How can I avoid being taken advantage of by credit repair or debt settlement agencies?

Question: 
How can I avoid being taken advantage of by credit repair or debt settlement agencies?
Answer: 

This answer is taken from CLEO's On the Radar - October 2013

People with poor credit scores or too much debt may be tempted by ads for companies that promise to improve their credit report or somehow reduce or eliminate their debts. Here are some tips to help people avoid being taken advantage of by these companies.

Credit repair agencies

Credit repair agencies are businesses that promise to "clean up" or "fix" credit reports for a fee. Anyone who hires one of these agencies has some special legal protections. For example:

  • The credit repair agency must give them a written agreement.
  • They have the right to cancel the agreement within 10 days.
  • They have the right to cancel within one year if the agency doesn't give them a copy of the agreement or if the agreement doesn't contain certain required information.
  • The credit repair agency can't charge any fees unless they actually do something that improves the person's credit report.

Although they may charge a lot, credit repair agencies can't do anything that consumers can't do for free by themselves or with just a little help with letter writing. Here's why.

Credit reports about individuals are prepared by "consumer reporting agencies", often known as credit reporting agencies or credit bureaus. They must follow legal rules about what can and can't be included in a credit report. For example, the information must come from reliable sources, and some kinds of information, such as a bankruptcy, must be removed after 7 years.

The largest consumer reporting agencies in Canada are Equifax and TransUnion. Anyone can contact them directly to get a free copy of their own credit report. If the report contains errors or information the law doesn't allow, they can write and ask the agency to correct it. The consumer reporting agency is required by law to respond to this request, at no charge.

For more information about dealing with credit repair agencies and consumer reporting agencies, see the related resource below. You can also browse other titles from CLEO's new series on consumer protection including Your Credit Report.

Debt settlement companies

Debt settlement companies are another type of business that may offer to help consumers deal with debt and credit problems. They also sometimes charge very high fees, which could even make the person's debt problem worse.

Unlike credit repair agencies, they aren't yet covered by any special rules. But the provincial legislature is currently considering a new law (Bill 55) that would give consumers some more protection when dealing with debt settlement companies, such a "cooling-off" period of 20 days and limits on fees.

A better option

Instead of hiring a credit repair agency or a debt settlement company, people with debt and credit problems should consider getting help from a credit counselling service.

Credit counselling services are non-profit organizations that can help people make a plan for getting out of debt and avoiding too much debt in the future. Most of them charge some fees based on the person's income and the services they're providing.

People can find a credit counselling service near them by contacting the Ontario Association of Credit Counselling Services at 1-888-746-3328, or by visiting their website.

Related Resource: 
Resource notes: 

You can also browse other titles from CLEO's new series on consumer protection including Your Credit Report.

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