To be clear, credit repair as a whole is not illegal. Credit repair, at least of a legal nature, is simply the process of removing inaccurate or unverifiable information from a consumer's credit report. This is done by disputing negative items with credit reporting agencies (CRA, AKA credit bureaus). Whether you do it yourself or hire a service, credit repair itself is not illegal.
The Fair Credit Reporting Act gives consumers the right to an accurate credit report, allowing you to initiate a formal dispute with credit reporting agencies over any inaccurate or incomplete information. Credit repair organizations sometimes use fraudulent, deceptive, and even illegal tactics. If a scam is called credit file segregation or file segregation, some companies suggest that you create a new identity by requesting an IRS Employer Identification Number (EIN), a nine-digit number that resembles a Social Security number, and that you use it instead of your Social Security number when you apply credit. A company uses an EIN to report information to the IRS.
It is a federal crime to make false statements in a loan or credit application, and to misrepresent your Social Security number and obtain an EIN from the IRS under false pretenses. The main objective of CROA is to define which companies or organizations have the legal right to provide credit repair services. You can file disputes directly with the credit agency that issued the report, or you can challenge any possible errors with the credit provider (the company that owns your account). If your credit isn't as good as you'd like it to be, companies may tell you they can pay you off for a fee.
Congress passed the CROA in 1996 after consumer watchdog organizations such as the FTC found high rates of consumer abuse within the credit repair industry. Basically, this means you can hire someone to do the work for you, reducing the time and hassle of repairing your credit. In addition, the credit repair agency is unable to perform any services until the three-day cancellation period is complete. In other words, only a credit repair lawyer authorized to practice in that state is legally authorized to file disputes on your behalf.
Credit repair may not have the best reputation when it comes to financial services, but it's a federal protection right. If the investigation determines that you are right, the original creditor must notify all credit reporting agencies to which you reported the misinformation so that they can correct their credit reports. Some dubious credit repair clinics try to circumvent these regulations by establishing themselves as non-profit organizations. Other companies have been caught stealing the credit files or Social Security numbers of people under the age of 18 or who have died and replacing these files with those of people with poor credit histories.
While credit repair is a legal industry, there are specific federal guidelines that regulate what businesses can and can't do. The first step in repairing your credit is to find out what has damaged it and how serious the damage is. If you decide that the do-it-yourself process described above isn't for you, you might consider hiring a professional credit repair company. Even if a credit repair company isn't a fraudulent operation, it can't do anything for you that you can't do yourself.
By law, a credit repair company must provide you with a contract that describes the services it will perform on your behalf. .