Credit repair companies: what federal law forbids them to do

A company that charges to improve your credit record, or to advise you on doing it, is a credit repair organization under the Credit Repair Organizations Act. The law's definition leaves out tax-exempt nonprofits and banks or credit unions. It also leaves out a creditor helping you restructure a debt you owe it.

What they may not do

• Take money before the work is done. A credit repair organization may not charge or receive payment for a service until that service is fully performed. The CFPB adds that monthly plans built to get around this are still illegal upfront payment.
• Mislead anyone about your credit. It is barred from making untrue or misleading statements about your credit to a credit bureau or a lender, and from advising you to make them.
• Help you change your identity. It may not advise you to alter your identification to keep accurate negative information from showing.
• Misrepresent what it sells, or use fraud or deception to sell it.

What it must give you first

• A written statement of your rights, before you sign anything. Among other things it says you can dispute inaccurate information with the bureau yourself, at no charge, and that no one has the right to remove information that is accurate, current and verifiable.
• A written, dated contract with the total cost, a full description of the services, how long they will take, and the company's name and address.
• Three business days to cancel. You can cancel for any reason, without penalty, before midnight of the third business day after you sign. The contract must come with a cancellation form, and the company may provide no service until that period ends.

By phone, a stricter rule

When credit repair is sold by telemarketing, the Telemarketing Sales Rule bars any fee until the promised time has passed and the company has shown you a consumer report, issued more than six months after the results were achieved, proving it did what it promised.

Warning signs the CFPB names

• It wants money up front.
• It promises to remove negative information that is accurate and current.
• It tells you to dispute everything on your report, even what is correct.
• It avoids explaining your rights, or tells you to stay away from the credit bureaus.

What you can do yourself, free

You can dispute errors with the bureaus and with the companies that reported them, at no cost; the letter builder writes the letter. Accurate negative information generally stays for seven years, and a bankruptcy for ten (see late payments). A nonprofit credit counselor can help with a budget and a repayment plan, and the CFPB notes counselors cannot erase your debts.

If a company broke these rules

You can sue a credit repair organization that violates the Act, and you can submit a complaint to the CFPB.