Top Tips For Correcting A Bad Credit Score
After some family issues and a bad breakup a few years ago, I made choices with my money that I probably shouldn’t have made. I have been living with a bad credit rating ever since. I was trying to fix my credit before my current girlfriend found out, but that all changed when we decided to move in together. I didn’t read the rental application when I signed it and the owner checked our credit. She was fine and we got the place, but it was only on her behalf. She didn’t give me a hard time on this, but she said she would love to help me get my credit rating back on track so we can make plans for our future. What should I do to fix my credit? ~ Jake
When life comes, it’s not uncommon for our finances to take a hit. Whether it’s a drop or loss in income, an illness, a family emergency, a lack of savings, or our spending choices catching up with us – there is a number of reasons why we might find ourselves facing a difficult financial situation. However, as we regain stability in our daily lives, it is important to restore financial skills that will help us do the same with our finances.
Fortunately, our credit rating is made up of several things. While this means that there is no one way to fix credit problems fast, it does mean that we have plenty of opportunities to do the right things to fix it. Be careful, however; it takes time. And any business that, for a fee or with high interest loans, offers to speed up the process won’t be able to do anything that you and your girlfriend can’t do for free. In fact, one of the best ways for your girlfriend to help you is to manage your routine money, share expenses, and help you stick to your goals when the going gets tough. Being accountable to someone will help you make wise choices, but avoid joint debt until your finances are stable again.
To start correcting your credit rating, here are some tips you can take right away:
Make your payments on time, every time
Making your payments on time is essential for a good credit score. It’s the same thing when you loan a friend money and they promise to pay you back in two weeks when they get their next paycheck. If they don’t pay you back like they said, how likely are you to lend them money again?
Due to their size, it can be easy to think that your financial institution won’t be bothered if you are a little late. You’ve had your bank account there for a decade and you still end up catching up with it. But nothing could be further from the truth. Lenders like to know that you’ll be quick to repay what you’ve borrowed and meet the terms of the loan you’ve agreed to.
What to do now?
While you can’t change the past, making all of your minimum payments on time in the future will start to build a good track record. The negative payment information will eventually disappear from your credit report and that new balance sheet will be what lenders see. Automate as many payments as possible, set reminders in your calendar so you don’t miss due dates, and
create a budget that allows for timely payments
Be reasonable with the available credit you use
Beyond the calculations that determine how much credit you’ll be approved for, how you use the forms of revolving credit you have available makes a difference. This is often referred to as your credit utilization ratio. Revolving forms of credit, such as credit cards or lines of credit, impact your credit rating differently than forms of installment credit, such as loans, because of how they work. With revolving credit, you are basically approved
a certain limit, but how much of that limit you use at any given time is up to you.
Using credit makes a difference, as using all of your available credit indicates that bills would go unpaid if your situation got worse. The pandemic has brought this to the fore and lenders are taking a closer look at how borrowers will be able to meet their obligations if their financial situation changes.
What can you do?
Pay more than the minimum if you can. Use a budget and don’t plan on spending the minimum payment the next month. Strive to reduce what you owe to less than 65% of the approved limit. For example, if your credit card limit is $ 2,000, don’t plan to use more than about $ 1,300 of that limit on an ongoing basis. If you have a lot of bills that are near the maximum limit, choose your best debt repayment strategy and start tackling the bills one at a time.
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Don’t ask for more credit than you really need
When you are working hard to repair your credit, it can be tempting to see how you are doing. However, applying for credit that you do not need will be unfavorable. Rebuilding is a slow and steady process and applying for new credit too early will be a red flag for lenders. When you take action to reduce what you owe and make all of your payments on time, creditors will notice.
Still want to check your credit?
If you want to check your own credit to see how you are doing,
request your own credit report for free
from each of the major credit reporting companies in Canada. The report you get for free will show where you stand with each of your accounts. It will also include information on how to correct any errors you spot. It will not show your
(it’s a paid service), but if your credit report is correct and you are doing whatever it takes to rebuild your rating,
your score will take care of itself
Bonus tip! Check your creditors
Checking your own report will also show which of your creditors performed a spot check on the accounts you hold with them. These are called “soft hits” and they do not affect your credit score. What they tell you is which of your creditors is monitoring how you manage your obligations to them. They do this for two main reasons: marketing and risk management. Offers for higher limits or new credit products come from the marketing department. When you’re trying to get back on track, the best place for them is often your shredder.
However, letters to let you know that your limit has been lowered or that a loan needs to be paid off in full immediately come from the Risk Department when they are concerned about your ability to pay back what you owe. If you receive such a letter, contact the lender or the company to make a payment arrangement or to let them know about your situation.
Limits that are lowered while balances are still high can have a detrimental effect on your efforts to rebuild your credit rating. For example, if your credit card limit is $ 10,000 and you have reduced your debt to $ 8,500, you are below the limit and on your way to reducing what you owe. If your limit drops to $ 7,500, your balance of $ 8,500 suddenly means your account is over limit. This would have a very negative effect on your credit score. And while that can be bad enough, it also means that if you were going to use up available credit of up to $ 10,000 in an emergency, that’s no longer possible.
Include savings in your budget
. Even though you might be tempted to pay as much as you can for what you owe, to stay in control of your situation, set aside some money each month so you don’t have to rely on credit when life does. occurs. Plus, the savings you add regularly that are commensurate with your financial situation are viewed positively when lenders assess an application for credit. It shows that you are planning for emergencies, living within your means, and having a balanced approach to managing your money.
Where to find money to save
Process debts that have gone to collections
Each credit file has a “public records” section that contains information on unpaid debts as well as judgments registered against you. The terms of public payment will also be included, such as bankruptcy and consumer proposals. Because this section of your file is about unpaid debt, it negatively affects your credit rating.
How to manage debts in collections:
For small claims that have recently been collected, it may be worth contacting the creditor, entering into a payment agreement, and asking them to agree to remove the collection rating once your payment is processed. Utility bills,
and even driving fines are worth paying as long as the statute of limitations in your province has not been met.
Once the debts are assigned to a collection agency, it may mean that you are no longer able to deal with the original creditor from whom you borrowed the money. If this is your case, it is important that you understand the debt collection laws in your province of residence. If you are not sure what they are or what they mean for your situation, seek help.
before contacting your creditors
The Basics on Fixing Your Credit Score
When your credit has suffered and you are working to rebuild your rating, keep an eye out for what caused your financial difficulties. If this was a one-time event, think about what you could have done to avoid it or mitigate its consequences. However, if your difficulties cannot be linked to a specific event, consider
why are you really in debt
. Debt is a symptom of a problem; Only once you understand the root cause of the problem can you take steps to avoid it and get out of debt once and for all.
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Scott Hannah is President of the Credit Counseling Society, a non-profit organization. For more information on managing your money or debt, contact Scott in
or dial 1-888-527-8999.
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