Credit Repair Cloud Blog | How to Start a Credit Repair Business

Hack Your Credit Legally

Written by Daniel Rosen | September 14, 2021

Credit repair works when you understand the law and you use it in your favor. So if you’re just getting into credit repair or you’re brushing up, here’s a guide to the laws you need to know.  

Basically, once you’ve challenged information in your credit report, the credit bureaus and furnishers have 30 days to investigate and either verify it as correct or remove the disputed information.  

They are also required to mail you the results within 30 days. What happens then? Knowing the laws will give you a map of the exact steps you need to take next.

 


 

What are the basic laws you need to know?

  1. The Fair Credit Reporting Act is the primary set of laws that makes credit repair possible. 
  2. The Fair Debt Collection Practices Act is the legislation that governs the debt collection industry.
  3. The Statute of Limitations is a definitive amount of time items can appear on your credit and  how long debts can be collected.
  4. There are two main statutes of limitations: “Debt Collection” and “Credit Reporting.”   

How can you use each of these laws to your advantage?

 

  • The Fair Credit Reporting Act (FCRA) is the primary set of laws that makes credit repair possible.  

 

What does FCRA mean to you?

  1. You have the right to know what’s in your credit file. 
  2. You must be notified if the information in your credit file has been used against you.  
  3. You have the right to dispute incomplete or inaccurate information and the credit bureau must correct or delete it within 30 days from the time they receive your dispute.  
  4. Credit bureaus may not report outdated information. 
  5. Your file may only be shared with people or companies with a valid need to see it, usually to consider an application for credit, employment,  insurance, or renting.  
  6. You know all that junk mail you get from companies stating that you’re pre-approved? They get your information from the credit bureaus, they are called prescreened credit offers - and you have the right to block those companies from buying that information.  
  7. Another right you have as a consumer under the FCRA is to block your report if you feel you may be a victim of identity theft. You have the right to place a security freeze to stop the bureaus from releasing your personal information. You can also remove the freeze when you see fit.  
  8. If your rights were violated, you may seek damages.  

By the way, when I use the phrase: “You may seek damages”, the FCRA is very specific.  Each occurrence can leave the bureau or furnisher financially liable and you don’t need to sue them yourself – most credit repair companies work with local attorneys that will sue them for you on a contingency basis, meaning you don’t pay unless they collect. 

So that was a summary of the Fair Credit Reporting Act – it all seems pretty simple right? The FCRA is powerful when used properly. 

  • Fair Debt Collection Practices Act (FDCPA) is the next law you need to know about

The Federal Fair Debt Collection Practices Act is the legislation that governs the debt collection industry. For the sake of simplicity, in this article, I’ll call it the FDCPA for short.  

These laws were enacted specifically to provide limitations on what debt collectors can do when collecting certain types of debt. The FDCPA prohibits debt collection companies from using abusive, unfair, or deceptive practices to collect debts from you.  

Debt collectors include collection agencies, debt buyers, and lawyers who regularly collect debts as part of their business. 

Why is FDCPA important to you?

  1. Well, for one thing, the FDCPA restricts debt collectors from calling you before or after certain hours and also does not allow any form of harassment. Additionally, if you have an attorney representing you, the debt collector must contact your attorney instead of you after they know you have an attorney.  
  2. Most importantly, the FDCPA can help you place the burden of proof on the debt collector if you dispute the validity of the debt.  
  3. Also, debt collectors must send consumers a letter with some basic information on the debt within five days of first contacting them. It must include the amount of debt, the original creditor’s name, and a summary of your rights.  
  4. If you dispute a debt in writing or demand validation within 30 days of when you receive the required information from the debt collector, the debt collector cannot call or contact you to collect the debt or the disputed part until the debt collector has provided verification of the debt in writing to you. This is often very helpful in removing accounts from your credit report that cannot be verified.  

FDCPA personal case study

I have a personal story that shows you the power of FDCPA.

Back when I did one-on-one credit repair, I once helped a client that had a debt collector trying to collect a really large debt – it was over 60k! The debt collector was calling him at work, late at night, and really caused a lot of problems. When I became aware of the issue, I mailed a simple validation demand to the debt collector. I asked for the written contract for the account they were trying to collect and they were not able to produce it. Then, I disputed the account with the credit bureaus, and viola! It was deleted and the debt collector crawled back under the rock he came from.  

So, as you can see the Fair Debt Collection Practices Act is quite powerful, once you know how to use it!  

A brief recap of FDCPA 

  1. The Fair Debt Collection Practices Act is called the FDCPA for short. 
  2. The FDCPA covers when, how, and how often a third-party debt collector can contact a debtor.  
  3. The FDCPA makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when they collect debts. Basically no harassment or unfair treatment.  
  4. If the FDCPA is violated, you can sue the debt collector in a state or federal court for damages plus legal fees, and some attorneys do it on a  contingency basis.  

 

Statute of Limitations  

A “Statute of Limitations” is the length of time an action is valid.  

There are statutes of limitations on all sorts of things. Today we’re talking about credit and debt so in this case, the Statute of Limitations is a definitive amount of time items can appear on your credit and how long debts can be collected. There are two primary statutes of limitations: “Debt Collection” and “Credit Reporting”.  

For the sake of simplicity, we’re going to call them the “Credit Time Clock” and the “Debt Time Clock.”  

Remember, the credit time clock is the maximum amount of time items can appear on your credit report. And, the Debt Time Clock is the maximum amount of time someone can bring legal action on a debt that you owe.  

