6 Steps to Re-Establish or Fix Your Credit for Free in Canada

How to Re-Establish or Fix Credit For Free

When you have a bad credit rating, life can be an uphill battle.

We all need healthy lines of credit to survive – or at least, it makes day to day living a lot easier.

This article is intended to help you find a more comfortable place to be if you’ve been experiencing problems with debt.

These days, that’s an easy situation in which to find yourself.

There are ways you can improve your circumstances, however – and you don’t need to sign up for costly programs to do so.

We’re going to look at six steps to re-establish or fix your credit for free in Canada.

Read on for some solutions to common credit problems.

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There are no quick fixes for your bad credit rating, but it’s well worth taking the time to improve it

We’re going to show you how to fix your credit score yourself – but the first thing to bear in mind here is that it just won’t happen overnight.

It can take a long time to re-establish a good credit rating – but it is well worth the effort, and it can even lead to better spending habits.

There’s no quick fix is the point – and if you read an advertisement that promises there is (where you part with lots of your hard-earned cash) – don’t believe it for a second.

The credit reporting system in Canada is sophisticated.

It’s what banks and other lenders use to determine risk when people borrow money – and risk defines the cost of every loan product out there.

It’s not reasonable to think we can hoodwink the credit reporting system, and changing your credit score is going to take some concerted effort over a period.

A Relatively Fast Way to a Better Credit Score

Although this isn’t going to happen overnight, some of these solutions don’t take ages either.

There are steps you can take to raise your credit score fairly rapidly – and some of them are easily achievable, although you will need more than just a pinch of willpower to achieve good results.

  1. Reduce the outstanding balances on your credit cards to amounts less than 75% of your available limit.

This is a straightforward way to improve your creditworthiness in theory – although you’ll need to have a decent plan and stick to your guns for a sustained period to make it happen.

Anyone can do this, and it’s one of the primary ways lenders assess any applications you make for credit.

They’ll look at the credit options available to you – and then examine how much of that you’re actually using.

If you’re pretty much red-lining your allowance – forget it.

Reputable or responsible loan and credit providers aren’t generally interested in putting you in financial trouble – because that means they’re less likely to get repaid.

In other words, yep, their risks are higher, and they’re far more likely to refuse you any more credit in that situation.

When you’re using less than 75% of your credit limits, lenders start to consider you a slightly better prospect.

Dip below 50%, and you’ll be even more highly regarded.

Achieve less than 30%, and you might even get considered a safe bet.

Do this, keep all your accounts up to date – don’t pay anything late – and your credit score will start to bounce back.

Note: It’s well worth mentioning here – don’t forget that credit scoring also determines the product you get offered when you get approved for a loan or credit card.

The higher your credit score, the lower the interest rate you’re likely to get offered.

It’s all down to that risk factor – and loan providers will charge you more if you’re less likely to repay the credit in full.

That means, the better your borrowing conduct, the less that lending will cost.

  1. Get collection entries removed from your credit report asap.

When your account gets passed to collections, that always means bad news for your credit report.

Lenders can see any late payments or defaults which get recorded on your credit report – and as you can imagine, that does nothing for your reputation as a potential borrower.

The only way to improve this is by paying off the outstanding amount and then requesting (nicely) that your creditor remove the references to the collections on your report.

While you’ll need to be disciplined about saving the money to achieve this, it’s going to be worth it – and take reasonably fast effect too.

You can try this measure with utility bills, TV service and phone bills – and even with late parking tickets.

Debts that have gone to collection and weren’t incurred initially as credit get recorded on your report in some instances too.

It’s worth getting up to date with all overdue payments – and then chasing up the results.

  1. You can try and get outdated negative information erased from your credit report.

Any negative entries on your credit report should be, by rights, removed after a certain amount of time – but that doesn’t always happen.

Depending on where you live, that can mean either six or seven years.

If you check your report and find negative entries older than this (credit providers and even the credit reporting agency sometimes make mistakes or just forget to remove entries), you can request that they are removed.

To find out if any of the above issues are affecting your ability to get credit – or seeing you offered more expensive lending products – it’s possible to get a copy of your credit report online.

If you’d like help doing that, or even if you’d just like assistance with the contents of your credit report, please don’t hesitate to get in touch with BankruptcyCanada on (877) 879-4770 (24/7)

Rebuilding Credit Worthiness Can Take Some Time – But it’s Going to be Worth it

In the longer term, there are other strategies for developing better credit – but you’ll need to take the long view and dig in.

One way to motivate yourself is by looking at this like it’s money in the bank.

It essentially is, because you’ll always pay less for credit products when your score is higher.

If what’s holding you back from financial freedom is just a score – it’s time you started addressing that.

Rather than almost instant repairs – as our first three measures were – think of the following few steps as being part of a general rebuilding job.

Here are some things you can do in the longer term that will pay massive dividends for you later.

Figure out precisely how you ended up with a bad credit problem in the first place

When you’re thinking more about your financial future rather than the here and now, it’s good to get some perspective.

Knowing how you got here will help you improve your credit score in the present and avoid hitting similar barriers and problems further down the line too.

What that means is taking a step back and using the information you can put your hands on to examine your bigger financial picture.

Only when you do this will you be able to cast a critical eye over the errors you made – and the things that put you in your current position.

It’s essential when you do this to remember you’re not in the business of being hard on yourself – just of being fair.

This exercise is going to be very useful to you if you don’t beat up on yourself.

You’ll find out a lot about your bad habits, and you’ll also become empowered to prevent future stress.

