In Part 1 of Personal Credit Recovery I covered personal credit restoration and how small business owners like you have every right to dispute and verify the accuracy of questionable items on your personal credit reports. The FCRA empowers you to do just that but as I mentioned it is a self policing law.
This leads me to discuss one of the most widely misunderstood services in the industry and the companies that provide it.
Credit Restoration Companies
Despite the massive efforts of the credit reporting agencies (which are privately held companies) to convince you otherwise, there are many credit restoration companies that are no different than most other services. Like all industries, less-than-honest companies do exist and are damaging to their clients and to the credit restoration industry as a whole.
For example, you may have 20 car mechanics in your hometown. Most likely, 17-18 of these mechanics are honest, hardworking people who want to earn a living and give you the best service possible. The other 2 or 3 mechanics may not be so honest and will take your money while not giving you the quality or quantity of service you pay for… or, they may be out-and-out crooks who take your money and lie to you.
This doesn’t mean that your town is a bad place to get your car fixed; it just means that, like any industry anywhere, there are good companies, mediocre companies, and really bad companies.
Let me take you back a little bit first because the credit restoration industry was completely unregulated in the mid to late 1970s, hundreds of credit restoration companies sprung up all over the place. Most of them were dishonest and were interested only in stealing money from gullible consumers. As a consequence, thousands of consumers were milked out of millions of dollars while receiving little, if any, of what was promised to them.
As a result the FTC initiated another legislation called the Credit Repair Organizations Act (CROA) that outlines how these companies may legally operate.
Take a look at CROA
This Federal regulation is proof that the industry as a whole is legal and not a scam. I think the reason why there has been this general negativity about credit restoration companies is because of the few bad companies that have given the industry as a whole a bad name.
The Federal Trade Commission regulates credit bureaus and credit repair organizations.
Take a look at the definition of a Credit Repair Organization (look at Sec. 403 Definitions)
(3) Credit repair organization. — The term ‘credit repair organization’–
(A) Means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of
(i) Improving any consumer’s credit record, credit history, or credit rating; or
(ii) Providing advice or assistance to any consumer with regard to any activity or service described in clause (i); and…
Now let’s look at Section 404 Prohibited Practices.
Specifically look at definition (b) payment in advance.
(b) Payment in Advance–No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
Basically, a credit restoration company cannot charge you for credit restoration upfront! So if you decide to hire a credit restoration company don’t pay for the fees up front.
But, there are specific organizations and institutions that DO NOT fall under the definition of a credit restoration organization and are therefore exempt from prohibited practices. This means that there are a few credit restoration companies out there that can charge for credit restoration upfront.
Take a look at Sec 403 definitions under description (B) does not include-
These organizations and institutions include any nonprofit organization which is exempt from taxation under section 501(c) of the internal revenue code and any depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) or any Federal or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such a depository institution or credit union.
So if you decide to enroll in a credit restoration service do not pay for the service upfront unless the company you decide to hire falls under Sec 403. Also check their rating with the BBB at http://www.bbb.org/
If you haven’t seen your personal credit reports recently keep in mind that you are entitled to one free credit report per year which can be accessed at http://www.annualcreditreport.com. Now don’t worry this won’t count as an inquiry when you order your free annual reports.
Marco is founder of the Business Credit Insider’s Circle available at
You may contact Marco directly at: email@example.com