Is fixing credit illegal?

Having a poor credit score can significantly impact your life, from securing loans to renting an apartment. Consequently, many individuals seek ways to improve their creditworthiness. This has led to the growth of the credit repair industry. However, the question arises: Is fixing credit illegal? The short answer is no, legitimate credit repair is not illegal. However, certain practices used to "fix" credit are indeed unlawful and can lead to severe consequences for both the individuals performing them and those who engage their services.

Understanding Legal Credit Repair

Legal credit repair focuses on improving your credit score by challenging inaccurate, incomplete, or unverifiable information on your credit report. This process is protected by consumer protection laws such as the Fair Credit Reporting Act (FCRA). The FCRA gives you the right to dispute errors on your credit report and requires credit bureaus and creditors to investigate those disputes. If an item is found to be inaccurate, incomplete, or unverifiable, it must be removed or corrected.

Here's what constitutes legal and ethical credit repair:

• Disputing Inaccurate Information: You have the right to dispute any information on your credit report that you believe is incorrect.
• Challenging Old or Obsolete Information: Negative information generally stays on your credit report for a limited time (usually seven years, ten for bankruptcies). You can ensure outdated items are removed.
• Requesting Verification of Debts: If you are unsure about the validity of a debt, you can request that the creditor provide verification.
• Negotiating with Creditors: You can negotiate payment plans or settlements with creditors to reduce your debt and improve your creditworthiness.
• Building Positive Credit History: This involves making on-time payments on your existing debts and opening new credit accounts responsibly.

It's important to remember that legal credit repair takes time and effort. There are no quick fixes or guaranteed results. Any company promising instant credit score increases or the complete removal of accurate negative information is likely engaging in illegal or unethical practices.

Illegal Credit Repair Practices: Red Flags to Watch Out For

While legal credit repair is a legitimate service, many companies engage in practices that are not only illegal but also harmful to consumers. Understanding these red flags is crucial to avoid falling victim to credit repair scams.

Common Illegal Practices:

• Creating a New Credit Identity (Credit Profile Number - CPN): This involves obtaining a nine-digit number that resembles a Social Security number and using it to apply for credit. This is illegal and constitutes fraud. CPNs are often marketed as a "fresh start" for individuals with bad credit, but using them is a serious crime.
• Filing False Police Reports: Some companies encourage clients to file false police reports claiming identity theft to remove legitimate negative information from their credit reports. This is a serious crime that can result in fines and imprisonment.
• Disputing Accurate Information: Continuously disputing accurate information on your credit report is not only ineffective but can also be flagged as frivolous by credit bureaus, making it harder to dispute legitimate errors in the future.
• Demanding Upfront Fees: Under the Credit Repair Organizations Act (CROA), credit repair companies cannot charge upfront fees for their services. They can only charge after they have completed the agreed-upon services. Any company asking for payment before providing services should be avoided.
• Misrepresenting Services: Promising guaranteed results, instant credit score increases, or the complete removal of all negative information is a misrepresentation of their services and is often a sign of a scam.
• Instructing Clients to Lie on Credit Applications: Encouraging clients to provide false information on credit applications, such as inflating income or concealing debts, is illegal and can result in serious consequences.

Why These Practices are Illegal:

These practices are illegal because they violate federal and state laws designed to protect consumers from fraud and unfair business practices. Specifically, they often violate the FCRA, CROA, and other consumer protection laws.

The Credit Repair Organizations Act (CROA) is a federal law that regulates the credit repair industry. It aims to protect consumers from unfair or deceptive practices by credit repair companies. Under CROA, credit repair companies must:

• Provide consumers with a written contract that clearly outlines their services, fees, and guarantees.
• Give consumers a three-day right to cancel their contract without penalty.
• Not make false or misleading statements about their services.
• Not charge upfront fees.

Consequences of Engaging in Illegal Credit Repair

Engaging in illegal credit repair practices can have severe consequences for both the company providing the services and the individual using them.

