January 29, 2021 | By: Sandy Daykin

Credit Repair Scams: How to Spot Them and Avoid Them

Credit Building | Consumer Protection

We all know it’s important to have a good credit score so we can get a loan, buy a home or a car, and more – and get decent interest rates when doing so. However, many people run into further financial problems as they attempt to repair their credit. This is because there are always shady people and businesses looking to take advantage of your situation. 

In this blog, we’ll show you how to spot, report, and beat credit repair scams.

Credit Repair in Canada

Desperation can cause anyone to make bad decisions, making a believer out of even the biggest skeptic. And that’s just what credit repair scammers are banking on. Equifax reports that the average Canadian owes nearly $23,500 in consumer debt, with average credit scores in the 600s—meaning many of us probably wouldn't qualify for a car loan or mortgage.

High debt and low credit scores make Canada the perfect hunting ground for unscrupulous scammers. These companies (and we use that term loosely) have built businesses by scamming people out of millions of dollars. 

Studies show that in 2019 alone, nearly 45,000 Canadians fell victim to fraud, losing more than $96 million. We think that number is actually quite higher, as many people who have been duped are too embarrassed to report it. So, let’s figure out how to spot those scammers!

What is Credit Repair? 

Credit repair is a dubious term because you cannot repair credit, you can only rebuild it. Accurate negative information on your credit report cannot magically go away; it’s there until it falls off your credit report, which can take 6, 7 even ten years in some provinces. So be careful with any company claiming they can repair your credit. 

If your credit report isn’t that great, the only way you can go about “fixing” it is by rebuilding it with a positive credit history. This includes making your debt payments on time every single month and as agreed. You can rebuild your credit on your own or you can work with a non-profit credit counselling agency that can offer free advice. 

Rebuilding credit takes patience, as building your credit is often a slow process. We’ll cover ways to build it back up in just a bit.

What are Credit Repair Companies? 

A credit repair company is an organization that offers to improve your credit in exchange for a very high fee. These companies say they’ll take care of the hard work for you, negotiating with credit reporting agencies to improve your credit score.

Credit repair services are different from not-for-profit credit counseling agencies, which are typically a free service offering nonprofit financial education and advice. The goal of credit counselling is to teach Canadians how to improve and manage their financial situation. They may also offer a Debt Consolidation Program for a minimal fee.

Thankfully, it’s easy to tell the bad guys from the good guys (they may as well be wearing black and white clothing – it’s that easy). We’ll show you the signs in a moment.

Credit Repair Scams vs. Loan Schemes

Two corrupt peas in a pod—both prey upon vulnerable Canadians by offering quick debt relief and credit score fixes. While they do go hand-in-hand, their tactics are a bit different.

Credit repair companies say they'll repair your credit by simply removing negative information from your credit report, thus boosting your credit score—for a fee, of course. They take advantage of the fact that many Canadians don’t know you can’t remove accurate information from your credit report, good or bad.

Loan schemes also offer to repair your credit, but by “giving you a loan” on paper while you don’t actually ever receive the funds—but that doesn’t mean you don’t make payments! You make monthly or bi-weekly payments on the loan, which you never receive, because these companies claim that any payments you make towards the loan will reflect positively on your credit report, thus helping boost your score. 

But your score doesn’t change, and money continues being deducted from your bank account. You threaten to stop the payments, but these companies warn you that if you do, they’ll report negatively on your credit report, so your credit score could get even worse. (For a real-world example, check out these articles from CTV News and The Toronto Star.)

Thankfully, the similarities between repair scams and loan schemes make them equally easy to spot, if you know what to look for!

10 Credit Repair Scam Red Flags

“Bad credit? No problem!” “Best Credit Repair Services!” We’ve all heard these proclamations before—they’re a rallying cry for scammers. But here’s a more accurate saying that you’ve probably heard too: “If it sounds too good to be true, it probably is.” It’s that little voice of reason in the back of your head—listen to it!

