Personal Debt Solutions Canada - Repair Your Credit

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How to Repair Your Credit

Ways you can improve your credit rating

By now you know that you need to have a good credit history to get credit, the challenge is, how do you establish a good credit history if you can't get credit in the first place? If you're just starting out on your own and have been living at home, or been in a long term relationship where the finances were handled by your partner, or you've had some credit problems in the past, you are most likely finding it difficult to get a mortgage or a car loan. The following are ways you can take control and move towards improving your credit rating.

  • 1. Check yourself out. Call the credit bureau Equifax at 1-800-465-7166 or go online to get a FREE copy of your credit report, before you even apply for credit. Knowing what your credit report says about you before applying for credit is important for maintaining a good credit score.

  • 2. Pay your bills on time. It sounds simple, but waiting to pay until reminders are sent has a negative effect on your credit report, every missed day is recorded on the credit report and affects your overall score. You might be shocked to know that even if you make the payments in full, your overall score is still adversely affected. A history of late payments is not something that future creditors are going to view in a positive light.

  • 3. Be able to show stability in your employment and residence. Most creditors prefer to see that these have remained consistent for at least one year. Creditors will want to know that you have a steady source of income and in the event that your payments go into arrears, they want to know where they can find you.

  • 4. Start small and within your means. If you haven't established a credit history don't apply for a large loan, mortgage or line of credit. You'll be more successful in getting an RRSP loan and paying it off with in a year a win/win for your personal finances now and in the future, provided you don't cash in the RRSP.

  • 5. Another option is to apply for a secured credit card. You will have to deposit a predetermined amount as collateral. These funds are not used in lieu of payments, they are simply held in the event of default. Check with your financial institution to get more detailed information on the products they offer.

  • 6. Establish an emergency fund. In the event that you lose your job or become ill and are unable to pay your bills, you should have enough savings to cover basic household bills and expenses for two months. Remember, tough times can strike at any moment, so being prepared is important.

  • 7. Stick to a single credit card. By limiting your purchases to a single card you will be able to keep your spending in check and you'll build more history with a single creditor. The other point to consider is that you want to keep your debt load manageable. It is easy to become confused as to how much you owe when the debt is held by several different creditors.

  • 8. Don't hide the Problem. If you find yourself in financial difficulty and unable to pay the debts you currently owe, don't try to hide from the problem. Contact your creditors to advise them why you are falling behind and that you have every intention of paying your debts but may need some leeway. If you are unable to pay your monthly bills as they come due, contact a trustee in bankruptcy in your area. They will be able to discuss all of your options.

Fixing and Maintaining your Credit Rating - Common Traps and Pitfalls - By Ian Penney, CA, CIRP, Trustee in Bankruptcy

Here is a typical scenario:

In my early twenties, I had a collection agency calling me on a regular basis. They called me all the time, at home and where I was working, sometimes 15 or 20 times a day. To stop the insanity I ended up unplugging my phone for long periods of the day and installing an answering machine so I could screen my calls. They even called my former roommates, my parents, and people with the same last name as mine, telling them that I didn't pay my bills and even tried to convince them to pay the bills for me. Until I had finally paid them in full, the collection agency made my life very stressful and depressing.

It was never my intention to not pay my bills. I had worked a part-time job in retail for several years in my teens while I was going to school and was offered a store credit card with a $1500 limit. Being young, I didn't see the danger buying products when I didn't have the money to pay for it and I quickly racked-up the card by purchasing discounted merchandise from the store I was working in. I was given a new opportunity to make more money with less hours, so I changed my employment and forgot to pay-off that store credit card. I made small payments every now and then at first, but it wasn't long before I completely forgot about the card and went blissfully about my life. It wasn't long after, I moved when I attended school full time, the bills stopped getting to me and the debt was forgotten completely (Another important lesson learned, keep your contact info up to date with all your creditors!).

A year or so later, I had the unhappy pleasure of a collection agency calling to collect the $2,000+ dollars that I now owed. As mentioned before, the phone calls were incessant and I was desperate to stop the harassment, so I ended up dipping into my student loan money to pay off the debt. Money was tight that semester but luckily everything worked out in the end... and I learned some very valuable lessons along the way.

It was a painful and expensive life lesson to learn. In addition to the several hundred dollars I had paid in interest and the shame and embarrassment I endured, it also took me many years of prudent money management to get my credit rating back on track. Ignoring a credit card balance or any bill for that matter is a credit no-no that I simply didn't understand (I blame it on the ignorance of youth), but maintaining a good credit score takes more than just paying all your bills on time every month.

Keeping your credit record clean is important when trying to rebuild your credit rating. Click here to learn five other things that can damage your credit rating