Rebuilding Credit: Bad Credit Rating Doesn’t Always Just Disappear After a Few Years

It is a very common misconception that bad credit just “disappears” once debts are paid and your credit behaviour improves. However, past credit activity doesn’t just evaporate into thin air with a few months (even a few years) of good behaviour. Rebuilding credit takes some work.

For example, if you file for bankruptcy in January of year one, pay on time, every month, and are discharged in January of year 3, that bankruptcy will remain on your report for 6 years following the date of discharge (January of year 9) - not from the time that you declared.

When it comes to consumer proposals, these stay on for 3 years following payment in full, as does any credit counselling.

Periods of inactivity can also impact your credit rating. For example, if a lender assigns debt to collections, this results in activity, and negative activity at that. However, if you don’t have any activity, this is not necessarily a good thing either.

When it comes to activity, a tip is to continually use credit and to repay that credit on time, all the time. A secured credit card is a good way to do this without being tempted to start relying on credit again or getting back in over your head.

So, if you have bad credit and want to clean it up, here are a few steps you can take to get the process started:

·         Step 1 – Get your credit report and see what it says. These are available online from both Equifax and TransUnion. Some lenders use one, whereas some look at both.

·         Step 2 – Deal with the bad credit debt on your credit report by paying it off. Better yet, settle it for far less than you owe with a consumer proposal to stop interest and reduce overall amounts.

·         Step 3 – Document EVERYTHING. Any time you settle a debt, get a letter re: settlements and arrangements and copies of proof of your action. It can take some time for these payments to register, but keep on top of it.

·         Step 4 – Make sure the credit reporting agency knows these debts have been paid - don’t count on your lender to tell them. Send the above noted documents via registered mail to ensure they reach their intended destination.

·         Step 5 – Begin the process of rebuilding. Consider a secured credit card to show you are committed to maintaining positive history.

When it comes right down to it, the only way to improve a poor credit rating is to pay your debts and allow time to pass to show that your payment habits have improved.

For more information about how to rebuild your credit effectively, call DebtCare Canada today at 1-888-890-0888.