Credit Repair Enrollment Fees Are Illegal

Anyone who’s ever had an application turned down due to bad credit knows the importance of having a good credit score. Unfortunately, turning a bad credit score into a good one can take several years, especially since you have to wait out the credit reporting time limit. Some people may turn to credit repair services to help them get faster results.

What's Legal for Credit Repair Companies

It’s been continually stated that credit repair companies don’t have any special privileges with the credit bureaus that consumers themselves don’t also have. However, many people still hire third-party services to help repair their credit. Credit repair services are perfectly legal. However, Federal law does dictate how credit repair companies can operate. Namely, credit pair companies aren’t allowed to charge upfront fees, particularly enrollment fees.

For example, the Federal Trade Commission recently fined a credit repair company $6.4 million for continuing operations after the company had been ordered to shut down. In 2010, the FTC found that the company had been charging a $250 enrollment fee to consumers.

One of the stipulations of the Credit Repair Organizations Act, one the laws credit repair companies must follow, is that credit repair companies aren’t allowed to charge upfront fees. Instead, companies are not allowed to bill customers until after they company has performed the services promised.

Different credit repair companies may call their upfront fees by different names. It may be called a start-up fee, enrollment fee, or initial payment. No matter the name or the amount, any fee required before any work has started is illegal.

The CROA also requires credit repair companies to inform consumers of their right to dispute inaccurate credit report information. They’re not allowed to make false claims about their services and must provide you with a written contract of the services that are to be performed. They cannot tell you to create a new identity or falsify future credit applications. If credit repair companies ask you not to communicate with credit bureaus directly, it’s a sign that you’re dealing with an unscrupulous company.

Consumer Rights in Credit Repair

You can improve your own credit score by disputing inaccurate credit report information, opening new accounts and paying them on time each month, and simply waiting out the credit reporting time limit, which is seven years for most types of accounts. There is no fee to dispute information with the credit bureaus. In fact, it’s your Federal right and the credit bureaus are obligated to remove or correct inaccurate, incomplete, or unverifiable credit report information following an investigation into your dispute.

Having bad credit doesn’t necessarily mean that you’ll always be turned down or denied. In many cases, businesses will approve your application, but they may charge a higher interest rate or require you to pay a security deposit. Getting a cosigner or joint application that has better credit can also help you get approved. Just remember to be even more cautious when someone else puts their credit on the line for you. Their credit will also be impacted if you default on a cosigned credit card or loan agreement.

Reporting Upfront Fees and Other Credit Repair Scams

If you’ve been a victim of a credit repair scam, e.g. you paid upfront for credit repair services, you can complain in two places: the FTC via ftc.gov/complaint and your state Attorney General. The FTC will often bring charges against credit repair companies with a lot of complaints. In some cases, victims will receive a full or partial refund of the fees paid.

Source: FTC.gov