Loan and Credit Scams
|This page is used in the Scams to Avoid Lesson Module, a law-related ESL lesson for newcomers to Canada.|
|This information applies to British Columbia, Canada. Last reviewed for legal accuracy by People's Law School in March 2017.|
To trick you out of your money, some scams involve offers to loan you money or help you borrow money.
In a loan scam, a company tells you they can "guarantee" you a loan even if you have bad credit or no credit (that is, a poor history of paying back loans and paying bills). All you need to do is pay an upfront fee to "process the loan" or cover "insurance costs".
You send this "advance fee", but they don’t send the promised loan. Instead, they keep your money and send you a letter saying that your loan application has been denied.
This is illegal in BC. It is against the law for a company to charge an advance fee to obtain a loan, even if that fee is described as the first or last month’s payment.
Legitimate lenders never "guarantee" that you will qualify for a loan before a credit check is done. In a credit check, they look at your history of paying bills and repaying loans, which are detailed in a credit report. A legitimate lender would want to review your credit report before approving any loan.
Credit repair scams
The pitch goes something like this:
- "Credit problems? You can now wipe your credit report clean of bankruptcies, judgments, foreclosures and lien payments. AND IT’S 100% LEGAL!"
This is a credit repair scam. It promises to help you improve your credit report. The detail in your credit report helps businesses, banks and others decide if you are likely to pay your bills on time. The scam typically urges you to dispute the negative information in your credit report or to set up a new credit identity for yourself.
In fact, there's no legal way to erase accurate negative information from within the last 5 years from your credit report. After 6 years, negative information can be purged from your credit report.
When accurate negative information is challenged, if the credit reporting agency cannot verify the information within a reasonable period of time, the information is removed. But it may be only temporarily. If the information is later verified, it will be placed back in your report.
Here are ways to reduce the risk of being the victim of a loan or credit scam.
Know who you're dealing with
If you are seeking to borrow money, apply for loans through local banks and credit unions.
Research the company
See what other people are saying about the company. Search online for their name together with the word "reviews" or "complaints". Contact the Better Business Bureau to find out what they know of the company (see the "Where to Get Help" section for contact details).
Seek out help to improve your credit report
If you’ve got a poor credit history, get advice on how to improve your credit score. You can improve your score by improving your track record on managing credit. The Credit Counselling Society helps people learn how to manage their money and debt better. See the "Where to Get Help" section for contact details.
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