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.
