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 www.debtcare.ca.