Any credit repair company offering a quick fix or instant solution should immediately cause you to raise an eyebrow. There’s no quick fix when it comes to your credit score, and building good credit takes time, effort, and prioritization

Here are 10 instances where you should simply stay away from a company.

1. Where You Find Help

It’s illegal for credit repair companies to request payment upfront; this is where many break the law. But many count on the lack of coordinated consumer protection rules across the country to allow them to slide by. They’ve also gotten cleverer over time, using loopholes to take your money. For example, they’ll provide a guide or a tablet that never works, and then claim the fee and/or loan payments went towards it.

2. Offering Instant Approvals

Legitimate companies are not going to be able to offer an instant approval. First, they’ll need to understand your current financial situation and your credit history. Scammers don’t care—they’re only interested in getting you to sign over your money right away.

3. Requesting Payment by Gift Cards

What a weird way to pay for a service, right? Unfortunately, many people are being duped, just like the wiring money scams of yesteryear. The credit repair scammers will ask you to purchase gift cards and provide them with the serial number and PIN on the back. Now, they can purchase whatever they want online, and what they’ve promised you never materializes. Remember this: gift cards are a gift, not a form of payment. Any company asking for a gift card as payment is a scammer.

4. Use of High-Pressure Sales Tactics

Think about it: Someone who truly has your best interests at heart is going to listen to your situation and offer help, not aggressively push you into a plan that you’re not entirely comfortable with. So why do so many scammers take this approach? Again, they’re preying on your desperation, and they know that high-pressure “act now!”—type of scenarios make it difficult to think clearly or act rationally. A reputable company will let you take as much time as you need to make sure you’re making the right decision for you.

5. Guaranteeing They Can Erase Bad Credit

Scammers may claim they have a little-known secret or know some hidden loopholes to boost your score. This is a lie. No one can legally remove accurate negative information with a wave of their hand. It simply can’t be done!

6. Warnings Against Contacting a Credit Bureau

Of course they don’t want you to—reputable credit bureaus will clue you into that fact that you’re being scammed! The scammer will come up with any number of reasons why you shouldn’t contact these bureaus, but ultimately there’s no valid reason to avoid contacting them. In fact, getting in touch with credit bureaus is one of the first steps in building your credit. Canada’s credit reporting agencies can give you a copy of your credit report for free once a year.

7. Advice to Dispute All Information on Your Credit Report

Only inaccurate or false information should be disputed; accurate negative information is there for a reason, and cannot be removed. Knowingly disputing accurate information is a fraudulent act and could cause problems.

8. Not Providing a Transparent Contract

If you’re provided a contract, there are 5 things you want to be sure it includes:

  • The amount you’re being charged or the details of the (bi-weekly/monthly) payment plan
  • Details about the services being rendered
  • The date when the service will be performed (or a time period in which it will occur), and an end date
  • The name, business address, and phone number for the company
  • A statement giving you 3 days to void the contract (a 3-day cooling period on contracts is standard for individuals to reassess their purchase decision)

9. Not Providing a Contract at All

This should go without saying; never agree to anything, make a payment or provide your bank account information until you’ve seen a contract in writing.

10. They Call themselves a Credit “Repair” Company

The ultimate red flag—the company offers to repair your credit, which is something no company in the country can do. The only way to improve your credit and credit score is to rebuild your credit, and you do this by creating positive line items on your credit report.

How to Avoid Credit Repair Scams

You’ve spoken with a credit company, they seemed genuine, and none of the red flags were ever raised. Now what? There are a few more steps you can take to ensure that you’re dealing with a reputable company.

1. Check Online Scam Sites or Reviews

If you’re dealing with a scammer, chances are you’re not the first one they’ve scammed! A quick online search can turn up complaints from consumers across a number of sites that specialize in exposing scams, including Google Reviews.

