The credit repair organizations act

It's actually quite easy to recognize a credit repair scam. There exists a law that protects consumers from unfair and abusive practices by these agencies, and it is called the Credit Repair Organizations Act. This mandate forbids CRO's from releasing or stating misleading statements. It also bans these companies from committing fraudulent activity. Additionally, it also caters to for-profit credit repair clinics.

Some stipulations of this Act include the following:

• Credit repair organizations are not allowed to charge for their services at the onset of the application. Rather, they may only receive the payment after the services have been fully completed.

• CRO's are also obliged to provide the customer with an precise and detailed description of what they can and cannot offer. It is necessary that they specify:

◦ the company's name and business address
◦ the payment terms and total cost of all services rendered
◦ the time frame of the entire process
◦ if any, the guarantees that they offer

• CRO's are also not permitted to proceed with the credit repairing procedure if the customer has not signed the written agreement with them. The organization is also required to wait after three days before performing their duties with the customer. The three-day waiting period allows the customer to cancel the contract, and he or she will not be obliged to pay for any fees in the event that they decide to do so.

• Lastly, the credit repair clinic also needs to inform the consumer of their rights, as stated in the Fair Credit Reporting Act. This law regulates the collection, dissemination, and use of an individual's credit information. It also governs the three major consumer reporting agencies in the United States, namely Experian, Equifax, and TransUnion.

Keeping yourself armed

Aside from the more blatant means that some CRO's operate, you also need to be aware of their other tactics. Their modus operandi works in two ways. First, a number of credit reporting organizations function by promising to remove accurate but negative information from the credit report. This includes bankruptcies, liens, judgments, and delinquent accounts, even before the allotted time to remain on the credit report is up. Keep in mind that under legal standards, the information can stay on your report for seven to ten years. The credit report clinics may also suggest to their customers to pay off their outstanding balances, and in return, request their creditors to remove the negative information on their credit report. This may be a feasible option for a consumer, but bear in mind that one does not really need to pay a credit repair counselor to obtain this piece of advice.

Another way that these companies function is by what is known as credit file segregation, or file segregation. Using this approach, the credit repair organization encourages their customers to create an entirely new credit identity. The credit repair firm will suggest the consumer to apply for an IRS Employer Identification Number (EIN). This nine-digit number closely resembles a Social Security Number, and as such, customers are urged to use this instead of the conventional SSN to apply for credit.

This practice is illegal, for a number of reasons: first, it is considered a federal crime to misrepresent oneself on a credit or loan application. Falsifying one's Social Security Number and using an EIN for fraudulent purposes is also a crime. Lastly, by using an EIN, the individual stands the chance of losing their Social Security benefits, and at the end of the day, defeat the purpose of why you applied for credit repair in the first place.

Credit repair clinics also attempt to use the “shock and awe” approach to credit bureaus, in order for them to cancel information from their client's account. They do this by challenging each and every item notated on the credit report, whether it is positive, negative, or neutral. By doing so, they take advantage of the federal law mandating requiring credit bureaus to verify notated information with their customers, to check for possible disputes. Fortunately, credit bureaus are more than aware of these agencies' tactics, and merely shrug them off as trivial and silly attempts to get what they want.

Another tactic that a credit repair clinic utilizes is getting the customer to apply for a new credit card. They provide their customers with a list of banks offering secured credit cards to potential clients. This may prove helpful to an individual's credit to a certain extent, but at the end of the day, he or she may be able to do it himself without paying any extra fees to an arbiter.

Additional armor

In the event that an individual's rights as a consumer have been violated by a credit repair organization and wishes to file a complaint against the company, he or she needs to do so at least within five years from the date of the infraction. The court may award actual damages, punitive damages, and attorneys' fees in favor of the consumer.

Aside from laws governing consumers, there are a number of states that provide additional and necessary protection for their citizens who currently use the services of these CRO's. The extra provisions typically pertain to the consumer's cancellation rights, the ideal time frame for rendering their duties and services, and even oblige these agencies to inform their clients of non-profit credit counselors who can help them in their financial situation. To know more about your state's law, you will need to do some research by visiting your public library or local law library.

It is also an absolute necessity for you to be aware if the company that you wish to work with is “bonded.” Basically, this means that the organization has posted money if an unfortunate incident happens to the company, like a bankruptcy or if it goes out of business. The funds serve as an emergency reserve for disgruntled customers who would ask for a refund. A lawful and legitimate company should be willing to provide the name and contact information of the bonding agency if unforeseen circumstances do happen to them. It is necessary to contact the bonding firm for verification purposes.

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Credit repair after debt settlement

How to repair credit on your own