Rebuild Your Credit

June 5, 2019

We see that slogan everywhere “rebuild your credit” everyone seems to be using it from mortgage lenders through to used car salesmen.   But, caveat emptor (buyer beware) things may not be what they seem.  Usually when I hear the expression “rebuild your credit” the first thing that comes to mind is “high interest” and the second thing is “this is going to cost you”.

All lenders are in the business of lending money and each lender has target markets they wish to exploit.  Banks generally target clients with stability, regular jobs and good credit ratings.  Some other lenders charge much higher interest rates than banks and target clients that are higher risk because they are willing to pay more money for access to debt.

There are lenders who exploit financially vulnerable, those who have poor credit ratings and lack of access to mainstream credit facilities, by promising to help “rebuild your credit”.   These lenders can make your position even worse than it already is.

 I heard a good one a few weeks ago, a company will “lend you” your own money to help “rebuild your credit”.  Here’s how it works, you enter into a loan agreement with them wherein you agree to prepay the loan.  You’ll make payments of $100 per month for 36 months, your payments will be credited towards your account and the company will report to the credit bureau that you are making your payments each month on time.

What could possibly go wrong?  Just about everything!  If you miss or default on a payment, or payments, or tumble to the scheme and drop out that will also be reported to the credit bureau and your score will drop.  The loan company will charge you a fee of something like $750 and they will charge interest at perhaps 29% per annum, there goes another $2,050 of your money.

But take heart, after three years, if you made all the payments on time, they will give you back the remaining $200 of your money and your credit score might have improved.