Poor credit quality can hurt your life. If you ever want to own a home or a car, building and maintaining good credit is crucial. A less good credit quality can result in you paying a higher interest rate or worse, your credit application being rejected.
What if your credit score is already in poor shape? For example, you have failed to repay a loan or file for bankruptcy. There are credit repair services that promise to improve your bad credit score for a fee. Is this money well spent or are these companies making promises they cannot keep?
The Sales Pitch
There are countless credit repair services on the World Wide Web that promise to improve your credit score. A sales pitch goes something like this: The credit repair company will repair your credit score on your behalf, for a fee. Credit repair is usually a three-step process.
- First, you need to get a copy of your credit report from the major credit reporting agencies in Canada: Equifax and TransUnion. With your credit report in hand, you forward a copy to the credit repair department.
- The credit repair company will carefully check your credit report for errors or inaccuracies and will recommend anything that is in dispute.
- The credit repair company will contact the credit reference agencies on your behalf to correct any errors or inaccuracies.
Credit repair companies promise results, but can they really deliver? Most promise to eliminate errors and “bad items” from your credit report. Although these services can help you eliminate an error in your credit report, no credit repair company can change or delete accurate information about your credit report.
Some repair companies even go so far as to make the false promise to remove negative credit information, including bankruptcies, from your credit report. Instead of fixing your credit, you are more likely to run up more debt.
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Know Your Rights
Consumers “credit repair companies often operate at night. Instead of improving your credit score, they only help you get rid of your cash. As a consumer, you have legal rights when dealing with agencies. The Ministry of Government and Consumer Services offers the following rights:
- It is illegal for credit repair companies to accept advance payments, collateral or fees unless their services lead to a significant improvement in the credit file of the consumer. For example, if an amount owed by a consumer appears in the credit file of the wrong person, a correction of this information obtained through the efforts of the credit repair company would be a substantial improvement.
- It is illegal for a credit repair company to claim it can make a significant improvement to a consumer’s credit file before it reviews the consumer report.
- Consumers have a cooling-off period of 10 days starting from the date on which they receive a copy of the agreement that complies with the requirements of the law. If the company does not refund the money, the consumer can sue the company.
- Credit repair company must provide the consumer with a written, dated contract.
- It is illegal for a credit repair company to make false or misleading claims; in reality, no credit repair company has the power to modify or delete accurate information in a consumer’s file.
Improving Your Credit Yourself
You do not need a credit repair company to improve your credit score. As a consumer, you have the right to contact credit agencies free of charge. You are entitled to a free credit report from credit agencies every 12 months. You can follow the same steps as a credit repair company. It is a good idea to check your credit report twice a year for any inaccuracies. If, for example, you have repaid your car loan but it still proves to be outstanding, you can challenge it with the agencies. Correcting an error in your credit report is as easy as filling out the form in the mail.
If your credit score is in poor shape, there are ways to improve it. If your credit utilization is too high or you have missed payments, you can work on repairing your credit score. You should repay your outstanding debt and aim for a credit utilization rate of no more than 35 percent. You can also work on building a solid credit history. Make sure you pay your bills in full by the due date every month. If you are unable to make the full payment, at least make the minimum payment.
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Improving Your Credit Rating Through Credit Counseling
For people in distress, credit counseling from a certified non-profit agency can help you get your finances back on track. A credit counselor will sit down with you and help you develop a realistic budget so that you can put as much of your take-home salary into credit card repayment as possible. A counselor may even be able to agree on a new repayment plan with your credit card company at a lower interest rate if you can demonstrate financial hardship. The good news is that having an advisor should spare your credit rating as long as you stick to your repayment plan.