Why you shouldn't use a credit repair company

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You may have seen the ads online for credit repair companies promising to "Boost your credit score fast," but the Financial Consumer Agency of Canada (FCAC) warns Canadians to stay away from what it sees as empty promises.

In April 2017, the FCAC issued a news release stating that credit repair companies "cannot guarantee they will solve your debt problems, cannot quickly and easily improve your credit score, and should not encourage you to take out a high-interest loan until other repayment options are in place."

"It's impossible to erase or change accurate information that's part of your credit report," says Lynne Fanterre, media relations officer for the FCAC. "Generally, negative information will stay on your report for six years."

There is no such thing as a quick credit fix
Credit repair companies attract consumers by saying they'll provide a loan, and that all you have to do is make timely payments on that loan and your credit will improve, says Fanterre.

However, simply making regular payments on one loan will not rapidly improve your credit score. Payment history is just one of the factors that determine your credit score. The other factors include percentage of your available credit you use, the length of your credit history, how many credit checks have been made on your behalf and how many different forms of credit you use.

So what are you actually getting from credit repair companies? In some cases, the answer is nothing.

For loan repayments to boost a consumer's credit score, the credit repair company must report repayments to the credit bureaus, Equifax and TransUnion.

"If that doesn't happen, whether they're making payments on time wouldn't go toward improving their credit," Fanterre says.

"In some cases, consumers never even see the loan," says Fanterre. In these instances, consumers are actually making regular payments for the services rendered by the credit repair company, while the company makes money through high interest charges and fees on the unseen loan. Meanwhile, any of the consumer's outstanding debts remain unpaid.

Bottom line: Changing the trajectory of your credit score is never a fast process. It's something that can only be done over many months or years of consistent, timely payments on different kinds of loans, while also using only a tiny percentage of the available credit at your disposal.

The legality of credit repair loans
The tactics of credit repair companies are questionable - but are they legal?

Your rights as a consumer depend on where you live, since consumer protection is under provincial jurisdiction.

In Ontario, the Consumer Protection Act covers Ontarians when it comes to questionable business practices. Residents in other provinces should check with their governments to see what their consumer rights are.

"Agreements for credit repair goods and services must be in writing and delivered to the consumer," says Victoria Stacey, strategic issues and media advisor for the Ontario Ministry of Government and Consumer Services. "The agreement must contain information listed in the consumer protection regulations, such as a statement of consumer rights."

Federal regulations also cap how much interest can be charged. A criminal rate of interest is anything above an annual rate of 60 per cent. Other laws, such as the Collection and Debt Settlement Services Act and the Payday Loans Act, may come into play depending on the actions taken by the credit repair company.

"We encourage consumers who believe their consumer rights have been violated to file a complaint with Consumer Protection Ontario," says Stacey.

With credit repair companies, it's important to read all contracts before you sign them, and don't agree to anything that makes you feel uncomfortable.

"Shop around, do your research to see if there have been any unresolved complaints regarding the company," says Fanterre. "Ask questions and if you're asked to sign a contract, make sure you understand what you're signing and ask what you get out of it."

See related: 5 common credit score mistakes, Get to know your debt help professionals, Errors on your credit report? Here's how to correct them
Published May 25, 2017

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