Monday, 13 May 2013
How Can I Fix My Credit?
We all know that bad things happen to good people. No one wakes up in the morning wanting to damage his or her credit. Thousands of Canadians have damaged credit, so if you are wondering “how can I fix my credit”, know that you are not alone and fortunately it can be done - and fairly quickly.
To all those who want the answer to the question “how can I fix my credit”, here are some tips:
Before you can repair credit you must deal with any past problem credit. First of all, the old adage that bad credit, even bad credit with unpaid balances, will simply fall off the credit report after 7 years is a myth and banking on that happening may leave you disappointed in the end. Before you can repair your credit you must get rid of unpaid balances associated with bad credit. Easier said than done, right? Well, actually it isn’t. There are many programs available to consumers who have outstanding balances on bad credit where you can make settlements at significantly less than what you owe and freeze the interest accruing. Debt consolidation is another realistic option. Leveraging home equity or having a co-signer can enable you to consolidate debt, paying off the defaulted balances.
Once the bad credit balances are dealt with it’s time to get to work and rebuild. The two best products that can be used to accomplish this are a secured credit card which reports to your credit report coupled with a secured loan like a GIC which will report to your credit and enable you to work towards an asset. Avoid credit products that bear sky high interest and don’t report to your credit report like payday loans.
Once new credit is arranged to rebuild, how you manage the new credit will be vital. Many misguided consumers think that when they get that secured credit card they should use it and make monthly payments to rebuild. Unlike installment credit (a loan), revolving credit can be good for your credit or ruin your credit depending how you manage it - even if you make your monthly payments on time. If you run up a large balance on your secured credit card and it is close to, at, or over the limit, this will negatively impact your credit. A good rule of thumb is to only use what you can pay in full each month and don’t exceed 50% of your credit limit as a balance. This means that if you have a secured card with a $200 limit, keep your monthly spending on the credit card under $100 per month. How you manage even the smallest credit card is an indicator to future creditors of whether or not you are a credit risk.
What to avoid: avoid store cards like furniture cards. All too often people buy furniture and get financing on a card offered through the store. If you buy $2,000 worth of furniture and then they get you approved for $2,000 worth of financing – even if it is interest free and even if there are no monthly payment obligations - this will have the impact of a maxed out credit card on your credit report. Avoid making more than 4 applications for credit in any one given calendar year. Credit applications are reported to your credit report and too many will reduce your credit score and make you appear as a “credit seeker” to new creditors. Be careful because many companies will try to look at your credit: employers, banks when opening accounts, gyms, insurance companies, etc. Generally speaking, if you are about to go into a contract with any organization and you are being asked to sign something, read the small print – it could include your permission to access your credit report.
Now that we have addressed the question “how can I fix my credit”, let's get started! Contact DebtCare Canada today at 888-890-0888 or visit www.debtcare.ca.