Sometimes, Credit Problems are Completely Beyond Our Control

Knowing how you ended up with bad credit is one of the first steps to becoming someone with excellent credit.

However, the fact is, any of us can get into a bad situation with debt.

It doesn’t take very much at all for it to happen.

For some of us, that can mean bad habits, but that’s not always the case.

Often, events beyond our control are enough to tip us out of the black and into the red.

Sickness, injuries, sudden unemployment – all can happen without warning and can be impossible to predict or prevent.

When things like this happen, it’s rarely a useful exercise to examine what you could have done better.

It’s better to learn what you can from the whole experience and move on – that’s usually the only way forward and wondering ‘what if?’ seldom helps.

  1. When You Made a Mistake, Think About How You Can Do Things Better in Future – and Start With a Spending Plan

When bad habits are the reason, however, be strong and identify the cause of your issues – so you can move on.

No matter what measures you end up taking to get out of debt, make self-education one of them.

It’s important to try and ensure you don’t repeat the mistakes that got you here.

If you can’t see the wood for the trees at the moment – and we’ve all been there – try getting some financial advice.

Credit counsellors are an excellent source of information, and often, just getting an outside opinion can identify issues and bad habits.

Bad budgeting is one of the most common reasons why good people like you get into bad credit.

It’s easily done too.

Not having a solid plan is the wrong way to start anything – including spending.

A spending plan can help you set and stick to targets.

After all, if you haven’t got any goals or limits, how can you ever tell where you are?

You’re far more likely to get lost financially without a plan.

It’s a great way to make sure you don’t spend more than you bring home too.

For many of us, the word ‘saving’ can seem like some far off, unreachable place – and that’s because many of us don’t know how simple saving can be when it’s part of a broader financial plan.

If you make part of your budgeting about putting a relatively small amount aside every month or week (it’s a great idea to line your pay frequency up with the way you budget), then saving is very achievable indeed.

Savings serve two primary purposes.

Firstly, they’re a way of covering unexpected bills and expenses without turning to additional short-term and often expensive debt.

Secondly, they’re also a way to afford the more expensive things you need in life occasionally, without taking on debt.

All borrowing costs money, and anything you can do to avoid it is positive for your finances.

When it comes to savings, be realistic – but push yourself a little bit.

The best thing about saving is watching your money grow.

That’ll make you think completely differently about your money – and about yourself.

Start with a few hundred if you can, then shoot for different targets: a thousand, two thousand, ten.

Before you know it, you might pleasantly surprise yourself.

If figures like that are not currently achievable – just remember – the more you plan and improve your situation – the more reachable sums like that will be.

  1. Deal with your outstanding debts

Once you’ve got a solid budgeting platform to work off, you’ll be in a position to know how you can afford to tackle your debts.

It’s an unavoidable reality, but for that to begin, you’ll need to start paying things down.

Don’t worry, however – because ridding yourself of debt can be just as satisfying as saving.

You can do this in conjunction with the measure we took earlier concerning your credit lines.

If you’re using 75% or more of your credit limit on a card – then that’s an ideal place to begin, and you’ll be killing two birds with one stone.

Start small and aim to bring each line of credit below 50% before you do anything else.

For motivation, remember that the smaller your debts, the less interest you’ll be paying.

That means you’ll also be quicker paying debts down, saving – or both.

Catch up with any late payments to minimize negative credit report entries

It’s easy to get behind with repayments – and once we do, it gets harder and harder to catch up.

Target anything you’ve fallen behind with and develop a plan to address it.

Often, talking to lenders and credit providers about ways they can help to get you back on track will bear fruit.

If any of your credit providers aren’t prepared to help, talk with a non-profit credit counsellor about finding ways to catch up.

  1. Make your payments as agreed

When you’ve caught up with late payments and started to build an emergency fund – or at least to budget more effectively – you’ll feel a lot better about staying on top of stuff in the future.

With money, the more organized you are, the easier it is to stay that way.

Try to keep things like that for as long as possible – and keep up with all your payments too.

The most significant advantage of budgeting is that you can prioritize things when you need to.

It’s easier to identify what’s available and what’s due when – and you can juggle your finances a bit if need be.

If you have managed to start saving, then you also have emergency funds to fall back on.

The best way to keep your credit report gains from being erased is to be in control of what’s due and what’s not.

Pay everything on time – every time. Set up automatic payments where you can and make sure your bank account can cover anything due.

Leave nothing to error and rely on memory as infrequently as possible.

Bankruptcy, Consumer Proposals, and Fixing Your Credit Rating

If all of your planning and efforts still leave you out of your depth, it might be a case of taking a different approach.

Sometimes, we have so much debt that repaying all of it just isn’t affordable.

No matter how hard we save or budget, interest charges and late payment fees can make it impossible to catch back up.

A credit counsellor can help you identify how viable your situation is – and if catching up isn’ feasible, they can suggest and facilitate ways to address that.

Don’t decide to file for bankruptcy lightly – there are often other ways to deal with debt problems once you’ve got the right advice.

Some people make a different decision when their debts are out of control.

A consumer proposal is another way to deal with unmanageable debt.

That solution can work if you can afford to pay off some but not all of your debts.

If you do decide to consider either a consumer proposal or bankruptcy, it’s essential you talk with a licensed insolvency trustee.

Here at BankruptcyCanada, we’ve been putting Canadians in touch with trustees for decades, and we’re always available to talk on (877) 879-4770 (24/7).

Licensed insolvency trustees are the only financial professionals who can give you unbiased advice about bankruptcy and consumer proposals – and the only people who can file for them on your behalf too.

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