services are legal under federal law, there are various guidelines that you need to be aware of to make sure you are seeking services from a CROA-compliant credit repair organization.