If you’ve had trouble with credit in the past, it is possible to get back on your feet. However, rebuilding credit takes time, planning, patience and most of all—commitment.
“You don’t have to let your credit history be your credit future, but you need to acknowledge your mistakes with credit in the past, change your attitude towards credit use and spending and become financially literate to ensure that you make good financial decisions,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Are you ready to take control of your future and work towards rebuilding your credit? To start, you should develop a plan to pay down your debt. Our trained credit counselors can help you to determine the best course of action and give you the support that you need to be successful. Call us today at or check out our free online debt analysis.
How long will it take to rebuild your credit? Rebuilding credit doesn’t happen overnight, but with a strategic plan in place, you’ll reach your goal.
Credit mistakes stick around for years, but not forever
The deeper your problems have been with credit, the longer it may take for you to correct the problems of the past. It will vary, but generally, bad credit activity will stay on a credit report for seven years. That said, you don’t necessarily have to sit and wait for seven years before you apply for credit again, but you need to be proactive and you need to align your expectations.
Why your credit history matters
When a creditor decides whether or not to grant you credit, they need to be able to gauge what kind of risk that they are going to be taking on. They can’t just take your word for it. When it comes to credit, past behavior is a strong indicator of future behavior.
If you make your payments on time, you are a low risk. If you don’t make your payments on time, you are considered a higher risk. When you start getting into not making payments for an extended period or being consistently late with payments, you are considered a very high risk. In some cases, depending on the extent of your credit problems, you may be denied credit altogether.
While there are other factors that weigh into your creditworthiness (i.e. income, job stability, savings, how much debt you have and length of credit history) it is your repayment history that has the biggest influence on your credit score, which is why it matters so much.
To mitigate the perceived risk, creditors either charge you higher interest or decline your application altogether.
Why do you have bad credit?
“To right the wrongs of your credit past, it can be helpful to determine how you ended up with credit problems in the first place. The most common reasons for not being able to make payments are a lack of disorganization, not having a budget, or not having savings on hand in an emergency. Good money management comes down to having good financial habits, which you need to establish to rebuild your credit,” says Schwartz.
Set a budget that lets you pay your debt down, manage your monthly expenses in cash and still have enough left over to build up emergency savings. Determine a system that helps you to get organized to pay your bills on time every month. Make note of when bills are due and be proactive. Pay them early to avoid any delays with money transfers or late charges.
Make a list of needs and wants and commit to living a cash-only lifestyle. You need to accept that you’ve got to spend within your means in order to avoid overextending yourself. Part of rebuilding your credit means paying down your current debt load and not accumulating more credit.
Order a credit report
Taking a look at your credit report is a good idea for a couple of reasons. First, you can determine exactly how much debt you have and how bad your credit really is. Second, you can ensure that there aren’t any errors on your credit history.
Mistakes do happen. You could even have been a victim of fraud, with unpaid debt dragging down your credit score, unbeknownst to you. There are steps that you can take to correct this, but you need to know what you are up against specifically.
Get up to date
You need to make all of your payments, but start by ensuring that your late payments are all up to date. It’s counterproductive to bring one credit card up to date and try to rebuild your credit, while other cards are behind.
Plan to use your credit card as part of a monthly strategy. Plan out your purchases in advance as they fall within your budget. Plan to pay these purchases off in full and on time every month.
If you don’t have credit cards that you can use, there is the option of taking out a secured credit card. This is usually a small balance card, secured with an asset like cash or a car.
You may have luck taking out a higher interest rate card (i.e. a store card). While this will indeed help you to establish good credit, remember that you will be incurring higher interest charges if you carry a balance. It’s even more important that you pay your balance off every month.
Be patient and be committed
Rebuilding credit is a slow and steady process. You need to be committed to your goal, because if you fall behind in your payments, you will essentially need to start the process over again. By having a budget and a plan in place, you’ll be able to build your credit history (and therefore your credit score) back up to acceptable levels, which will help you to reach your financial goals.
Don’t let bad credit be your life sentence. You can make a change, but you need to decide to take the next steps. Give us a call at [PHONE_NUMBER] or get started with our free online debt analysis .