Wednesday, 25 July 2012

How to Rebuild Your Credit Blog Series – Part 4 Having Too Many Credit Products and Too Much Debt

This is the fourth blog in a 4 part blog series about how to rebuild your credit. When you accumulate too much debt or have too many credit products, this can harm your credit. Credit card companies are aggressive, using marketing points programs, promotion and incentives to entice consumers to take out a credit card. Over time, it is not difficult to find yourself with several different credit cards with balances that are accumulating interest.

If you want to know how to rebuild credit and you have several credit cards, your first step will be to close some of them. Some financial advisors will tell you that closing credit cards will actually harm your credit, when in fact in the long run getting rid of credit cards will increase your credit score. Having one or two credit cards is sufficient to have good credit so if you have more than that, closing some of them is a good idea. How you go about closing credit cards is the key.

Firstly, closing all of your credit cards is not a great idea unless it is part of an overall plan to settle out your debt, and then taking out a single card to rebuild your credit. Simply closing down all of your credit cards without a plan to have a credit item to rebuild credit will reduce your credit score. If you have accumulated a lot of credit card debt and are working with a company to get rid of your debt with a plan to rebuild, then naturally it will involve wiping the slate clean (clearing and closing all credit card debt) and then starting fresh. In the absence of a financial plan to rebuild, closing all of your credit cards may reduce your credit score because you will not have credit reporting to your credit report. This is necessary to build your credit score because it shows new potential creditors, mortgage providers for example, how you pay your monthly obligations.

Also, do not close out credit cards that have balances. If there are balances on credit cards you should first deal with the balances either by paying them off, settling them, or including them in a financial program to get out of debt. Once the balances are cleared, you can go ahead and close out the card. If you close cards when you have balances the result will be a credit card that has a balance and a zero credit limit and this will have the same negative impact on your credit report as if you have a credit card that is maxed out (see part three “Credit Balances That Are At, Close to or Over” in our four part blog series How to Rebuild your Credit).

Additionally, if you plan to close out your credit cards make sure you write to the credit card provider clearly indicating that it is you who wants to close out the credit card balance. When a creditor closes your credit card they can report one of two things to the credit bureau: “credit limit closed by consumer” or “credit limit closed by credit grantor” – you do not want the latter reported on your credit report. Sending a letter will enable you to prove to Equifax that you in fact closed the card in the event that the credit does not report who closed the card accurately.

This may all seem like good advice, but if you are drowning in credit card debt, closing credit cards right now is not really an option without a financial plan. Learning how to rebuild your credit takes time, as does dealing with accumulated credit card debt. There are fast and effective methods to deal with debt and start rebuilding your credit, but in most cases they will involve the assistance of a financial professional who can guide you out of your debt with a plan.

If you would like more information about how to rebuild your credit or if you are in debt and need some guidance, please call DebtCare at 416-907-2582 or visit

Wednesday, 18 July 2012

How to Rebuild Your Credit Blog Series – Part 3 Credit Balances That Are At, Close to, or Over

This is the third part in a four part blog series about how to rebuild your credit. Learning how to rebuild your credit begins with learning how to manage it. One major impact to your credit score is when you have credit card products that are close to, at, or over their limits.  

Many people think that the best way to build credit is to get a credit card, use it, and then make monthly payments. This is a dangerous proposition. How you manage each credit card will impact your credit score either by either increasing or decreasing it.  

Learning how to rebuild your credit means understanding how your credit habits can result in a decrease to your credit score. As a rule of thumb you should try to ensure that your credit card balance does not exceed 75% of your limit. If it does, it will not only reduce your credit score but will also trigger a message on your credit report that says “proportion of balances to credit limits are too high”. Even if you have 10 credit cards and only one of them is close to, at, or over the limit, it will negatively impact your credit score and trigger the above mentioned message on your credit report.

