Many people want to rebuild their credit as quickly as possible after a bankruptcy or consumer proposal. That’s understandable.
There are companies that promise to “fix” your credit score for a fee.
Before you sign up for any credit repair program, it’s important to understand what these companies actually do, how much they cost, and whether they provide real value.
In most cases, we do not recommend credit repair companies.
What Is a Credit Repair Company?
Credit repair companies generally fall into one of three categories:
“Credit Builder” or “Savings Loan” Programs
These companies offer you a loan that is secured by a deposit, often placed into a GIC or savings account.
You:
- Make regular payments over time
- Pay interest and fees
- Gain access to the savings only after completing the loan
- Have the loan payments reported to the credit bureau
The sales pitch is that this helps you build savings and improve your credit score at the same time.
High-Fee “Credit Score Improvement” Loans
Some companies:
- Offer small installment loans
- Charge setup fees and high interest rates
- Advertise that the loan will “boost your credit score”
In reality, you are paying substantial interest and fees primarily so the loan appears on your credit report as a “trade line.”
Credit Monitoring / Credit Coaching Services
These companies may:
- Sell monthly subscriptions
- Provide access to your credit report
- Offer advice, templates and sometimes assistance disputing errors
- May sell additional credit products
While legitimate credit coaches can provide guidance, particularly if you are working toward a specific goal such as qualifying for a mortgage, in most cases you can accomplish the same results yourself by following the credit rebuilding steps outlined in this section.
What they cannot do is remove accurate negative information from your credit report — no one can.
Understanding the Cost of a Credit Repair Loan
Let’s look at a real example of how a typical “savings loan” program is structured:
- You borrow $1,200
- The stated interest rate is 15.99%
- There is a $200 setup fee
- You make weekly payments of $9.70 for three years
- $1,000 of the loan (after the setup fee) is placed into a GIC securing the loan
- You do not have access to that money until you complete all payments
Over three years:
- You will pay $1,511 in total payments
- That includes $511 in interest and fees
- The effective cost of borrowing is just over 26%
At the end of three years, you will have access to the $1,000 held in savings — but it cost you $1,511 in payments to get there.
If your goal was simply to save money, you would have been better off putting $9.70 per week into your own savings account. After three years, you would have approximately $1,513 plus interest, without paying fees or interest to anyone.
If your goal is to improve your credit score, a properly managed credit card is often a better choice. While an unsecured credit card may appear more expensive because the interest rate might be 29.9%, the effective cost of the savings loan in our example was just over 26% once fees were included. The difference is that with a credit card, you can pay zero interest if you pay your balance in full each month. Even if you factor in a typical annual fee of around $84, the total cost is far lower than paying hundreds of dollars in loan interest and setup fees. In addition, because a credit card is a revolving line of credit (meaning you borrow and repay repeatedly) it generally has a stronger positive impact on your credit score when managed properly than a small installment “credit repair” loan.
Why We Do Not Recommend Credit Repair Companies
- They are expensive. Fees and interest often outweigh the benefit.
- They require you to take on new debt. Borrowing money to fix past debt problems carries risk.
- They do not offer anything you cannot do yourself.
You can:- Save money on your own
- Use a secured credit card
- Apply for a small unsecured card when appropriate
- Correct errors directly with the credit bureau
- They may encourage unnecessary borrowing.
A Better Approach to Credit Rebuilding
We recommend:
- Eliminate unmanageable debt first (if applicable)
- Build savings independently
- Use a secured credit card
- Progress to an unsecured card when appropriate
- Build history slowly and consistently
Credit rebuilding is about behaviour over time, not products.