For millions of Americans with poor credit, the idea of being able to fix their credit sounds almost too good to be true. You may wonder, “Is credit repair legal?” when you see credit repair companies advertising online or locally.
And it’s no wonder – with so many scam artists out there, it can seem as though credit repair is nothing more than wishful thinking.
Fortunately, that’s not the case. Credit repair is perfectly legal and more than that, it is your right and responsibility as a U.S. consumer. Everyone, no matter their income, current debts, or other financial issues, is legally entitled to a fair, accurate representation of the information that appears on their credit report.
We’ll show you exactly what makes credit repair legal, how to sidestep any murky territory, and how you can get started fixing your credit today.
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Here are the Facts:
The Fair Credit Reporting Act a piece of federal legislation enacted in 1970, outlines a number of rules regarding the way your credit file is communicated.
First, it allows you access to your credit report at any time for a reasonable price, including at least one free copy from each credit bureau every 12 months. Below you’ll find more situations in which you might qualify for a free credit report from Equifax, Experian, and TransUnion.
The FCRA also helps you by limiting who may access your credit report. They must have “permissible purpose” so that your report isn’t cluttered with multiple inquiries pulling down your credit score.
If you find any credit inquiry listed on your report that you did not explicitly authorize, it is your right to have it removed. Otherwise, each one could shave off a few points from your credit score while also raising a potential red flag to future creditors.
The length of time any piece of negative financial information stays on your credit report is also limited by the FCRA. Most items automatically drop off after seven years, although some more serious infractions stay on as long as ten years. If you see something listed that should have already been removed due to the time frame, then it’s definitely worthy of being disputed.
Finally, the FCRA gives you the right to dispute any items on your credit reports you feel may be inaccurate, untimely, misleading, biased, incomplete, or unverifiable (“questionable”). In essence, you have the right to dispute the questionable negative items on your credit reports that you feel are giving lenders an unfair impression of your creditworthiness.
What’s more is that the credit bureau is required to open and complete an investigation within 30 days of the dispute being filed. They must also update you on any action that did or did not take place on your credit report as a result of that investigation.
As long as you follow the correct steps during the dispute process, there’s no reason why you can’t improve your score to become an accurate reflection of your financial history.
Is Your Credit Report in Need of Repair?
The first step to analyzing your credit is to see what is actually on the credit report. Fortunately, your credit report is easily accessible:
- You have the right to get a free credit report from each of the credit bureaus at least once every 12 months.
- You may be entitled to more than one free credit report every 12 months depending upon the state you live in.
You can also receive a free copy of your credit report if ANY of the following apply:
- You have been denied an application for credit. This means any type of credit, whether it is a credit card, loan, or some other type of financial instrument.
- You have been denied insurance – including homeowner’s insurance, renter’s insurance, car insurance, or health insurance.
- You have been denied employment – if a potential employer pulls your credit report and decides not to hire you on the basis of what is found, you are entitled to a copy of your credit report.
- You are currently unemployed and plan to look for a job – you can request a copy of your credit report if you are planning to look for work within the next 60 days.
- You are on welfare – no other requirements here, if you are on welfare, you qualify for an additional free report.
- You are a victim of identity theft – as long as you file a report with the police to alert them of the fraud, you are entitled to a free credit report to help assist with your credit repair efforts.
One thing to keep in mind is that while you can easily get copies of your credit report for free, getting copies of your credit scores sometimes require that you pay a fee; however, you can go to one of many sites that offer free credit scores.
Just be aware that they are usually FAKO scores (not your real FICO scores) so what you see online may vary from what your lenders see when you actually go to apply for a loan or credit card.
Once you have your credit report and score, you can determine if there are any items worthy of a dispute.
How is Credit Repaired?
Credit repair happens by removing negative items from your credit report. By law, every piece of financial information that is listed on your credit report must be accurate, otherwise, you can file a dispute to have it removed. The premise of legal credit repair is to find inaccuracies on negative items on your credit report.
Even if just one element of the listing is incorrect, such as the date a payment was reported late or the outstanding balance of a loan, you can file a dispute. The more documentation you have available to support your claims, the greater chance of success you have for getting those items removed.
