Past mistakes can affect our credit score and affect our chances of getting a loan or getting a good interest rate. However, the good news is that with time and perseverance, it is possible to rebuild your credit in Canada.
Most of us have damaged our credit history and score without even knowing it. If you have exceeded 50% of your credit card limit, made late payments, failed to pay at least the minimum balance on your debt, or maximized your balance, these seemingly trivial actions can hurt your credit score.
There are several ways you can damage your credit history, but there are just as many ways to save it. If you want to know how to rebuild your loan, here are five steps you can take.
Check Your Credit Report
The first step in repairing your credit is to determine which areas need improvement. Getting a copy of your credit report is the best way to do so. Do you have a lot of late or missed payments? Is your debt utilization too high? Or was there something more serious, such as bankruptcy? All of these factors can reduce your credit score, and your credit report will show you where you were wrong. Once you have determined the reason for your low credit score, you can act in a better position.
It is also important that you check your credit report for errors or fraudulent accounts. These errors can also bring your credit score down. If you discover an inaccuracy in your credit report. Notify the lender so that they can fix the problem and revise their reports.
Make Arrangements To Update Your Accounts and Pay Down Debts
Your payment history is the biggest factor influencing your credit score, so if you are late with your payments – or have not made your payments on time – your credit situation is unlikely to improve significantly if you do not update your accounts.
If you are in a difficult situation and cannot afford to update your delinquent accounts immediately. Contact your creditors to see if you can negotiate a payment arrangement that works with your budget. If you and your creditors are unable to work out an arrangement, an accredited, non-profit credit counselor can help you create a plan to update your accounts and pay down your debt.
In addition to updating your accounts, paying down your debt is also a key factor in rebuilding credit. The amount of debt you have relative to the available credit – known as credit utilization – is the second most important factor in your credit score. Say your available credit limit is $10,000 and you are using $7,500. Your credit utilization is 75%.
Using a good portion of your available credit can hurt your credit score. So it is important to pay off as much of your debt as possible. Ideally, you would like to try to reduce your credit utilization to below 50%. 35% or less is the best. For each debt repaid, your credit utilization will decrease, which will help you with your overall loan. If you use more than 75% of a credit card, credit line, or overdraft, this will have a significant negative impact on your credit score until the balance is repaid.
Rebuild Credit with a Secured Credit Card
Once you have developed a plan to tackle your debt and update your payments. The next step is to build a consistent payment history. An important part of building credit is to show that you can repay the money borrowed and prove to creditors that you can manage debt responsibly.
A secured credit card works like any other unsecured credit card by giving you access to credit and reporting your payment information to the credit bureau every month. However, unlike other credit cards, you must make a security deposit before you can use the card. Amounts can range from $100 to $500 or more. This deposit guarantees creditors that you will actually repay the borrowed money.
If you use your secured credit card to make a purchase, these purchases will not be deducted from your deposit. Instead, you are expected to repay this amount to the credit card company. Just as you would with a normal unsecured credit card. How you use your secured credit card affects your credit score as it tells your creditors whether you can handle credit responsibly. So, it is important to make careful, essential purchases that you know you can pay off.
After six months to a year of making constant payments and staying within your balance. You can ask whether your secured credit card can be “upgraded” to an unsecured card. Using credit cards to rebuild your credit is a great tool, but it is important to remember that any type of credit card is no excuse to “unlock” more money so that you can buy things that you really cannot afford.
Make The Minimum Payment At The Due Date
While you are working to compile your credit history, you must make your payments on time, even for non-credit invoices. A missed payment that is long overdue, an outstanding mobile phone bill, or old parking tickets can be reported to credit bureaus, so you must start building a good payment history by paying the minimum payment on all your bills by the due date. & At the very least, you want to avoid missing payments or constantly late payments.
To ensure that you always make your payments on time, set up reminders, either on your desktop computer, on your phone, or even on a calendar. If you are unable to pay your balance in full each month, make at least the minimum payment for each of your debts by the due date. Late payments and missed payments will count towards your credit score and credit report.
Another thing that could help is to set up automatic bill payments so that each of your bills is paid automatically every month. So you never miss a payment, and you don’t have to pay for stamps, envelopes, cheques, and trips to your bank.
Automatic payments, however, have two potential disadvantages. You need to make sure that the money is in your account when the automatic payment is scheduled. If you set up the automatic payment yourself in Internet banking, nothing happens if there is not enough money in your account and you miss the payment. If the bank or someone else has set up the payment. It could overdraw your account if you do not have enough money available and cause an expensive NSF fee. However, if you have an unused credit line in your account, this should not be a problem.
Adopt Good Financial Habits
Developing smart spending and saving habits is critical to rebuilding your credit score, and one of the best ways to achieve this is to create a budget that accurately reflects how much you get and how much you spend.
A budget is essentially a spending plan for your money. By giving every dollar a job, you can determine in advance whether you have enough money to cover all your spending. And, if you don’t have enough money to cover your spending. You can use your budget to prioritize your spending and focus your money on areas that matter most to you.
Create a checklist of all invoice payments and record all payment details, either in an agenda, a wall calendar, a smartphone app, or a Google Calendar notification. Whichever method you choose, it will do the same: it helps you remember where your money needs to go and when, so you never have to make a late payment.
Another good financial habit is to live frugally. Living frugally is more than just pinching pennies and taking things that give you pleasure just to save a few dollars. Instead, it’s about making careful choices so that you can live comfortably within your means. By living within your means, you will be able to pay off your debts and rebuild your credit more quickly so that you can enjoy the small – and big – pleasures of life. Here are some frugal habits that you can incorporate into your everyday life.
Stick to these good financial habits and it will be much easier for you to achieve – and maintain – your new and better credit history.
Rebuilding Credit Takes Time and Patience
Poor credit can limit us in more ways than one: for example, we cannot qualify for loans. And if we qualify, we may have to settle for a higher interest rate or worse terms. Poor credit can also lead to higher insurance premiums, and in some cases, we miss out on a job opportunity or a nice apartment because an employer or landlord has done a credit check before making their decision.
The bad news is that there are no quick fixes to rebuild credit in Canada. But the good news is that rebuilding your credit – even rebuilding credit after bankruptcy – can be accomplished with some time, patience, and financial discipline. If you follow the five steps outlined here. You can expect your credit score and credit history to improve in a few months to a year. It may be difficult to start with, but once you start building momentum and seeing the progress you have made. You will be on your way to a better credit score.
If you want more information on how to rebuild your credit, you can make a free appointment with one of our accredited, not-for-profit credit counselors, who will help you review your finances, set a budget, and outline all the options to get your finances back on track.