Rebuilding Credit in Canada
Many people find rebuilding their credit way tougher than building it from scratch.
They can’t be blamed.
This process is very long and tiresome.
Rebuilding credit is not an overnight process and takes a lot more time than you would have ever anticipated.
The most difficult part is changing your lifestyle, your spending habit and your outlook on money.
But the good news is, it is achievable.
All it takes is some effort and a lot of patience from your side to reach a good credit score.
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To aid in your credit rebuilding path, we have compiled a list of 5 simple steps for you to follow and give that much-needed assurance to the lenders about your ability to repay the loans on time in the future.
Here they are –
1) Find your credit score and get copies of your credit report
The first step in your rebuilding credit journey is to get your credit score.
This tells you where you stand and how bad the situation is.
Also, get copies of your credit report and start analyzing it.
Your reports have all your basic details including your financial and loan history.
There are chances that you might find errors in your credit report that can harm your credit score.
Understand how these errors had crept in and try to fix them.
Once it has been fixed, within a short period, you might find changes in your credit score.
2) Pay your existing debt
Once you have fixed all the errors in your credit report, the next step is to slowly start repaying your past debts.
If you have a student loan, then pay them on a priority basis.
These loans cannot be discharged through bankruptcy and tend to follow you throughout your life.
Also, they appear in your credit report and can significantly hamper your efforts to rebuild the credit score if you continue to default in it.
There might be certain secured debt like car loans, which can take a backseat as compared to unsecured loans.
3) Bring down your credit utilization
Get to know the credit utilization of all your credit cards.
Experts recommend not spending more than 30% of your credit limit on any card.
Your score will benefit when your credit card issuer reports a constant lower balance to the credit bureaus.
Try to avoid making any major purchases on credit during this time and avoid any new debts.
4) Get a secured credit card
Apply for a secured credit card.
Though not the best path for rebuilding credit, it is an option if your credit card accounts are closed.
These cards require you to deposit an amount beforehand or use your bank account as collateral.
However, many banks charge a very high application fee.
Hence lookout for cards with a low application fee and low annual fees.
Do not forget to confirm from the bank before applying for such cards on whether it will reflect on the credit report.
Many such secured cards do not get reflected in the credit report.
Some banks also convert your secured card into an unsecured card after a year of on-time payments.
Try getting such a card.
5) Become an authorized user
The last step is to ask someone close such as your relatives or your friends to add you as an authorized user in their credit card.
The owner of the account need not give you a physical credit card or even the number.
They can also set a spending limit just to give them peace of mind that you will not misuse their card under any circumstances.
By becoming an authorized user, you will be able to leverage the good credit of your friend or parents.
This credit card will start appearing on your credit report and will improve your credit score.
However, the pace of improvement will be very slow and it might also backfire upon you if your friend or relative starts defaulting.
It is crucial to repair your credit score as it can affect your everyday life.
It can affect the interest rates you pay, the security deposit for rentals or even the insurance rates.
The best part is when your credit score is good, you do not have to depend on co-signers to procure a new loan.
So try to fix your credit score as soon as possible by following the five steps highlighted in this blog.
It might not be an easy journey and may take months, but it is well worth the effort.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?