What are Credit Repair Organizations?

Published by Thomas Herold in Banking

'Credit Repair Organizations' is explained in detail and with examples in the Banking edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Credit repair organizations are those which offer to assist individuals with clearing up their credit report and improving their credit scores. While a number of them are legitimate operations, others can be scams. Such credit repair clinics often charge exorbitant prices to perform services that individuals can do for themselves. There were enough problems with fraud or unfulfilled promises from these organizations that Congress created a law to reduce abuse. This is known as the Credit Repair Organizations Act.

Many credit repair organizations will offer to have incorrect information removed from the credit file of an individual. Consumers can do this themselves according to the provisions of the Fair Credit Reporting Act. Others will promise to take off information that is negative but correct from the files. Generally this takes seven years or longer for such information to go away if it is accurate.

The credit repair clinics have a strategy to challenge all items in a customer’s file. These could be neutral, negative, or positive. They do this hoping that they can overwhelm the credit bureaus so that they will simply take off information rather than verify it first. The problem with this tactic is that credit bureaus are allowed under the Fair Credit Reporting Act to dismiss frivolous challenges. There are cases where the credit bureau may remove such information. The problem is that correct information often shows up again in one to two months as the original creditors will report negative information again.

Credit repair organizations also offer to have court judgments and existing debt balances taken off of credit files. They can do this by negotiating partial or whole payments with the creditors in exchange for taking negative information away from the credit report. While these are legitimate negotiation tactics, individuals can do this without having to pay credit repair clinics for the service.

Another suggestion that such credit repair organizations may make to consumer clients is to obtain a secured credit card from a bank which offers them. These are simply credit cards that individuals use after putting a deposit in an account at their bank. These secured credit card lists that the credit repair clinics offer are not proprietary. Individuals can find the same information for free or very little online.

Congress attempted to curb abuses from credit repair clinics with their Credit Repair Organizations Act. It regulates these clinics that are for profit. The law states that these credit repair outfits must provide individuals with written statements of rights provided by the FCR Act. They must correctly present what they are and are not able to accomplish. They are not allowed to charge and collect fees until they render all services which they promised.

The credit repair clinic must provide a contract in writing. They have to allow consumers to cancel the contracts within three days of signing them. Consumers must provide such cancellations in writing. All contracts that do not follow the Credit Repair Organizations Act become void. Consumers can not sign away any of their rights.

There are unethical credit repair clinics which have found a means to get around the law. They incorporate themselves as not for profit organizations. This makes it easier for them to offer poor or limited results and to take customers’ money. They also find it simpler to perform the same services that consumers can do for themselves this way.

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The term 'Credit Repair Organizations' is included in the Banking edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.