Credit Repair Organizations: Why I Call the Industry a Fraud

As a professor and long-time practitioner of consumer bankruptcy law, I’ve seen countless financial problems, and the number one snake oil peddled to vulnerable consumers is credit repair.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Insight & Analysis

Key Takeaways and Final Warnings

• Accurate Information Cannot Be Legally Removed: The fundamental truth under the FCRA is that negative information (like late payments or bankruptcies) that is accurate, verifiable, and not outdated must remain on your report for the legal reporting period (7-10 years).
• CROs Exploit Administrative Failure: Credit Repair Organizations (CROs) gain “success” only when the creditor or bureau fails to meet the 30-day investigation deadline, causing temporary removal.
• The Upfront Fee is Illegal: Any CRO that asks you to pay any money or valuable consideration before the service is fully performed is violating the Credit Repair Organizations Act (CROA).
• Credit Washing is Criminal: Be warned that tactics like advising you to file false identity theft reports to remove legitimate debts constitute criminal fraud and expose you to serious liability.
• You Have the Power (For Free): Under the FCRA, you have the right to dispute inaccurate items yourself for free. Do not pay a third party to send form letters on your behalf.

The Legal Lie: True and Correct Debt Cannot Be Fixed

While legally they are called Credit Repair Organizations (CROs), I view the vast majority of them as a legal mirage, often committing outright fraud.

They prey on your desire for a clean slate, improving your credit, but they offer nothing you cannot legally do yourself for free. Their “success” often relies on crossing the line into unethical and even criminal territory.

This is the simple truth that exposes the “untrue” nature of the credit repair sales pitch. Accurate, verifiable, and non-outdated negative information cannot be legally removed from your credit report.

• The Law is Clear: The Fair Credit Reporting Act (FCRA) dictates that credit bureaus must report negative information for a specific period (typically 7 years, or 10 years if a Chapter 7 bankruptcy was filed) as long as that information is proven to be accurate and verifiable.
• The CRO “Method”: Credit repair companies operate by mass-disputing every negative item on your report. They send dozens of identical, templated dispute letters. They are simply spamming the system, hoping the data furnisher (the creditor or lender) or the credit bureau fails to meet the 30-day investigation deadline.
• The Administrative Success: The only time this method “works” is when the furnisher is sloppy, loses the paperwork, or simply can’t comply with the required 30-day window. If the item is removed due to this procedural lapse, it is temporary. If the creditor verifies the debt later, the negative remark will be legally re-inserted, leaving the consumer with wasted money and time.

If a credit repair company promises to erase legitimate debt, they are promising to violate the law.

The Fraudulent and Illegal Tactics

Many of these credit repair agencies are participating in outright fraudulent practices.

• Violating the CROA: Many organizations immediately violate the Credit Repair Organizations Act (CROA) by illegally charging upfront fees before any services are rendered. This is a massive red flag and should be reported immediately.
• Credit Washing (Identity Theft Fraud): The most dangerous scam is advising clients to file false identity theft reports with the FTC or police to make negative accounts disappear. This tactic, known as “credit washing,” is based on the hope that the credit bureau will assume the debt was caused by a identity thief, not the consumer’s default.

Filing a false police or government report is criminal fraud and subjects the consumer to serious liability. Also, think of the time, money, and resources wasted by a law enforcement agency that could be working on something else!

• Synthetic Identity Fraud: Scam artists may try to sell consumers a “Credit Profile Number (CPN)” or advise them to apply for an Employer Identification Number (EIN) to use instead of their Social Security Number. This is an attempt to create a “new” credit history. It is illegal, unethical, and a form of synthetic identity fraud.

The Bankruptcy Perspective

From my professional standpoint, paying hundreds or even thousands of dollars to a credit repair company for months or years is money wasted.

Filing for bankruptcy is a formal and legal solution that achieves what a credit repair company only pretends to do: wipe out debt and rebuild credit properly, providing a fresh start.

Bankruptcy discharges debt permanently and begins credit repair, unless the debt is settled with the creditor. While the bankruptcy itself stays on your report for 7 to 10 years, your credit score often begins recovering almost immediately simply by wiping out the debt load.

The Professor’s Take: The Only True Path to Credit Repair

Anything a for-profit credit repair company can legally do, you can do for yourself for free. You have the right to dispute genuinely inaccurate information under the FCRA. Disputes can be filed directly with the three major credit reporting agencies: Equifax, Experian, and TransUnion.

The only effective, permanent way to improve your credit is to change your financial behavior, not to pay a third party to send letters on your behalf.

1. Stop incurring new debt. Focus on the 30% rule, also known as the credit utilization ratio. This means the balance on your credit card should be 30% of the available credit. For example, a credit card that has a maximum available $1,000, should have a balance of $300 or less.
2. Pay current debts on time, every time, and more than the minimum.
3. Use your Fair Credit Reporting Act (FCRA) rights to dispute legitimate errors yourself by sending a certified letter to the credit bureau or using the above-referenced link to file a dispute online.
4. Seek genuine debt resolution. If you are overwhelmed, this means speaking to a qualified consumer bankruptcy attorney like me to get a true, legal fresh start, not a temporary fix.

A detailed summary of the Credit Repair Act can be found here.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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