Getting into debt is
often very easy, and when that debt gets out of control it can be much harder
to get out. The consequences of debt, especially when those debt
responsibilities are not being met, can be devastating. Getting financing for a
car, obtaining mortgage financing, or even being approved for a small loan for
incidentals can be extremely difficult, and so getting out of debt is critical
if you want to have a secure financial future. And, not only do you need to
know how to get out of debt, you will then need to know how to rebuild credit.
How can debt impact
your credit? Missed or late payments, too much credit, too many credit checks
and credit going to collections all work towards bringing your credit score
down. Your credit report also reflects any credit activity and so any lending
institutions can easily gauge credit behaviour based on this reporting. Many
debt solutions, such as consumer proposals or bankruptcies can also harm your
credit, but if it has gotten to the point that these debt solutions are where
you turn for help, they can actually be the first step in how to rebuild
credit.
How to rebuild credit: Step 1. Recognize that you may have a financial
problem. If you are at the point where you are living paycheque to paycheque
and have accumulated so much debt that you are only making minimum monthly
payments - even if you make those payments on time - you have a financial
problem. Making minimum payments on credit cards barely covers interest and so
the debt will never be paid off. If you can’t manage minimum monthly payments,
you have a financial problem. If you rely on your credit or payday loans to
make ends meet - even if you are honouring your repayment terms - you have a
financial problem.
How to rebuild credit: Step 2. As noted, the best way to start rebuilding
your credit is to get rid of your debt. A professional debt management company
is the smartest way to do this as they will be able to offer you the guidance
and help that you need to get those debts paid off. Debt consolidation, a
consumer proposal, bankruptcy or a debt settlement might be the answer – it all
depends on your current financial situation.
How to rebuild credit: Step 3. Once you have paid off/settled all of your
debts, you need to attempt to establish your credit once more in order to
repair it. A great way to do this is with a secured credit card. With a secured
credit card, you offer a cash collateral and the lending institution will take
that money and it becomes your credit limit. You then use the credit card as
you would any other – and make sure to make regular payments, never just the
minimum. Also, stay away from payday/cash advance loans. These do not report to
your credit report and can start a vicious borrowing cycle that can be hard to
get out of.
Rome wasn’t built in a
day, and rebuilding your credit won’t be either. It takes time, but knowing
where to start is the first step.
For more information about how to rebuild credit, or to find out about possible debt solutions, please contact DebtCare Canada today by calling 1-800-890-0888.
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