Whether you’ve been turned down for a loan or are recovering from a bankruptcy, you may be looking for solutions to rebuild your credit. While there is no easy fix, you can, over time, repair your credit history and be able to borrow money at reasonable rates again.
Before we talk about how to repair your credit, let’s look at what harms your credit score. Knowing this is important so that you can avoid damaging your credit in the future. Your credit can be negatively impacted if you:
- often miss payments or make late payments;
- repeatedly go over your credit limit;
- have too much credit that you have maxed out;
- stop making payments all together;
- have a debt that has been referred to collections;
- declared bankruptcy, filed a consumer proposal or made a debt management plan.
Now that we know what can harm your credit, here are some strategies you can follow to rebuild your credit over time.
1. Pay All Bills On Time
The best way to improve your credit is to show a good payment history.
2. Review Your Credit Report
Credit repair starts with you doing a credit check on yourself. In most cases you can obtain your own credit report for free, or for a nominal charge. There are two main credit bureaus in Canada:
Review your credit report for any errors or negative comments.
An error may include a debt that you have already repaid. A negative comment may result from a department store credit card that you stopped using ten years ago, if it had a $10 balance owing, it may still show up on your credit report.
If you find an error, contact the credit bureau and offer proof to have the error removed. If you found an unpaid balance, pay it off, then request that your credit report be updated.
3. Save Money
Having cash in the bank is the best strategy to managing your money better. While savings don’t show up on your credit report, having an adequate emergency fund is important so you don’t rely on credit or miss payments again. Savings can also be used as a down payment or a security deposit when you are borrowing money. This may reduce the risk of lending you money and lower your interest rate.
4. Consider A Secured Credit Card
Another way to improve your credit history is by showing you can be responsible with debt repayment. If you have previously been denied a loan, you can consider applying for for a secured credit card such as a Secured Visa Card. Again, it’s not the card that gives you good credit, its how you manage the card. You must show that you can pay your balance in full every month to re-establish good credit.
5. Don’t Make Multiple Applications for Loans
Applying for debt too often, or making multiple applications if you are turned down, will show up on your credit file and potentially lower your credit score. Apply only for credit you can afford to repay. If you have been turned down, ask your lender why, then take some time to repair those issues before you apply again.
6. Use Credit Wisely
As we saw in the list of items that harm your credit score, the best thing you can do for your credit score is to use credit wisely. Use your credit card to make payments, not as a source of borrowing. Pay off your balance in full, and on time, each and every month.
If you still have debts and are looking for ways to re-establish good credit, your credit report will only improve by formally dealing with your debts. The best way to start is to review your debt relief options. You may need to file a formal proposal to your creditors, or consider consumer credit counselling and a debt management plan.