How to Rebuild Your Credit
If your credit score causes you stress, start rebuilding your credit today.
If your credit scores are in decline because you are carrying too much debt, lenders and creditors will be hesitant to offer you new lines of credit. But don’t lose hope – the following section is filled with helpful tips on rebuilding your credit, boosting your credit scores and regaining your financial future.
If your credit scores are not where they should because you debt is weighing you down, you can seek help by calling Consolidated Credit at to speak with a trained professional counsellor or you can complete a Free Debt Analysis online.
How can you learn from past mistakes?
There’s always a reason why you have a poor credit score. Maybe it’s that you lost your job and couldn’t pay your bills on time for a period, or maybe it’s that you were distracted dealing with a health condition. It could also be a matter of being disorganized and spending more money than you were able to afford. Stop worrying over these things, and know the stress is over. It’s time to learn from your past mistakes. Here are the most common problems people face leading to bad credit ratings:
- Too many credit cards – Some people have difficulty controlling their credit card spending. Once they max out one card, they figure it’s time to get a new card and do the same. Before they know it, they are barely making the minimum payments, and even starting to miss payments. There must be a better way to manage your credit.
- No emergency fund – If you don’t have an emergency fund for unexpected costs, it is likely that you will go further into debt and charge them on your credit card. As a rule, it’s best to have six months of your household expenses saved in a separate savings account. If this cannot be reached, then save as much as you are able because this will act as a buffer should unexpected expenses come up.
- Interest rates are high – Your interest rates may begin to rise when you fall behind or miss payments. This means that your balance will grow at a faster rate as interest begins to accumulate on top of your purchases.
- No budget in mind – If you don’t know your income and how much you are spending , how do you expect to keep track of your finances? Simply put, you can’t. Use a budget to keep track of your expenses.
- Poor money management – If you can’t keep track of your finances – including paying bills on time, building an emergency fund, saving for retirement, and controlling your spending – then you will find yourself further in debt, or possibly bankrupt.
What really happens to your credit during financial distress?
While you know your credit rating is dropping, you may not understand all the penalties you can get during that period of financial distress. The following is a list of factors that reflect poorly to your lenders and creditors or anyone reviewing your credit reports:
- Negative payment history – Every time you pay late, miss a payment, pay less than required or go over your credit limit, it will be reported by the creditor to the credit bureaus.
- Collections accounts – If your account activity is poor, the creditor sends the debt to a collections agency, a collections account will be opened on your credit report in the public records section for every account that goes to collections.
- Negative credit inquires – In addition to creating the collections account on your credit reports; the collections agency may make a credit inquiry on your credit reports to review your history as a borrower. This is considered a negative credit inquiry and reflects on your credit reports.
- Penalties – A first bankruptcy incurs a minimum six-year penalty on your credit reports; it may be applied longer, depending on the credit bureau that generated the report and your province or territory. Even settling your debts for less than the full amount owed, such as in a debt settlement offer or consumer proposal, will incur a three-year penalty on your credit reports
- High debt level – Total debt is a large determining factor of your credit scores and can drive your rating down. Make sure not to rely on credit for unnecessary expenses – this will increase your total debt owed and will hurt your credit ranking.
Once a penalty period ends, the negative information on your credit reports will be removed. However, once the 6-year period ends and all negative information is removed, you will have to start from scratch when it comes to rebuilding your credit scores.
Tips for Rebuilding Your Credit
Rebuilding your credit is far from easy, but it’s also not impossible so don’t be discouraged! You may feel lost by yourself during the process, as your creditors and lenders won’t be there to help you. That’s because they lost trust in your abilities to keep your promises. But that’s okay – Once you put in the time and effort, you will be able to increase your credit score, and soon enough, you will be showered with friendship with the latest offers for new credit applications.
Use these tips to find the right direction:
- Get your credit report – You won’t know how to rebuild your credit unless you know what to improve on your credit report. Request your report from Equifax or TransUnion. If you have questions, don’t hesitate to contact them.
- Make timely payments – Lenders and creditors won’t look favourably upon you if you miss a payment, or are late with payments. If you can make more than the minimum payment monthly, then go for it! You will lower you debt at a much faster rate, improving your credit ranking and history.
- Keep debts low – Keep your debt lower than your total available credit. If your available credit on a card is $2,000 and you have $1,600 in debt, you have a utilization of 80%. The lower the debt, the better the score. This is referred to as your credit utilization ratio. Ideally, you want to be using only 30 to 40 per cent of your available credit line.
- Check your debt to income ratio – This is the amount of debt you owe compared to what you bring in after expenses. If you have too much debt, you may have trouble meeting all your monthly obligations, further damaging your credit score.
- Get a secured credit card – Unsecured credit cards come with high interest rates. A secured card often offers better terms and lower interest rates. This card requires a deposit which is equal to your credit limit. It’s also a great way of building your credit ranking with timely payments.
- Diversify your debt – If it doesn’t put you at risk, and you qualify, take out a small personal loan. You can use this loan for investments on assets like home improvement, or savings. If you make timely payments, you will improve your credit history.
- Avoid scams – There really is no easy way to rebuild your credit. However several companies claim that they can in a short period of time. Be wary of these promises, and how they charge for their services. Many companies may entice you with success but charge high up front fees. If it sounds too good to be true, it likely is.
Debt doesn’t have to ruin your life
If you want to avoid making the same financial mistakes again and again, then use the tips that were provided to build your credit. If you need further advice on how to manage your money to avoid future costly mistakes, then call Consolidated Credit at . A trained credit counsellor can evaluate your debts to help you better understand your personal situation. Or take your first step with a Free Debt Analysis online.