2. Consider the Source

Where did you hear about this company? Was it a random cold call? An online ad that linked to a cheap website? Or a late-night commercial promising to work credit miracles? Or did you hear about them through a reputable news source or referral, like a bank, credit union, or community agency?

3. Look for Features in Publications

As mentioned above, if the company has been highlighted through reputable news sources, or has ever been used as an information source in a trusted publication, this demonstrates that they’re respected.

4. When Were They Established?

Most reputable companies have some history, and again the internet can be your friend (or foe) here. Scammers tend to come and go, setting up shop under different company names with relative frequency to avoid detection. The scammer referenced in the articles mentioned earlier operated under no less than 10 company names! Don’t be fooled. Do a Google search of the address affiliated with the "business" to check if they have multiple business names.

5. Make Sure They’re a Non-Profit

This means they’re trying to help consumers, not increase their profits. If they offer free educational materials, this is also a good indication of a reliable organization.

6. Check for Accreditations.

Agencies holding accreditation from Credit Counselling Canada (CCC) and/or Association for Financial Counselling & Planning Education (AFCPE) must meet strict financial counselling industry standards and Counsellors must go through rigorous training. 

How to Report Credit Repair Scams

As we mentioned earlier, many Canadians don’t report being the victim of fraud because they may feel embarrassed about having been taken advantage of. Don’t let the scammer get away with it! That simply empowers them and guarantees they’ll do it again to someone else. 

If you’ve been scammed, or even suspect you have been, here are some steps you can take to try get your money back, warn other people, and get the law to go after the scammer.

Dig up All Relevant Documents

As with any financial transaction, you never want to throw anything away. Contracts, emails, receipts—even your bank statement showing payment—all this could help if you decide to pursue the matter.

Ask for a Refund

If you’ve already sent the funds, or think you may be getting conned, report fraud or suspected fraud to the Canadian Anti-fraud Centre (CAFC). This can be done on the CAFC website or by phone, at 1-888-495-8501. Remember, if it happened to you, it can happen to anyone—our best defense is to look out for one another! There’s also a wealth of information on the site about your credit rights.

Report Them to the Canadian Anti-Fraud Centre (CAFC)

As mentioned above, if the company has been highlighted through reputable news sources, or has ever been used as an information source in a trusted publication, this demonstrates that they’re respected.

File a Claim with the Better Business Bureau (BBB) 

The more claims there are against a company, the lower their BBB rating falls. This is another avenue you can take to help prevent others from falling into the scammer’s snare.

File a complaint with your provincial consumer protection agency. If you want something to change, involving them will only help. For a full list of provincial and territorial consumer protection agencies across Canada, click here.

How Do I Build My Credit? 8 Steps to Rebuilding Credit!

Despite what those scammers say, rebuilding your credit takes time, dedication, and patience. It won’t happen overnight. But if you follow these steps, you’ll see your score increase, and you’ll feel good!

1. Get a Copy of Your Credit Report

It’s important you know what you are dealing with. You can get a free copy of your credit report from both Equifax Canada and TransUnion. Review the report to see what is documented and if the information is correct. 

For no charge, you can get incorrect information removed from your credit file by filing a dispute to the credit reporting company. Depending on the invalid information, you may need to show proof that the account has been paid off or that it isn’t your account.  

Of course, if the information is correct, then you need to work on rebuilding your credit.  No one can simply change or erase information that is part of your credit history.

2. Work at Getting Your Accounts Current or Paid Off

Why pay money to a company promising to fix your credit (before they even know what it looks like) when you can use those funds to pay down your accounts? On your own, you can speak with your creditors to arrange payments or even ask if they will accept a lower amount to Settle the Account in Full.

3. Contact a Credit Counselling Agency

If you aren’t able to do this on your own, you can contact a not-for-profit accredited credit counselling agency, like Credit Canada Debt Solutions, to help you resolve your debts problems. All of our counselling is free, and if you do sign up for a Debt Consolidation Program (DCP), the administration fee is minimal.