If you have had bad credit in the past and are trying to figure out how to rebuild your credit you may see a secured credit card as one option, and financial professionals will often suggest this as a way to rebuild credit. When you take out a secured credit card, you will send the credit card company a deposit and then they send you a credit card with a limit equal to or less than the deposit you sent them. When you do this, that credit card has the potential to rebuild your credit. Re-loadable credit cards are not secured credit cards and do not rebuild your credit.

When trying to rebuild your credit, if you take out a secured credit card it is likely that your secured credit card will have a smaller limit, usually $200, $500 or $1000. We discussed the issue of how much of an impact it can have to your credit if you have a balance on even one credit card that is close to, at, or over your credit limit. This is one of the most common mistakes people make when they take out a secured credit card. Capital One is a company that offers secured credit cards and often a first time secured credit card with Capital One will have a low starting limit of a couple hundred dollars. Even if the limit on your secured credit card is only $200, do not carry more than 75% of your limit as a balance. For example, if your secured credit card has a limit of $200, do not run a balance higher than $150.

In other situations, when people begin nearing or going over their credit limits on credit cards, it is a sign of a deeper financial problem. It is very easy to get in over your head with credit cards. You may have a few credit cards and one month you may use one to make an expensive car repair, and then another month you may use another when you go on vacation, and then another month you may use another one to make repairs in your home. Before you know it you can have several credit cards with high balances and when interest begins to accrue they can become very difficult to pay off. Minimum payments barely cover interest and if you get caught in a cycle of only being able to afford the minimum payments it can take many, many, years to pay them off.

If you want to know how to rebuild your credit and you have credit card debt and are only making minimum payments right now, it may be time to make some choices that will enable you to rebuild your credit. Sometimes it’s hard to know which choices are the right ones when it comes to dealing with your debt. There are many resources available to people who struggle with debt. Once you have dealt with your debt and are beginning the process of rebuilding credit, your best option when using a new credit card that is meant to rebuild credit is to use the card for limited expenses, such as gas, and only use as much as you can afford to pay off in full in a given month.

If you would like more information about how to rebuild your credit, or if you are in debt and need some guidance, please call DebtCare at 416-907-2582 or visit

Monday, 9 July 2012

How to Rebuild Your Credit Blog Series – Part 2 Late Payments and Defaults to Creditors

This is the second part in a four part blog series about how to rebuild your credit. If you have made late payments on your credit card or have defaulted on debts to creditors this will have a severe impact on your credit that will not resolve itself until you deal with the debt you owe. Many people think that late payments and defaults on debt obligations simply disappear after 7 years, but this is not the case. 

If you want to know how to rebuild your credit you will need to understand “tradelines” and how long items remain on your credit report. There are two different areas where credit is rated on your credit report. Your credit score, also known as your beacon score or fico score, is a number between 300 and 900 which scores your entire credit situation. 300 is the worst credit score and 900 is the best. Most banks like to see that individuals have a credit score of 680 or higher.

The second area on your credit where you are rated is on “tradelines”. Each loan or credit card provider will report on their own tradeline how you have paid them. The tradeline will show the name of the creditor, the starting balance of the credit product, your repayment terms, your current balance, the number of times you have been 30, 60 or 90 days in arrears and an overall rating. If it is a credit card, there will be an R or an I with a number beside it. R is used for credit card and line of credit products and stands for revolving because credit cards allow you to constantly borrow against them. I is used for loans and stands for instalment because loans are repaid in equal monthly instalments.

You may have heard people say that they have an R1 or an R9 on their credit report. The number beside the letter represents the current standing of the account. 1 means up to date, 2 means 30-60 days in arrears, 3 means 60-90 days in arrears, 4 means 90-120 days in arrears, 5 means 120 days to 150 days in arrears, 7 means you are in credit counselling, 8 means that you have had security repossessed and 9 means that the account is a bad debt (6 months or more behind). When you have an account showing a number from 2-5 beside the letter, if you pay the account up to date the rating on that tradeline will be restored to a 1, however the record of the late payment will still show. If your rating falls to a 9 it will remain a 9 until 6 years from the date that the creditor reports that the debt was settled or paid in full.