What types of items might be damaging your credit score? The most likely culprits include late payments, charge-offs, collections, bankruptcy, foreclosure, judgments, repossessions, and tax liens. Depending on how serious the items are and how many you have, you may prefer to tackle credit repair on your own or hire a professional to help you out.
Repairing Credit Yourself vs. Hiring a Professional
Once you have your credit report, it’s time to figure out the best way to start repairing any negative information that’s on there. With a bit of research, you may be able to identify yourself the kinds of information that can be removed. This is especially true if you only have one or two straightforward negative items. Otherwise, you can reach out to a professional credit repair company.
Most reputable firms offer a free consultation where they’ll review your financial history and develop a strategy moving forward. They can help you understand next steps and what you can do to effectively dispute the errors and improve your credit scores.
If you decide to move forward and hire the credit repair company, you’ll get advice on your legal rights and also in handling any creditors and collection agencies. They’ll also give you personalized advice on how to handle any financial items that may be affected by a statute of limitations.
When you repair credit by yourself, you could run the risk of reopening a collection by making a wrong move. A professional can help you navigate these tricky areas because the best firms have experienced attorneys and paralegals on staff to assist you throughout the entire process.
Why Credit Repair Can Be Difficult
Despite the fact that credit repair is legal and free when you do it yourself (except for the time it takes you to do all the research and write all the letters) many people get confused or intimidated when it comes to exercising their rights.
One of the main reasons credit repair can be difficult, even though it is perfectly legal, is that the credit bureaus and creditors may not uphold the spirit of the law. Credit bureaus and creditors are required to investigate your disputes unless they decide it is a frivolous dispute.
Contrary to popular belief, credit bureaus are not federal agencies, they are private, for-profit companies. That means it’s especially important to monitor how they handle your credit reports and relevant disputes. Their core business isn’t consumer protection, it’s selling your financial information to interested parties like lenders and credit card companies.
Recognizing the Scams
While ethical credit repair is perfectly legal, there are some credit repair scams that will get you in trouble with the law. One of them is attempting to “segregate” your credit files. And it’s something that only disreputable credit repair companies will ever try to do for you.
You cannot legally start over with a “new” credit file. When credit repair companies claim that they can get you a new credit file, they will tell you to apply for an EIN – Employer Identification Number – and use that number when you apply for credit.
An EIN can only legally be used by a business entity, and trying to use one for your own personal credit is illegal and constitutes fraud. Even if you were only following the advice of a credit repair company, you will be the one held liable.
Never do business with a company providing this service. It’s better to avoid the possibility of fraud and only hire a company with a positive reputation so you can legitimately — and legally — repair your credit.
Another method used by unscrupulous credit repair agencies is what’s known as “jamming.” They’ll send countless letters disputing everything on your credit report in the hopes that not every piece of information will be verified during the mandatory 30-day investigation period. Not only is this practice unethical, it’s also ineffective in the long run.
While you might see a temporary increase in your score when an unverified item drops off, chances are that the creditor will report the same information during the next period. At that time, the negative item will reappear on your credit report and your score will drop back down to where it was originally. The lesson here? Ask your credit repair company what specific tactics they’ll employ to fix your credit.
A final red flag to look out for during the credit repair process? Working with a company that requires payment upfront before they actually do anything for you. This likely means that they don’t plan on performing any credit repair services at all and could just take your money and run.
It’s important to note, however, that these shady businesses are not the norm, nor are they wholly representative of the entire credit repair industry. As long as you do some basic research before choosing a credit repair company, you should be in good hands with a company that knows how to use the law in your favor.
Once you’ve taken the time to explore your legal rights when it comes to credit repair, it’s easy to see that not only is credit repair legal, it’s an essential way to take back control of your finances. Familiarize yourself with the Fair Credit Reporting Act and other consumer laws so that you can fully exercise your rights.
By ensuring that only accurate and timely information remains on your credit report, you give yourself the best chance at qualifying for the credit terms that you deserve. Otherwise, you might be unfairly suffering from low credit scores that you don’t actually deserve.
Don’t wait to get started with credit repair – the sooner you begin, the better your credit scores will be in both the short term and the long term. Whether you decide to repair your credit on your own or work with a professional company, the most important thing is to take action now.