4. Make at Least the Minimum Payment Each Month by the Due Date

Late payments have a negative impact on your credit score. And don’t fall for one of those loan schemes we mentioned earlier – those companies that offer you a loan saying it will increase your credit score. 

They usually have a very high interest rate, you’ll make large monthly or bi-weekly payments, and you won’t see any of the loan funds. They don’t pay off any of your current debts, so you still have those payments to maintain, as well as this new phony loan payment.

Instead, focus on making at least your monthly minimum payments for each piece of debt you have if they haven’t been sent to collections. A history of consistently paying down debts can be a good starting point for rebuilding your credit.

5. Create and Follow a Budget or Spending Plan

You need to stay on track with your finances in order to avoid missed payments, as those can lead to a decreased credit score. Again, Credit Canada Debt Solutions can help you establish a realistic and workable spending plan. You can’t rebuild your credit if you continue to miss payments. Check out our free Budget Planner + Expense Tracker.

6.Get a Secured Credit Card

A secured credit card can help you build your credit score without paying interest or “fees” to a credit repair company. You put down an initial deposit that determines the amount of credit you’ll have. So, you give the bank $500, and you’ll get a card with a $500 limit. 

Want to increase your limit? Give the lender more money. They keep this money in case you fail to make your payment. Responsible usage of this card will begin to build your credit. 

Eventually (usually after one year of proving yourself), the bank will ask if you’d like to switch over to a traditional, unsecured credit card. The money you deposited on the secured card will be refunded or applied to your new credit card’s balance.

7. Use Credit Responsibly 

Credit shouldn’t be used to replace money that you don’t have. When using credit, always be aware of the interest rate you are paying and any fees there might be. Again, getting a high-interest loan to rebuild your credit can backfire if you aren’t able to afford the payments of your other debts.

8. Be Patient

It will take time to rebuild your credit, but it can be done without taking on new high-interest debt. And no, there aren’t any magical solutions for getting rid of past bad debt regardless of what the advertisements might say. You simply need to clean up what you can, paying down debt and demonstrating improved credit habits, such as making payments on time. And in time, your credit score will rise. 

A word of advice: Put the most money towards paying off or paying down bad debts first (payday loans, credit cards, personal loans), as these will have the highest interest rates. You’ll still need to make payments on your mortgage and student loan, but these are considered “good debts'' (houses tend to increase in value and higher education tends to help you earn more in the future). An auto loan is a toss up; some say it’s bad debt (cars depreciate in value) while others say it’s good debt (it helps get you to work). 

So, just maintain the minimums. Focus on the really bad debts!

Where You Can Find Additional Help

Everyone loves a quick fix, but the truth is there rarely is such a thing, especially when it comes to credit. And many people facing credit issues actually have serious debt problems, which will need to be resolved if they want to boost their credit rating and score.

Legitimate, unbiased credit building advice from a non-profit credit counselling agency, like Credit Canada, may be the best solution, which can also include debt consolidation as part of the credit rebuilding process. It starts with a credit building assessment where a certified Credit Counsellor will pull your credit report and score for free and review it with you. They’ll also discuss how to fix your credit and help you develop a personal debt repayment plan. 

Depending on the information contained in your report, as well as your monthly income and expenses, they will provide you with all of your available options to get your credit where you need it to be, including the pros and cons of each option. 

As much as we like to see the good in people, there’s always someone looking to take advantage of someone else’s bad situation (check out our other story on the Top 15 Internet Scams to learn more). To ensure no one becomes a victim, we must be vigilant! Report credit repair scams and loan schemes to protect yourself and others. 

If you would like non-profit credit building help, give us a call at 1.800.267.2272. All of our counselling is 100% free, confidential, non-judgmental and there's no obligation. You’ve got nothing to lose but sleepless nights, and we’ll also put a stop to collection calls!

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