For the Credit Repair Company:

• Lawsuits and Fines: The Federal Trade Commission (FTC) and state attorneys general can bring lawsuits against credit repair companies that violate consumer protection laws, resulting in significant fines and penalties.
• Criminal Charges: In cases of fraud, such as creating CPNs or filing false police reports, individuals running the credit repair company can face criminal charges, including fines and imprisonment.
• Reputational Damage: Being caught engaging in illegal practices can severely damage the company's reputation, making it difficult to attract and retain clients.
• Closure of Business: Regulatory agencies can shut down credit repair companies that engage in illegal practices.

For the Individual:

• Financial Loss: You could lose money to a credit repair scam without seeing any improvement in your credit score.
• Identity Theft: Providing personal information to an untrustworthy credit repair company can increase your risk of identity theft.
• Legal Consequences: Participating in fraudulent activities, such as creating a CPN or filing false police reports, can result in criminal charges, fines, and imprisonment.
• Damage to Credit Score: Repeatedly disputing accurate information can be flagged as frivolous, making it harder to dispute legitimate errors in the future. Furthermore, engaging in illegal activities can further damage your credit score.
• Difficulty Obtaining Credit: Being caught attempting to commit credit fraud can make it significantly more difficult to obtain credit in the future.

How to Legally Improve Your Credit Score

Improving your credit score legally requires patience, diligence, and a commitment to responsible financial habits. Here are some effective strategies:

1. Check Your Credit Reports Regularly: Obtain free copies of your credit reports from each of the three major credit bureaus (Equifax, Experian, and TransUnion) at least once a year. Review them carefully for any errors or inaccuracies. You can access your free credit reports at AnnualCreditReport.com.
2. Dispute Errors on Your Credit Reports: If you find any errors on your credit reports, dispute them with the credit bureau. Provide supporting documentation to substantiate your claim. The credit bureau is required to investigate the dispute and correct or remove the inaccurate information.
3. Pay Your Bills on Time: Payment history is the most important factor in your credit score. Make sure to pay all your bills on time, every time. Consider setting up automatic payments to avoid missing deadlines.
4. Keep Credit Card Balances Low: Credit utilization, the amount of credit you are using compared to your credit limit, is another important factor in your credit score. Aim to keep your credit card balances below 30% of your credit limit, and ideally below 10%.
5. Pay Down Debt: Reducing your overall debt burden can improve your credit score. Consider using debt snowball or debt avalanche methods to pay down your debts strategically.
6. Avoid Opening Too Many New Credit Accounts: Opening multiple credit accounts in a short period can lower your average credit age and potentially hurt your credit score. Only open new accounts when necessary.
7. Become an Authorized User: If you have a friend or family member with a good credit history, ask them to add you as an authorized user on their credit card. This can help you build credit history, especially if you are new to credit.
8. Consider a Secured Credit Card: If you have limited or no credit history, consider applying for a secured credit card. Secured credit cards require you to make a security deposit, which serves as your credit limit. Using a secured credit card responsibly can help you build credit history.
9. Get Credit Counseling: If you are struggling with debt, consider seeking help from a non-profit credit counseling agency. A credit counselor can help you create a budget, manage your debt, and develop a plan to improve your credit score.

When to Seek Professional Help (Legally)

While you can certainly improve your credit score on your own, there are situations where seeking professional help from a legitimate credit counseling agency or attorney might be beneficial:

• Complex Credit Report Issues: If you have complex credit report issues, such as errors related to identity theft or bankruptcy, a professional can help you navigate the process and ensure your rights are protected.
• Overwhelming Debt: If you are struggling with overwhelming debt, a credit counselor can help you develop a debt management plan and negotiate with creditors on your behalf.
• Legal Action: If you are facing legal action related to debt, such as a lawsuit or wage garnishment, you should consult with an attorney.

Remember to thoroughly research any credit repair company or agency before hiring them. Check their credentials, read online reviews, and make sure they comply with CROA regulations. Never provide sensitive personal information or pay upfront fees to a company you don't trust.