Simple Steps to Rebuilding Your Credit

When you have bad credit, many doors are closed to you. A poor or bad credit score is one that falls at or below 619 on the Beacon Score. You might not qualify for loans, or have to settle for less-than-desirable terms that cost you thousands of dollars over the loan’s term.

Many lenders are also wary of those with a credit rating also known as a Beacon score of between 620 and 679. You might qualify for a loan, but you won’t get the best terms; instead, you are likely to pay a higher interest rate, costing you hundreds – or thousands – of dollars over the life of the loan. Until you achieve a good score of 680 to 739, you will likely pay the price. And if you want the best terms on some loans (particularly mortgages), you need to achieve an excellent credit score of 740 or more.

Most of us could use a little improvement in our scores. If you have average credit, you might want to bump it into the “good” range. Someone with good credit might want a credit score upgrade to an “excellent” rating. And, if your credit rating is poor, it’s especially important that you work to improve your situation.

Rebuilding your credit, whether you have been through a bankruptcy, consumer proposal or whether you have made mistakes with your finances, doesn’t have to be complicated. As long as you have patience and create a plan, you can rebuild your credit and eventually obtain an excellent credit rating.

Check Your Credit Report
Know where you are at financially. Check your credit report to see exactly where you need to improve. Do you have a lot of missed or late payments? Is your debt utilization too high? These clues can help you figure out what items to tackle first. You can order your credit report directly from each of the two bureaus:
* Equifax
* TransUnion
Check your credit report for errors and fraudulent accounts as well. Errors can bring your credit score down. If something is inaccurate, dispute it, and fix the problem. Each of the reporting agencies offer information on disputing inaccurate information. This can be one of the easiest ways to give your credit score a little bump higher. Don’t forget to bring fraudulent accounts to the attention of the credit bureau and have them removed. If you are concerned about fraudulent accounts and identity theft, can place a freeze on your credit to avoid further identity theft problems. Each bureau has its own procedures, and you can learn more about how to place a credit freeze on your report by visiting the bureaus’ web sites. Understand that a freeze needs to be placed with each bureau individually.

Arrange to Catch Up on Your Payments
Payment history accounts for the largest factor affecting your credit score. If you are behind on your payments, you won’t be able to improve your credit situation. Try to bring all of your accounts up to date. If you can’t afford to bring everything up to date at once, you can contact your creditors and work out a payment plan. Be up-front when you contact your creditors, explaining your situation and letting them know that you want to pay your obligation. Let your creditors know how much you can pay, and how long you expect to pay it. In many cases, it’s possible to work out an arrangement that all parties can live with.
You can also seek the services of a legitimate credit counseling agency to help you create a plan. Credit Counseling Canada -  has some good information on managing your debt, contacting creditors and finding accredited credit counselors.

Pay Your Bills on Time Moving Forward
Going forward, pay your bills on time. This includes non-credit bills. Missed utility payments and late rent payments can be reported to the credit bureaus. Because payment history is so important, establishing a reliable pattern of timely payment is vital to rebuilding your credit. At the very least, you want to avoid reports that you are missing payments, or paying habitually late. Consider setting up automatic withdrawals for the minimum amounts in order to avoid missing payments in the future.

Try to Avoid Closing Credit Card Accounts
When possible, avoid closing credit card accounts. The longer your credit history, the better your score. However, if you are very far behind in your payments, you may not have a choice. A payment plan may require you to cancel your credit card. If possible, though, keep your older accounts so that you have a substantial credit history on your side. If you're at risk of having your account closed by the credit grantor or you feel you must close your card, initiate the process yourself by contacting the credit card company and have them close it at your, "the Customers Request" this reflects more favourably to lenders and other credit grantors when reviewing your credit report in the future.

Pay Down Debt
The second most important factor in your credit score is credit utilization. Your credit utilization is a measure of how much debt you have. It is expressed as a portion of the available credit on each credit facility you are using. If you have a total credit availability of $10,000, and you are using $7,500 of it, your credit utilization is 75%.
If you are using a great deal of your available credit, it can count against you. Create a plan to pay down your debt a little faster. Honestly evaluate your expenses and cut back. Use the money you save to reduce your debt. Try to get your credit utilization down to 30% or less. At the very least 60%. If you can reduce your debt, the credit utilization portion of your score will improve and help your credit overall. Another strategy for reducing credit utilization on a single credit card is by taking out a second credit card and transfer a portion of the balance using balance transfer promos by other credit card companies. This will help your utilization score while you're paying down your credit card balances. The additional credit facility will also help build your credit history provided you follow these steps for rebuilding your credit. Failure to do so could actually compound any negative impact on your credit history.

