Repairing Bruised Credit

bad credit mortgage in Toronto or Mississauga | CanadianMortgageCo.comLess than perfect credit?

So you have checked your credit and discovered, to your dismay, that it is not ideal. Perhaps you’ve missed a few payments, had a debt end up with a credit collection agency, or, most seriously, declared bankruptcy or agreed to a consumer proposal. As I’ve explained elsewhere on this site, this is not the end of the world!  All problems are fixable, but some may take longer than others.

Tips to repair bruised credit:

1) Get up to date on your bills

If you are currently behind on any bills, get them paid and current as quickly as possible. If necessary, call the creditor, explain what’s happening, and work out a payment plan. Sometimes they will agree to waive interest, reduce your amount owed, or similar things, just to resolve the matter.

2) Going forward, always, always, always, pay your bills on time

If you aren’t able to pay them in full, pay at least the minimum amount shown on your monthly statement before the due date.  Set up an automatic payment to be debited from your account on payday.  And try to pay your debts as quickly as possible.

3) Rebuild your credit using 2 major credit cards

Make sure to use them responsibly – charge only what you can afford and pay your bill on time and in full. If you have a major credit card already, keep it, but start using it responsibly. If you’re having trouble getting a card because of recent bad credit, consumer proposal, or bankruptcy, try Affirm Financial.  Clients of mine have had good success with them.  And if you can’t get approved for a regular credit card, getting a secured credit card (such as through Capital One or Home Trust) will work as well.

4) Keep an eye on your progress

You can check your own credit without causing a hit to your credit score. This is sometimes called a “soft check”. Go to Equifax or TransUnion to either order a free copy of your credit report to be sent in the mail, or you can pay a fee and see it online instantly.  Be aware of what links you’re clicking on though; the credit bureaux also sell a monthly “credit monitoring” service.  I’m not convinced that this is worth the cost in this situation; it should be enough to check your progress every 3-6 months.

5) Report any errors on your credit report

If there are errors on your credit report, notify the credit bureaux in writing. It takes time to correct mistakes so you should do this as soon as you notice a discrepancy.  Click here for more details on how to do this.

What to avoid, else your credit and/or finances will suffer:

1) So-called “payday” loans

These charge you exorbitant rates of interest to tide you over to your next paycheck, which means you will end up paying much more than you need to on your debts. If you know you can’t make a payment, it is much better to call the creditor, express your intention to pay, how much you can pay, and when.

2) Denial

If you owe money, hoping the problem will go away or get fixed by itself is not a good strategy. It is much better to deal with the problem directly, and then move on with your life.

3) Exceeding the limit, or getting close to the limit, on your credit cards

This is a huge red flag and causes a significant negative hit to your credit score.

How long will it take to improve your credit?

Repairing bruised credit takes time. Depending on the situation, it may take months or even several years. For collections or a first bankruptcy to disappear completely from your credit bureau, it may take as long as seven years.  If you need to borrow money sooner, it is still likely that a lender can still be found who will consider lending money to you. The downside is that there may be an interest rate premium charged and you may qualify for less money. Because of this, the sooner you take action to fix your credit, the better.

Once you have established excellent credit, remember that keeping it excellent requires ongoing effort. And feel free to get in touch with me to discuss your situation in more detail.

 

Photo credit: [c] Renjith Krishnan for freedigitalphotos.net
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