Applying for a loan is stressful if you have bad credit. And if you’ve been denied financing in the past, you’re probably willing to try anything to improve your credit situation.
Turning to a credit repair company might seem like a no-brainer, but beware. While some companies legitimately help people untangle their credit mess, others charge a hefty fee for services that don’t actually improve credit.
Do your research and weigh your options carefully before handing your credit issues off to a third party. You don’t want to waste money on a service you could’ve easily done yourself or fall prey to a scam that could make your credit worse.
Try self-serve credit repair first
Repairing your own credit is easier than you might think. While some credit issues stem from situations outside of your control — like the loss of a job or a health scare — there’s a lot you can do to improve your debt management habits.
Getting your credit report
Checking your credit report is the first step to improving your score and there are two main ways to go about it.
- Requesting a free annual credit report. By law, every Canadian can get one free report from Equifax Canada and TransUnion Canada each year. It’s a good idea to get a report from each national bureau because they have slightly different algorithms for calculating your score.
- Signing up for a credit monitoring service. Both bureaus and some large banks offer credit monitoring services that give you 24/7 access to your credit information for a monthly fee. These services can also alert you to signs of fraud or identity theft on your accounts.
We go over both options in this blog post. And don’t worry, checking your credit report won’t lower your score.
If it still feels like too much to handle on your own, consider seeking help from a reputable credit repair company.
How credit repair companies work
It’s important to be realistic about your credit repair goals before hiring a company to work on your behalf. Credit repair companies can save you the headache of dealing with credit bureaus and can help get collectors off your back — but those services come with a cost.
Here are five things you need to know about working with a credit repair company so you can weigh the pros and cons yourself:
1. Credit repair companies improve your score by disputing errors
There’s no magic fix for bad credit situations and many of the services offered by credit repair companies are things you can do yourself for free. Most companies promise to do the following:
- Make sure your credit reports from TransUnion Canada and Equifax Canada are accurate.
- Identify wrong and negative items on your credit report — like incorrect personal information, liens and bankruptcies.
- Dispute negative items to get them taken off your account.
- Send cease and desist letters to collectors on your behalf.
Working with a credit repair company means you get to capitalize on their experience filing disputes with credit bureaus. If they are successful in getting an old, unpaid debt taken off your account you could see your credit score improve.
On the downside, these services can be pricey. Depending on the company, you might be charged a one-time fee or have to pay for each derogatory mark they get taken off your credit report — this can range anywhere from $30 to a few hundred dollars per dispute. Some companies also offer monthly payment plans for between $50 and $150 a month.
2. Credit repair, credit counselling and debt management are different things
Where credit repair companies are focused on disputing negative marks on your report, credit counselling services and debt management programs are designed to help you pay down your debts.
Credit counselling 101: Credit counselling agencies offer one-on-one counselling sessions, group courses and seminars on budgeting and using credit wisely. These services can be free of charge depending on whether you’re dealing with a non-profit or for-profit organization.
You can find credit counsellors in your area through associations like Credit Counselling Canada.
How debt management programs work: Credit counsellors can also set you up with a debt management program. This can be helpful if your debt feels out of control. You make a single monthly payment to the credit counselling organization and they pay your creditors on your behalf.
The amount you owe doesn’t change but your counsellor might be able to get you a lower interest rate. Debt management programs usually last 3-5 years and you won’t be able to take on any new debt during that time.
3. Credit repair companies don’t work for everyone
A credit repair company can only help someone with legitimate errors on their credit report. If your credit score is suffering because you regularly pay your bills late or you continue to wrack up debt without paying your balances down, a credit repair service probably won’t be able to help you. Instead, you should probably look into credit counselling.
Repair services can be helpful for those with errors in their personal information or discrepancies in how your credit information has been reported. You’ll still have to provide proof that the information is wrong and your lender has to agree to negotiate with your credit repair company.
4. Your credit won’t improve overnight
There’s no quick fixes in the world of credit repair. Credit bureaus typically have 30 days from the time a dispute is filed to investigate and verify the claim. The same timeframe applies to individuals and credit repair companies alike.
Depending on the number of disputes you need to make, the process could take anywhere from one to six months to resolve all of your credit issues. If you’re being charged by the month, you could end up paying hundreds of dollars for a service that might only improve your credit score minimally.
5. Scammers target people with poor credit
If you do decide to work with a credit repair company you need to be extremely cautious about who you choose. There are many companies that prey on people with credit woes for their own financial benefit.
The Government of Canada suggests being wary of claims that sound too good to be true and companies that promise to solve all of your credit issues. Find out how much their services cost before you sign up for anything and ask if they are licensed with an accredited program. Seek out customer reviews online and look the company up with the Better Business Bureau.
So, should you hire a credit repair company? That all depends on your credit goals and priorities, but if you decide to go for it make sure you do your research.
If you’re looking for some extra support, you may want to consider credit counselling. What is credit counselling? We’ll walk you through what it is, how it works and how it affects your credit. We’re here to help you rebuild your credit and take control of your finances.
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