If you want to know how to rebuild your credit, a fast trick will be identifying how bad your credit actually is. If you have a lot of debt, habitual late payments, or 9’s on credit items, then looking for ways to consolidate or settle your debts is your fastest road back to having good credit.

Simply leaving defaulted-on items on your credit will not mean that they will magically go away by themselves. They will remain there for 6 years from the last date that the creditor reported to the credit reporting agency that you owed the money.

There are fast avenues that you can take to rebuild your credit depending on the severity of the damage to your credit and the amount of debt you owe. For example, if you leverage a consumer proposal to settle your debt, a consumer proposal is removed from your credit report 3 years from the date it is paid in full, which can in many cases result in the removal of a 9 rating faster than if you paid the debt in full. In addition, when 9 ratings are present (and where funds are available) you can often make a direct settlement with your creditor for much less than you owe which makes good sense considering that once a 9 rating is present whether you settle the debt or pay it in full the 9 rating will remain on your credit for the same amount of time.

Figuring out how to rebuild you credit will begin with requesting your credit report so that you can know what is on it. From there you can work with a financial professional who can come up with the fastest solution to deal with your debt and rebuild your credit.

For more information about how to rebuild your credit or if you are in debt and need help, please contact DebtCare Canada at 416-907-2582 or visit

Wednesday, 4 July 2012

How to Rebuild Your Credit Blog Series – Part 1 Too Many Applications for Credit

This is the first part of a four part blog series about how to rebuild your credit. Many people don’t realize how important credit is until it is damaged. Once credit is damaged, it takes a long time to rebuild, and if you want to know how to rebuild your credit the first thing you will need to know is what is in your credit report. If you want to rebuild your credit, the first thing that we recommend is to request your credit report from Trans Union and Equifax. Trans Union and Equifax are the credit reporting agencies that your creditors report your credit habits to. 

The next thing you will have to do if you want to know how to rebuild your credit is to know the top four things that will reduce your credit score. These include late payments and/or defaulting on a credit card payment, too many applications for credit, having credit card balances that are close to, at, or exceeding the credit limit, and having too much credit or debt. 

The number of applications for credit speaks to the number of times in a given calendar year that you have applied for credit. Generally speaking, it is ok to apply for credit 4 times per year. Many people don’t realize that when you open a bank account, apply for insurance, etc., the company may pull your credit report. Companies are supposed to have you sign a consent form when you apply for services, and you are required to give them permission to pull your credit. With that said, sometimes people apply for services online or over the phone and it is not made clear by the company that they will have to request a credit report in order to provide services. Other examples of situations where someone might want to pull your credit include when you are applying to rent an apartment or when you are applying for a job. 

Another instance where your credit may be requested is when you apply for a credit product (such as a credit card) and you sign the terms and conditions document. Included in the document may be a provision that the company is allowed to pull your credit in the future to qualify you for future credit products, or in the event that you default on your payments. We have seen instances where a creditor has pulled a consumer’s credit report many times per year just to see if they qualify for a credit limit increase or other credit products. If you request your credit report and notice that a company that you have a credit product with has requested your credit report many additional times, you may want to consider sending them a letter telling them that they no longer have your permission to access your credit report without fresh written consent.

If you have defaulted on a debt to a creditor, this can result in multiple inquiries being made about your credit by both your creditor and the collection agencies that they have hired to collect the debt from you. This is then used as a source of information to find out how to reach you, who you owe money to, where you work, and more. They will continue to pull your credit until you have made satisfactory arrangements with them.

If you have requested your credit report and see more than 4 inquiries within the last calendar year, this will reduce your credit score and you should stop applying for credit for at least 12 months from the date of the most recent inquiry. If the inquiries relate to defaulted debts, we recommend working with a financial professional to address the debt on your credit because until you do so, not only will the inquiries from your creditor and collection agencies continue to harm your credit, but you may also end up with derogatory ratings and even collection items.

If you would like more information about how to rebuild your credit or if you have a financial problem that you need help resolving, please call DebtCare at 416-907-2582 or visit