Credit Repair Organizations Act (CROA)

The Credit Repair Organizations Act is a federal law passed in 1996 that requires companies offering credit repair services to advertise and communicate honestly with consumers. The CROA is part of a larger set of laws called Consumer Credit Protection Act. The Credit Repair Organizations Act (CROA) is meant to protect consumers from companies that charge consumers money and falsely promise to get negative but accurate items removed from their credit reports, or to dramatically improve low credit scores that are based on correct information.

While it may be possible for a consumer to get a significantly better credit score by having inaccurate negative information removed from his or her credit report, the consumer can accomplish this for free by disputing the negative item with the credit bureau. A consumer might choose to hire a credit repair organization to do much of the work for her, but the credit repair organization can’t accomplish anything an informed consumer can’t on her own. There are no secret tricks to fixing a bad credit score that is based on accurate reports of late payments, unpaid debts and other financial problems.

The CROA makes it illegal for companies to promise they can do things like give a consumer a fresh start with a new credit profile, and it requires companies to let consumers know they can take actions to repair their own credit. The CROA also prohibits credit repair companies from requiring large payments from customers in advance of providing services.

Someone who doesn’t have the desire or the patience to deal with fixing credit report inaccuracies that are dragging down his credit score might find it worthwhile to pay for a credit repair organization’s services. For example, suppose your identity was stolen two years ago and you just discovered this fact when your mortgage application was declined. You have a credit score of 550 and a history of delinquent and charged-off credit card accounts that the thief opened in your name, racked up charges on and never paid. You still want to buy a house, and indeed, you should be able to since the legitimate items on your credit report are all positive. You don’t want to spend your evenings making phone calls and writing letters to credit bureaus, so you hire a reputable credit repair organization to contact the credit bureaus on your behalf and work to clear your name. You agree to pay a fee, but you don’t have to pay it until the credit repair organization fulfills its obligations under the contract you sign with it.