How to identify and avoid credit repair scams

A good credit score is essential in acquiring various types of loans, but credit repair takes time and patience. For most people, the process often leads to more financial trouble as they try to find an easier or quicker way out. That is why you need to know how to spot scammers and identify ways to avoid them.

What is credit repair in Canada?

Credit repair is the process of rebuilding a credit report. Once credit bureaus key in negative information on a report, it takes up to 7 years in most provinces to clear away. As such, debtors need to be careful with companies claiming they can produce faster results.

The repair is done by creating a new positive history that will eventually replace the negative one. Several factors such as timely payment of debts and bills can contribute to the positivity, which means that it is possible to work on it individually. You can also get help from credit counselling agencies. It is important to understand that the process is slow, which means consistency and patience are mandatory.

According to some studies done in 2019, almost 45,000 Canadians were duped by fraudulent companies that year alone, leading to losses of more than $96 million. That number may be higher because most people that fall victim to such scammers are too embarrassed to report. Knowing how to identify scammers is the only way to avoid such scenarios.

What can credit repair companies do?

Credit companies charge a fee for negotiating with credit reporting agencies on your behalf. According to them, they take care of all the hard work to ensure your credit improves as it should. They differ from credit counselling agencies that offer financial advice without charging any fees. Some credit repair companies are legit, but others are scammers.

Loan schemes and credit repair scams

The similarity between credit repair scams and loan schemes comes from their promises to offer quick debt relief and improve credit scores.

The repair companies promise to remove negative information from a credit report to boost the score, which works for them because most Canadians don’t know such information cannot be removed once it’s recorded in your credit report.

On the other hand, loan schemes promise to remove your bad credit by giving a loan that exists on paper, but you still end up repaying. They claim that payments made on any loan will reflect positively on the report and boost the score.

In both cases, debtors end up losing more money that they did not have in the first place. Credit scores may get even worse, and the report will remain with the same negative reflection.

Signs of a credit repair scam

Most of the frauds know how to market themselves and appear sincere, but their deals are usually too good to be true. Some of the red flags that may show you to stay away from such companies include:

Upfront payments

Credit repair companies are not supposed to ask for payment before providing their services, but the lack of stringent consumer laws across the country allows most of them to go free when they do. Some of them take advantage of possible loopholes in their operations to dupe unsuspecting clients, and they usually succeed in it.

Promising instant approvals

Legit companies are always invested in clients. They will take time to understand your situation and exact needs before attempting to offer solutions. Those who offer instant approvals are, in most cases, fake.

High pressure

Being over aggressive is another common sign. The fake service providers will try to coerce you into accepting their plans, regardless of how uncomfortable they make you feel. They first identify your level of desperation as a debtor, then try to convince you with an ‘act now’ approach.

Unrealistic guarantees

Those who claim to know loopholes that can help debtors out of dire financial situations are not true because there are no shortcuts for repairing bad credit.

Not wanting to include a credit bureau

Most of them warn you against credit bureaus for fear of getting caught. This is a major red flag because these bureaus can help in rebuilding credit. They should also be contacted at least once a year for the credit report.

Lack of a transparent contract

Every contract should contain:

  • A payment plan that can be bi-weekly or monthly
  • Details of the services being provided
  • The duration of the services, and possibly a date
  • The company’s contact details, including a phone number and physical address. Their name should also be properly spelt and indicated.
  • A 3-day cooling period, which allows you to turn down the contract if you want

Some may not give a written contract and insist that a verbal one is binding to them. Those who refer to themselves as Credit Repair Company may also be scams.

How to avoid the scams

Sometimes it’s hard to know whether the red flags are real or you are just being paranoid. The following tips can help you out.

Check online reviews: Search for other people that may have gone through the same ordeal as you. Chances are, you will find them online.

Double-check their source: If it is from a referral you can trust, go ahead and work with them. Avoid hiring companies you find online, especially through ads.

Features in publications: Reputable companies will be featured on publications or a trustworthy informational platform.

Establishment history: Most frauds dissolve their companies after short periods for fear of being discovered. Take it a step further and check if the address indicated is affiliated with the business name.

Accreditations: Accreditations from Credit Counselling Canada and Association for Financial Counselling & Planning Education should show you that the company can be trusted.

Non-profit status: Companies with such statuses usually offer free educational materials and will not have the objective of increasing their profits.

Reporting credit repair scams

In case you fall victim to the frauds, don’t be embarrassed. Reporting them takes away their power and may save someone else from going through the same ordeal as you. Below are the steps to follow.

  • Get all the relevant documents such as contracts, emails, and proof of transactions like financial receipts.
  • Ask them to return your money by reporting them to the Canadian Anti-fraud Centre (CAFC). They can be reached through their website or phone number – 1-888-495-8501
  • File a complaint with the Better Business Bureau (BBB) to lower their rating and make it harder for them to succeed in their next scam.

How to rebuild credit

  • Get a copy of the credit report
  • Plan to pay the pending accounts
  • Work with a credit counselling agency
  • Make a minimum payment every month
  • Create a budget and stick to it when spending
  • Be patient and use the credit responsibly

Several options can help you get out of debt, and we can assist you with valuable tips to make them materialize.

Debt Consolidation Toronto refers to the act of taking out a new loan to pay off other liabilities and consumer debts. Call 647-302-3328 or write