[kred-it ri-pair skam] n. confidence game or other fraudulent scheme involving accepting money or other items of value in exchange for a promise to increase one’s credit score or create a new credit file.
Taking advantage of consumers desperate for a higher credit rating, credit repair scammers have cost American consumers millions of dollars by peddling credit repair scams and other fraudulent systems for improving their credit scores.
It is because of scam artists such as these that the Credit Repair Organizations Act(CROA) was passed. CROA made illegal many of the practices common to credit repair scams and required credit repair organizations to inform consumers of certain rights in order to help them make an informed decision when shopping for a credit repair service.
One of the biggest signs of a credit repair scam and in turn one of the specific practices made illegal by CROA is a company’s requirement of a large upfront payment before they will begin to work on your credit. Many credit repair scam artists would charge an initial payment of many hundreds or even thousands of dollars and then disappear with the money without performing the agreed upon services. When customers would try to get their money back, they frequently were unable to track down the credit repair company because they had closed up shop, moved locations, or changed names.
Because of this, CROA forbids any credit repair company from accepting payments until after the agreed upon services have been performed. This stipulation, along with other rules forbidding credit repair organizations from making untrue statements, advocating "new" credit files, or advising customers to lie about their credit history, has made CROA a valuable resource for helping consumers identify a credit repair scam and giving regulators a tool for cracking down on fraudulent credit repair companies.