The “Credit Time Clock” is essentially the Statute of Limitations for Credit Reporting.  

There's a bunch of names for it. Officially, it’s called "running of the reporting period,” and it’s also sometimes called the “statute of limitations for credit reporting” or the “7-year rule.” 

I call it the “Credit Time Clock” and it’s one of the most misunderstood parts of the fair credit reporting act.  

The Fair Credit Reporting Act describes how long items can remain on credit reports and when they must be removed. Some items have a seven-year expiration date like charge-offs and collections while other items remain for 10 years like bankruptcies - in the case of tax liens, they may remain indefinitely.  

The credit bureaus keep personal credit history for a specific amount of time-based on the items DATE of FIRST DELINQUENCY.  

The DATE of FIRST DELINQUENCY is when you stopped paying.  

The following information is taken directly from the FCRA and from the Federal Trade Commission's official interpretation of the "running of the reporting period."  

  • Derogatory Accounts can stay for - 7 years from the DATE of FIRST  DELINQUENCY!  
  • Inquiries – they can stay for 2 years from the date placed, some soft inquiries only stay for 6 months!  
  • Unpaid Tax Liens can stay “Indefinitely”  
  • Chapter 7 Bankruptcy is 10 years from the date filed.  
  • Chapter 13 Bankruptcy (also called a repayment plan) can stay for 7  years from the date the repayment plan ends…. This means that if you have a 4-year repayment plan, it could take as long as 11 years to “fall off” your credit report.  
  • The majority of Public Records like judgments and child support take 7  years.  
  • Closed or Inactive Accounts generally fall off after 10 years.  

One important thing to mention is that you would expect items to automatically “fall off” your credit report when the time clock is over. Unfortunately, this isn’t always the case!  

Sometimes, errors are made and OFTEN creditors or debt collectors will purposely report false “status” dates in hopes of keeping items on your credit report longer. The reason they do this is that the longer something negative is on your report, the more likely it is that you eventually pay it. 

The Debt Time Clock also called the “Debt Collection Statute of Limitations” is the length of time a debt collection agency can take legal action to collect a debt.  

The length of time to bring an action is determined by the type of contract  (Written, Oral, Promissory, or Open-Ended Accounts) and is also determined by the STATE in which the debtor lived in when the debt began.  

“Types of Debt” 

  1. Oral Contract: You agree to pay money loaned to you by someone, but this contract or agreement is verbal (i.e., no written contract,  "handshake agreement"). Remember a verbal contract is legal, but tougher to prove in court.  
  2. Written Contract: You agree to pay on a loan under the terms written in a document, which you and your debtor have signed.  
  3. Promissory Note: You agree to pay on a loan via a written contract, just like the written contract. The big difference between a promissory note and a regular written contract is that the scheduled payments and interest on the loan also are spelled out in the promissory note. A  mortgage is an example of a promissory note.  
  4. Open-ended Accounts: These are revolving lines of credit with varying balances. The best example is a credit card account.  

Ok, now - let’s chat about expired debt!  

I’d like to talk a little more about the debt time clock in relation to when the debt actually expires.  

It's determined by two factors:  

  1. The type of debt
  2. The state the debtor lives in

Knowing if a debt is expired or not gives you an edge

State Examples:

  • Florida

Let’s say you stopped paying a credit card debt in the state of Florida and it was sold to ABC collections, and ABC collections is coming after you. They’re calling you, sending letters, and threatening to sue. They want the money and they want it now! The statute of limitations protects you. In this example, if it is a “credit card”, that would mean it’s “open-ended”. Revolving accounts are accounts that you can use, payback - then reuse…  means “open-ended”. 

So in Florida, the length of time the creditor has to collect the debt is 4 years from the date of the last activity. The “Date of Last Activity” is when you last made a payment. If you never made any payments, it would be the date you opened the account. 

In this example, if your last payment was over 4 years ago, technically, you no longer owe this debt. it’s no longer valid.  

  • Louisiana

Let’s say you live in Louisiana, you had a personal loan and you stopped paying it. That would be considered a written contract. Once you've signed the written contract, you're bound by the terms of the contract. If you default on the terms of the contract by failing to make the payments as agreed, the other party may take certain actions to pursue you for what you owe. One of those actions could include filing a lawsuit against you to get you to pay up.  

If they decide to sue you, they would have 10 years before the debt would expire. Ok.  

I would also like to point out that they would be able to sue you after the 10-year expiration date—but if you can prove that the debt is expired, it’s highly unlikely they would win.  

Knowing when debts expire is helpful for many reasons

  1. Creditors and debt collectors know that most consumers don’t understand how long debts are valid, and being able to stand up for your rights or help clients do the same is very powerful.  
  2. Knowing when debts expire gives you a big advantage if you are ever sued.  
  3. It gives you leverage.  

So there you have it! Knowledge really IS power!

And now you have even more of the power you need to help you start or grow your own credit repair business. This is a huge confidence booster!

So, if you want to get certified in disputing and launch your very own credit repair business in just a couple of weeks, I invite you to join our Credit Hero Challenge!

It’s an amazing program that has helped tons of Credit Heroes get their first clients, get certified in disputing, and gain confidence in knowing they are launching their credit repair business on a solid foundation that allows them to grow and scale FAST! 

We’re starting again soon, so SIGN UP NOW at creditherochallenge.com!

Be sure to subscribe on your favorite platform below!