Some companies claim they can repair your credit and solve your debt problems quickly. However, you can only rebuild credit and there’s no quick fix to do so. We’ll walk you through why you should be skeptical of companies offering credit repair services and explore other ways to rebuild and maintain strong credit.
The importance of strong credit in Canada
It’s important to have a good credit score so you can get a loan, be approved for a credit card, buy a home and a car. And you want to get the best interest rates when doing so. A credit score may also determine whether a landlord approves your rental application, and employers might even consider credit histories in their hiring process. Having a strong credit score shows you are good at managing debt and credit. In contrast, bad credit suggests you are a risky bet to lenders because you may be having problems with money.
Why someone might reach out to a credit repair service
The average Canadian owes more than $21,000 in consumer debt. When you have a lot of debt and other monthly bills to take care of, it can become difficult to manage and make all of your payments on time, especially amid high inflation and rising costs of living. However, if you don’t manage your payments on time, your credit score will take a hit. Feeling desperate in a financial situation can cause anyone to make a bad decision. But many people run into further financial problems by trying to repair their credit with a quick fix.
How credit repair companies work
Credit repair companies say they will repair your credit by removing negative information from your credit report, thus boosting your credit score—for a costly, upfront fee. They may also offer to negotiate with credit reporting agencies to improve your credit score or encourage you to take out a high-interest loan to pay off your debts. Be aware that these credit repair companies make money from fees, set-up costs and interest, so you may be left with even more debt without any changes to your credit score.
These companies often take advantage of the fact that many Canadians don’t know you can’t remove accurate information from your credit report—even if it’s bad. You should be skeptical if a company says they can remove accurate, negative information from your history.
Pay attention to the warning signs
Many Canadians run into further financial problems as they attempt to “repair” their credit because they fall victim to credit repair scams. Credit repair services are different from not-for-profit credit counselling agencies. The latter are typically a free service offering non-profit financial education and advice. But back to the scams, here are the warning signs that a company offering credit repair services is likely a scam:
- They request an “upfront” payment (this is illegal under Canadian consumer protection laws)
- They offer instant approval for loans or other credit products without fully understanding your financial situation
- They call themselves a “credit repair company”
- They request payment by gift cards
- They use high-pressure sales tactics
- They say they “erase” your negative credit information
- They don’t provide a transparent contract (or any contract at all)
- They warn you against contacting a credit bureau
How to rebuild your credit in Canada
Accurate negative information on your credit report cannot magically go away; it’s there until it falls off your credit report, which takes about six years. If your credit report isn’t great, the only way you can go about “fixing” it is by rebuilding it with a positive credit history. You have to show your creditors that your financial habits have improved, which takes time. Here’s what you can do to get the ball rolling:
1. Review your credit
It is important to review your credit report regularly by getting a free copy of your credit history from both Equifax Canada and TransUnion. Look over the report to see what’s documented and if the information is correct. For no charge, you can remove incorrect information by filing a dispute with the credit reporting company.