Use a Secured Credit Card
One of the best ways to quickly build a payment history is to use a credit card. A secured credit card can help with this step if your poor credit precludes you from qualifying for a “regular” credit card. A secured card requires that you have equity in your home linked as collateral or a security deposit with the credit card issuer. Because the money is already there, it is easier to get approval for a secured card — especially when you have poor credit. In either case, your payments are reported to the bureaus every month, so it makes a big difference in showing that you pay regularly — and on time.
An unsecured credit card carries more positive weight, but you might not qualify for an unsecured card right now. If this is the case, begin using a secured credit card. Double-check to ensure that the card is truly a credit card. Prepaid debit cards look similar, but they are not the same thing and your payment history isn’t reported to the credit bureaus. Ask the secured card issuer if your payments will be reported, and only use a card that will report to bureaus.
After a few months, ask if your secured card can be “upgraded” to an unsecured card. If you stay within your balance, and make your payments on time, it should be possible to transform your secured card into an unsecured card. This will also give your credit score a bit of a boost.

Remember, though, that any credit card isn’t an excuse to spend more money. Whether you get a secured card or use an unsecured card, getting a card just to “free up” more money that you don’t actually have to spend out of control won’t help you in the long run. You have to keep a tight rein on your spending. If you can’t change your habits so that you are in control of your spending, don’t get a credit card, secured or unsecured.
(Download my HT Secured Visa Application)

Obtain an Installment Loan
Now that you have a secured credit card and are on your way to improving your payment history, you can try to obtain other loans. Part of your credit score is based on the types of account you have. There are two main types of account: rotating and installment. A rotating credit account is like a credit card or a home equity line of credit, where you have an available limit and you free up more funds as you pay down the loan. An installment loan has a set term and a set payment. Auto loans and mortgages are installment loans.
It’s important to be careful with this step, though. If you apply for too many loans, it can damage your score. Instead, you need to plan your credit applications carefully. Start with a small installment loan. You might be able to get a small, low-balance installment loan from your bank. It might also be possible (if you are looking for a car) to get an inexpensive car from a dealer that specializes in customers with poor credit. Your small loan will probably have a relatively high interest rate, so plan to borrow a small amount, and keep the loan term short.
Your installment loan will show diversity in your account types and help your credit score. As you apply, though, keep it targeted. If you shop around, do so over the course of a few days, and your inquiries will be clustered together and considered one inquiry.


Debt Consolidation Mortgage
Sometimes life events can cause you to get into a position where you may have maximized credit balances on several high interest rate credit cards and payments, even keeping up minimum payments can be overwhelming. Rather than being late or defaulting on payments altogether consider a debt consolidation mortgage to ease the burden of high interest payments. If you own your own home and you have built up some equity, you may be able to tap into this equity either through refinancing or a second mortgage to payout the higher interest card cards. Interest payments on a secured mortgage loan are typically a fraction of what they are on a credit card. The reduced payments will help you make payments and at the same time help build your credit history if done correctly. (Apply free, online for a debt consolidation mortgage loan with me)

Maintain a Current Credit History
When many people first attempt to start rebuilding their credit they make the mistake of cancelling all their credit cards and paying off all loans so they have no credit at all. This strategy actually has a negative impact when applying for future credit.
Try maintaining at least two active facilities of credit, i.e.credit cards, consumer loans. in addition to your mortgage, three is better. These are known as Trade Lines on a credit bureau report. Loans and credit cards for a financial institution are always best for bettering your credit score.
When it comes to applying for a new mortgage or refinancing an existing mortgage, lenders not only look at credit scores but the number of active trade lines you have with a 12 month or more credit history. You may have a great credit score but if you haven't any recent credit history you risk the likelihood of being turned down for a mortgage or at the least paying a higher interest rate.


Practice Good Financial Habits
It can take 60 to 90 days or longer for you to start seeing improvement in your credit score. In some cases, depending on how bad the situation is, it can take two or three years to see solid improvement to your credit history. As a result, it’s important to change your financial habits so that you reduce the chances of poor credit in the future.
Develop the good financial habits of living within your means, setting aside money in your emergency fund, and saving for the future. That way, you’ll be less inclined to skip payments, and you’ll have something to fall back on if you run into financial trouble. Keep with the good habits you formed while rebuilding your credit, and it will be easier to maintain your new, better credit history.


Rebuilding Your Credit Is Worth Your Patience
Follow the steps listed above, and you will be well on your way to a credit score of more than 700. Don’t forget to show patience, though. Credit improvement doesn’t happen overnight. Depending on how bad your credit is, it can take years to achieve excellent credit. But, if you keep at it, you will be rewarded with better rates, and thousands of dollars in interest savings.

Banks turning you down? Creditors on your back? Contact me about debt consolidation solutions that work for you.


Steven Porter is a licensed Mortgage Agent with Mortgage Architects
Steven can be reached through his website at www.1800Mortgages.ca or calling 1-905-875-2582