Credit repair companies
By Jasmine Miller • Bankrate.com

With personal debt levels at record highs, many people are struggling with bad credit ratings. It only takes a few late payments on a credit card or personal loan to pockmark an otherwise unblemished credit report.

And that might make it hard to qualify for new credit or get the best interest rate on a mortgage or line of credit. No wonder so many credit repair companies are popping up.

The pitch can be seductive: "Fix your credit report instantly!" "Erase bankruptcy from your credit report!"

Don't fall for it. Most of these companies are making promises they can't legally keep.

"Basically, if info on your credit report is accurate, no one can change it," says Laurie Campbell, program manager at the nonprofit Toronto Credit Counseling Service.

So if you've been more than 30 days late making at least the minimum payment on your credit card, that information stays on your report for six or seven years (depending on provincial legislation), no matter what a credit repair company promises.

Some of these companies are legitimate, but "credit repair companies can't do anything consumers can't do for free for themselves," says Jason Okamura, a spokesman for the Ontario Ministry of Consumer and Business Affairs.

He compares these legitimate companies to tax preparers: You can file your taxes yourself or pay someone to do them for you. "Some people don't have the time to do it themselves, or they feel overwhelmed by the process, or they feel an expert will know the system better," says Okamura.

You may decide you don't want to be bothered cleaning up your report on your own. Just remember that if you hire a company to do it, you're paying for convenience, not better results.

Sure signs of a credit repair scam
"If it sounds too good to be true, it is," says Okamura. If all the major banks have rejected your application for a car loan, citing a poor credit report as the reason, chances are it can't be changed.

Upfront fees
"That's illegal," says Okamura, and you should walk away if a company demands you pay them upfront. Legitimate companies will tell you their fee upfront but only ask for payment after they have dealt with your report. If no changes are made to your report, you shouldn't have to pay.

Campbell has seen thousands of clients during her 13 years with the Toronto agency, counseling them through debt management and financial crises.

"We have heard of situations where people have paid a lot of money and nothing is changed on their credit file," she says. And it's almost impossible to get your money back once you've paid.

When proposed solutions are unsound
Steer clear if a credit repair company suggests that you create a new identity, with a new social insurance number or driver's licence, for example, to build a new credit profile for yourself. That is fraud, plain and simple. Consider alerting the police about any company that suggests it.

Likewise, if you hear that a company can get a personal bankruptcy expunged from your record, walk away. By law, first bankruptcies stay on your report for seven years; a second bankruptcy will appear on your report for 14 years. They can't be erased before then.

Before you sign on
The company should send you a contract. Read it carefully. What is it promising to do? How much will it cost? Even after you sign, you have a cooling off period. "In many provinces, such as Ontario, there is a five-day cooling off period in which you can legally change your mind and get your money back. Contact your provincial ministry of consumer affairs for more information about cooling off periods where you live."

Check with your local Better Business Bureau to see if there have been complaints against that company in the past.

Beware of online offers
Besides credit repair services, many online companies also offer credit to people with bad credit ratings. Campbell has a warning about that: "If you see an ad for a guaranteed credit card, no credit checks and a guaranteed approval, consumers need to ask, 'Have I ever heard of that company?' If it's not a recognizable bank, if it's not a known retailer, there must be a reason," she says.

These offers are scams. Often you need to pay a fee for this guaranteed credit card. Your cheque will be cashed but, predictably, the credit card is never issued.

What you can legally change on your credit report
If you feel one of your creditors was wrong, that you weren't late making those payments to your credit card, for example, you can contest the facts -- for free -- by contacting the credit reporting agency directly.

You can contact Canada's two main credit reporting agencies, also known as credit bureaus, at Equifax Canada and TransUnion Canada. You will need proof to support your claim, though. A copy of your banking statements showing payments coming out of your account and going to your creditor may do the trick.

You can write a short explanation -- that you are contesting a bad rating, for example -- and download the appropriate forms or visit the nearest office to start the process. The agency will investigate on your behalf and, if you are proven right, make the changes to your report. No outside company can speed up this process.

Occasionally the information on your report is not yours. "Sometimes, if a person has the same last name or birthday as yours, your credit information can get crossed with theirs," says Campbell. The credit bureau can make the required changes once you bring it to its attention.

If you've been the victim of identity theft (more than 13,000 Canadians were in 2003, according the RCMP), and someone is using or has used your personal information to get credit, you can solve this problem yourself by contacting the reporting agency.

Inaccurate personal information, such as your address, date of birth and employer, can also be changed by contacting the agencies directly.

How to keep your credit report clean

Check it every couple of years
"Everyone should do this, even if they haven't had trouble getting credit," says Okamura. "It's possible for errors to exist. If consumers can provide evidence, by law credit reporting agencies must fix it."

Pay your bills on time
If you can't, Campbell suggests you contact your creditors immediately to explain. "They have the authority to delay a bad posting to your report," she says.

Credit agencies use a rating system: R1 means you pay your bills on time, R2 means you have been 30 days late with payment. The scale goes to R9, which means the debt is in collection. (For a complete list of the rating system, see Equifax's Frequently Asked Questions page.) Even an R2 rating can hinder your ability to qualify for credit or get the best interest rates, so you'd do well to make your payments on time.

Don't carry too many credit cards
Let's say you have five cards, each with a $10,000 limit. Even if your balance is zero, you have the potential to get into $50,000 of debt very quickly. Lenders might get squeamish about that, so a request for a mortgage you want might be denied.

"Just keep one credit card and pay off all debt quickly," says Campbell.

Don't apply for credit often
If you are denied credit, don't keep applying at different companies hoping one will change its mind. Each time a company requests a copy of your report, that request stays on your report for three years.

Subsequent lenders will see that and wonder why they should give you credit when three or four others have already denied you credit.

Once you've confirmed the information on your report is accurate, you may have to deal with a few pockmarks from past mistakes. A credit repair company isn't the way out. All you can do is resolve to change your ways.

"Time is your best ally," says Campbell. "People need to recognize their best bet is to keep things clean from here on in," she says.

Jasmine Miller is a freelance journalist based in Toronto, Ont. She writes for a variety of magazines covering issues from parenting to business and everything in between.