Is Credit Repair a Rip Off?

Credit repair has a very negative connotation. It is open to a lot of scams and is one of the most investigated financial industries. As a result of such problems a law was passed governing credit improvement entities, the Credit-Repair-Organizations-Act (CROA). In part the law states:

The Congress makes the following findings:

* Consumers have a vital interest in establishing and maintaining their credit worthiness and credit standing in order to obtain and use credit. As a result, consumers who have experienced credit problems may seek assistance from credit-repair organizations which offer to improve the credit standing of such consumers.

* Certain advertising and business practices of some companies engaged in the business of credit-repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.

* The purposes of this title are:

(1) to ensure that prospective buyers of the services of credit-repair organizations (CROs) are provided with the information necessary to make an informed decision regarding the purchase of such services; and

(2) to protect the public from unfair or deceptive advertising and business practices by credit-repair organizations.
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In spite of this law there still are many credit-repair organizations that aren’t following the law. Make sure that any credit-repair organization that you decide to use is in fact legitimately providing credit-repair services that meet the CROA.

* No Credit-Repair Organization can charge upfront fees or prepayment for services. They can only bill for services and collect money for services after the services have been rendered. For example, they can change a “setup” fee but only after any setup processes have been completed.

* No Credit-Repair Organization can advertise or state that it can “guarantee” to remove negative items or any item from your credit report. Having items removed from a credit report is similar to filing a lawsuit. The Credit-Repair Organization is challenging inaccurate and negative items on your credit report on your behalf. As with a lawsuit, no one really knows what the outcome will be. Thus a Credit-Repair Organization is prohibited from saying they can guarantee to get these items removed.

* No Credit-Repair Organization can charge a monthly fee until after the monthly services have been rendered. This is similar to the upfront setup fee discussed above.

One way to tell if a credit-repair organization is professional or not is to check to see if they are a member of the National Association of Credit Services Organizations ( NACSO ).

From their website: “National Association of Credit Services Organizations’ members go through a very strict and rigorous application and enrollment process to aid in the prevention of fraudulent activity throughout the credit services industry.”

“NACSO’s Standards of Excellence will go further than the Credit-Repair Organizations Act and touch on items essential to the honest growth of this industry.”

Go to the NACSO website and enter the name of the credit-repair organization you are considering. If they are a member in good standing and are displaying the NACSO “Standards of Excellence” Seal, then you should be dealing with a reputable firm.